FINC3600 Finance in Practice S1 2022 Project 1: Corporate Finance Brief
WACC for Main Business Activity
Capital Structure
Scope of Company’s Operations
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Corporate Finance
Environmental Social and Governance
Debt Financing & Cash Management
Payout Policy
February 21, 2022
Project Learning Objectives
By completing this assignment you will:
▪ Learn to apply corporate finance concepts and techniques from past finance courses in a realistic business setting.
▪ Communicate complex financial reasoning to a diverse audience, both in writing and in person.
▪ Gain insight into how corporate finance teams work and the effective operation of collaboration and peer review in a team environment.
▪ Gain insight into synthesising corporate finance theory and analysis of market data into corporate finance advice.
▪ Work effectively in an online environment.
Project Learning Activities
By completing this project, you will:
▪ Integrate corporate finance theory with corporate finance practice.
▪ Work in a project setting with team members in a cooperative and collaborative fashion. ▪ Develop and peer review financial models.
▪ Develop and peer review executive briefing reports.
▪ Develop and peer review board level written presentations.
▪ Present and communicate in senior executive and board settings.
Unit Learning Outcomes
At the completion of this unit you should be able to:
▪ LO1. demonstrate and integrate finance knowledge, concepts, and principles in a range of business contexts.
▪ LO2. identify, analyse, and solve business challenges reaching conclusions using fundamental concepts, principles and knowledge from the finance arena.
▪ LO3. communicate effectively and professionally using a range of communication modes in business contexts.
▪ LO4. recognise the need for, locate, evaluate and use information effectively.
▪ LO5. use different strategies to explore opportunities and construct new ideas, solutions, or
▪ LO6. evaluate issues relating to business ethics, sustainability and social responsibility in
addressing business challenges.
▪ LO7. make a positive contribution to a team-based structure.
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This assignment is a group activity. Students will be asked to form teams through Canvas (see Canvas announcements for details and updates). These teams will be confirmed during the Week 3 workshop. You will work in this group for the remainder of the semester (Weeks 3 through 12).
You are performing the role of an independent external corporate finance advisory team whose client is the CFO of the company that you have selected to be the subject of this project.
Your task is to provide corporate finance advice to a public company board. You will be applying your judgement and knowledge of corporate finance theory to live market data to provide the board with insights and recommendations.
It is recognised that you do not have the hands-on experience of corporate finance advice, but you should use the case study to explore the experience of developing such advice. Please remember that the corporate board deals with substantial issues and that your analysis and communication should reflect this.
Your task has been broken down into the following steps:
Steps When
Assessment
1 You will begin researching a publicly listed company while working online via Zoom. Review and complete the Preliminary Research Checklist document available on Canvas. You will find the resources on the Researching Companies and related Canvas pages helpful. This allows for effective participation in a “brain storming” session with your team as assigned / confirmed in the Week 3 workshop.
2 Review the project brief and the Persuasive Communication Handout. Complete / finalize the Preliminary Research Checklist document available on Canvas to allow effective participation in “brain storming” in the workshops in Weeks 3 and 4. Be sure that you have thoroughly reviewed the Canvas support materials and videos for each brief topic.
Weeks 2,3,4
3 Team assignments are finalized. Select comparable companies as a team. Allocate topics / issues covered by the brief to team members.
5 Analyse and evaluate the areas discussed in the project brief.
Individual
Individual
Develop and maintain a project plan. Weeks 3-7
Individual
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Prepare team and individual CFO briefing papers in line with
suggested formats. Depending on team size you will each cover one of the six specific areas where advice has been requested.
▪ Group collective task: The group must undertake a team analysis of the scope of the company’s operations (Topic 1). This team topic report is submitted by the group.
▪ Individual member task: Each group member selects just one of the remaining topic issues and takes primary responsibility for that CFO brief. This individual topic report is submitted individually.
▪ Group involvement: Participate in the initial brainstorming meeting and peer review of all CFO briefing content prior to submission. The scope of operations review is done (and submitted) as a team.
09:00 am 28/03/2022 (Week 6)
Due Monday
Individual
7 Based on your six CFO briefs and revisiting your analysis using the feedback you received, identify your most important findings and recommendations to be presented to the board. To the extent that recommendations are made, the broader corporate finance implications should be explained (for example if a divestment were recommended, how would the realised funds be used and what are the implications for capital structure, payout and debt policy?)
Individual
8 Prepare the slides and appendices for the board presentation which summarises the most important findings of your work including recommendations for future action.
Due 09:00 am Monday 11/04/2022 (Week 8)
9 Present to the Board a summary of the most important Week 8 findings of your work including recommendations for future
action. Details of presentation times are provided on Canvas.
Group and Individual
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Task Assessment
Your task will be assessed as follows (given as a percent of the total unit marks):
5.0% 5.0% 5.0% 15.0%
5.0% 10.0% 3.0% 12.0% 30.0%
Participation (team contributions) is 5% per project and will be reviewed and assessed by facilitators during project workshops using the following scale:
Based on the categories above you are allocated 0, 1, 2, or 3 points in the relevant meetings. These are then summed over the relevant weeks and scaled to an overall mark out of 5 points for project participation.
When working online with your team it is very important that you keep your video on and your microphone live (mute only as needed). This makes it easier to engage effectively with your team members. It also means that the facilitators are aware of your engagement and contribution. Failure to have your camera turned on may mean that the facilitator is unable to recognize fully your contribution to the class session.
Some things you can do to benefit your team and aid in your assessment when working with facilitators are:
• Ensuring that you are an active contributor
• Asking insightful questions
• Encouraging participation by others
• Summing up key discussion points as appropriate
Participation
CFO Briefing Paper
Slides for Board Presentation
Oral Board Presentation
Individual
5.0% 3.0% 7.0%
Did not contribute at all (e.g. camera off during online facilitation)
Quiet contributor – limited interaction
Active contributor – contributed but did not draw other team members into discussions
Effective interaction – contributed and drew other team members to contribute
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Task Timeline
Week (USYD Number and Commencement date)1,2
Activities
Updates / Assessments
✓ Please sign up for your team
ensuring all members
registered in the same stream.
✓ Project brief made available to
✓ Tentative company assignments
✓ Begin work on research checklist in
online class session.
✓ Teams are formally allocated and confirmed.
✓ Team building exercise.
✓ Communications skills review.
✓ Initial brainstorming session.
4 14/03/22 ✓ Focus on Project 1. ✓ Individual (participation).
✓ Focus on Project 1.
✓ Individual (participation).
✓ Completion and submission of CFO briefs, both individual and group reports.
✓ Reflection and review of key insights into company.
✓ Individual and group (CFO brief).
✓ Focus on key insights from analysis
✓ Individual
in Project 1. Build upon the group
component of the CFO brief.
✓ Reflect on feedback from the
facilitators.
✓ Develop presentation materials.
(participation).
✓ Submit presentation slides. Present findings to board.
Individual and group (presentation and slides).
MID SEMESTER BREAK
1 All streams meet online through Zoom at regular, scheduled times. Once formed, teams will be working in Zoom using breakout rooms. You will be moved to your breakout room at the start of each Zoom session as required.
2 You might want to download the University’s Student Wall Calendar to help manage these dates.
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List of Companies
The following companies will be used for the case study in this semester.
Company Name
GICS Sector
Broker Research*
BlueScope Steel Limited
BofA & MQG
The a2 Milk Company
Fortescue Metals Group Limited
Consumer A & MQG
BofA & MQG
Coles Group Limited
Consumer A & MQG
SEK SEEK Limited Communication Services BofA & MQG
In Week 2 you will be tentatively allocated a company to begin to study and to complete the
Preliminary Research Checklist.
In Week 3 your selected team allocation will be confirmed before the class meeting. In anticipation
of this team meeting all team members should ensure that (before the Week 3 workshop) they have
they can participate fully in initial brainstorming. You will also be working with your team on assigning
responsibility for topic sections of the CFO brief.
reviewed and completed the Preliminary Research Checklist document available on Canvas
*We are grateful to Bank of America Securities (BofA) and Macquarie Group (MQG) for providing research regarding the companies listed above. Please note that these research reports have been provided for the requested educational purpose only. They are ‘historical’ in nature and should not in any way be viewed as entailing the provision of advice and ‘current’ research that students may look to trade on. Please refer to important disclosures at the end of the reports. All copying, redistribution, retransmission, republication and any other unauthorized dissemination or use of the contents of the report are prohibited.
Project Brief Introduction
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It is 7 March 2022. Your team was approached by the CFO of the selected ASX listed company to provide corporate finance advice. The advice is sought ahead of the company’s annual strategy meeting where a range of initiatives will be discussed by senior management and the board.
The CFO has emphasized the importance of this advice being independent and hence your team was chosen in preference to a number of full-service investment banks who have traditionally provided transaction and debt related services to the company. The CFO has also explicitly noted that your analysis must be of material and consequential issues. While you are not expected to perform detailed capital budgeting analysis you are expected to provide some initial, prospective estimates of the costs and benefits of your recommendations.
It is anticipated that the strategy meeting will review the current scope of the company’s operations and, in particular, consider the potential for divestments and/or acquisitions. However, the CFO realises that there are a number of strategic issues facing the company at this time. Hence, the CFO is concerned that any future restructuring be considered in the context of a rigorous framework and hence has requested your team provide detailed advice on several key corporate finance topics:
1. Scope of company’s operations (potential divestments and acquisitions) – team analysis 2. WACC for the main business activity
3. Environmental, social and governance (ESG)
4. Capital structure
5. Debt financing and cash management 6. Payout policy
Following submission of the CFO briefs and receiving feedback on the CFO briefs, you should develop a presentation for the Board. The objective of the presentation is to make specific corporate finance recommendation(s) for future action that will be accepted by the board of directors.
The recommendation(s) need to address the most important matters identified by your review of the six Corporate finance topics.
The justification of the recommendation(s) need(s) to incorporate:
▪ the most important findings of your work and why you have developed this view.
▪ the main financial implications of your recommendation(s), including some initial, prospective estimates of cost and benefit as needed.
You have had detailed discussions with the CFO and have received the following brief for the advice.
Deliverables
The CFO has requested that your team provide three types of deliverables for this project:
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The CFO will not provide any internal financial information and – at this stage of the advice – has
requested that you base your work solely on publicly available information up to 7 March 2022.
▪ CFO briefing papers – Recognising that the board presentation may not cover all components of the advice brief, the CFO has requested that succinct CFO briefing papers be prepared in relation to the specific areas covered by the advice. The scope of company’s operations topic (Corporate finance topic 1) should be undertaken collectively by the group. Each team member will select one of the other five issues and take primary responsibility for analysis, preparation, and submission of the advice.3 Hence, each team will produce and submit (up to) 5 individual topic reports, as well as a combined group report. These (up to) 5 individual reports and one group report are to be submitted electronically by 9:00 am Monday 28/03/2022 (Week 6).
▪ Board presentation slides – Presents a summary in the form of succinct slide pack of your recommendation(s) for future action and your justification for these recommendation(s). The slide pack will be circulated to board members before the presentation and needs to be submitted electronically by 09:00 am Monday 11/04/2022 (Week 8). You must use the slides as submitted in your presentation.
▪ Presentation to the board – Ten (10) minute stand-up board presentation followed by a ten (10) minute question and answer session. The presentation will summarise the most important findings of your work including recommendations for future action. Presented in the regular Week 8 workshops (i.e. on 12/04/2022, 13/04/2022 and 14/04/2022). Assessment will be done on both an individual and a team basis. There will also be scheduled time for feedback from the facilitators during these sessions.
In addition to the above deliverables you should retain all working papers used to prepare the advice so that you are able to respond to any detailed queries by the CFO.
Corporate finance topic 1 – Scope of company’s operations (team brief)
Ahead of the strategy meeting, the company needs a very preliminary review of the company’s operations to consider how to increase the company’s long-term value to stakeholders potentially through divestments, acquisitions or other changes to its current activities.
Addressing possible divestment/s of a current business activity / investment, you should consider any activities showing the following characteristics:
▪ Absence of alignment with the core business – i.e. lack of strategic or operating synergies with the core business.
▪ Relatively weak positioning or performance. Perhaps to free up capital for other investment opportunities.
3 If your team has fewer than 5 members, then your individual briefs will cover a subset of these 5 topic areas. I.e. each member is responsible for managing one topic area for the individual report. Every team is responsible for providing a Scope of company’s operations group report).
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▪ Scope for sale to another strategic buyer to realise a significant premium over the current value to the company.
Make a clear recommendation to the company on whether a divestment/s should be considered (and summarise your reasoning and supporting analysis). If a divestment is recommended, estimate the dollar amount of proceeds, and briefly identify the relevant division or activity.
Addressing possible new activities or extension of existing activities, you should:
▪ Consider the logical sector for an acquisition or extension of activities.
▪ Consider most effective method of achieving any suggested extension of current activities
(e.g. acquisition, capital expenditure, joint venture, licensing or other method).
▪ Within that sector consider potential acquisition targets drawn from either of the following
groups – Australian listed companies and overseas listed companies.
▪ For one potential target identified, briefly outline the logic and risks of a possible acquisition
of that target.
Make a clear recommendation to the company on whether a new activity or an extension to current activities should be considered. Outline your reasoning if you recommend such a new activity or an extension, describe how you consider this should be achieved, and estimate the dollar amount of investment required. If an acquisition is recommended, briefly identify a potential target company or business.
Be sure that your analysis addresses substantial issues and that you:
• Provide a high-level financial analysis of the impact of your recommendation on the company (a detailed DCF analysis is not expected).
• Consider risks and implications.
• Use publicly available information to conduct your analysis. Therefore, only listed companies
– either Australian or overseas listed – may be considered. If referring to a company, ensure you name the relevant stock exchange and ticker code (company listing code).
Corporate finance topic 2 – WACC for the main business activity (individual brief)
The company requires a robust, documented analysis of the weighted average cost of capital for its main business activity (based on your assessment) expressed in its functional currency. The analysis should use the CAPM framework and should specifically address:
▪ The estimated WACC at 7 March 2022, based on analysis of the company and comparable companies in its sector and typical gearing levels across the sector. Data for three to five comparable companies should be referenced for key inputs.
▪ Whether – in the current very low interest rate environment – the current ten-year government bond rate is an appropriate measure of risk-free rate in applying CAPM?
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▪ Estimates of market risk premium, beta and the cost of debt. Beta measures should be sourced from information providers and do not need to be calculated from underlying share price data.
▪ How your estimate compares to other estimates of WACC for the company identified in broker reports? Comment briefly on possible reasons for variances between your estimate and those other estimates.
The CFO briefing on
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