Posted: September 13th, 2017

Corporate Finance

Paper, Order, or Assignment Requirements

1. Provide MS excel document to be an appendixes in the word doc.
   2. Need 2 files (MS excel file should contain the supporting calculation and MS word)
   3. 2000 words maximum required (exclude appendices, and bibliography)
   4. Times new roman , 12, and 1.5 space lines

PART A

Please read the following instructions carefully.

General

• You must submit an electronic version of the paper. This is to be uploaded into the VLE via a link provided to you by the lecturer. Please ensure that your submission contains two separate documents – submit the essay-type questions as a MS Word document on Turnitin while a separate MS Excel file should contain your supporting calculations, including formulae uploaded on a different link.
• Do not send the paper via an email. Under no circumstance will a paper be accepted when emailed to any member of the faculty.
• The late submission rules follow the General Academic Regulations. After 28th April 2015 at 4pm your paper will be marked with a grade of 0.

Referencing

• You need to follow a proper referencing system in your paper. The MSc VLE provides a short brief on the Harvard Referencing System that you may follow.
• You also need to do a full bibliography of your sources.

Number of words

1. Your report needs to be a maximum of 2,000 words including footnotes (but excluding appendices). If your report exceeds 2,000 words, then your mark will be based on the content of the first 2,000 words only.
2. At the end of your paper, you need to write:

I, SRN XXXX, declare that this work contains XXX number of words.

PART B: Description of the Assignment

Case Study: Great Eastern Toys

• Paul Cheng and John Li have asked you to help them to evaluate their potential investment based upon Peter Gray’s forecasts. Assume that tax is paid in the year after the profit is made.
  1. Prepare a cash flow forecast for the appropriate periods showing the relevant investment and operating cash flows, and showing the net flows in each year. 
(10 marks )
  2. Prepare a profit forecast for the five years that the new dolls might be made and sold. 
(5 Marks)
  3. Explain clearly any differences between the cash flow and profit forecasts you have prepared and why any numbers included in one forecast are not included in the other, and why you choose to include the numbers that you do. 
(10 marks)
• Calculate the NPV, IRR and payback periods for the proposed production of the new line of dolls. How much value is created for Great Eastern Toys by opting to develop the new range of dolls? Discuss what the 3 Investment Appraisal techniques tell you. Clearly discuss any assumptions that you make. 
(15 marks )

3. Critically analyse the 3 Investment Appraisal Techniques used in Q2; what are the advantages and disadvantages of using them to make investment decisions? (20 marks).
4. Paul Cheng is very concerned that many of the assumptions that that Peter Gray has made might not be correct; in particular he is concerned that the accuracy of the forecast selling price and the manufacturing costs might not be correct. Carry out analysis to help them.

understand how sensitive the decision on whether to launch the range of dolls is to these and to the other assumptions. (10 marks)

• Paul Cheng is very concerned that the new line of dolls is a significantly more risky venture than their existing operations; in particular they usually outsource production to third parties, but they feel that they need to produce the new range in-house to ensure the required level of quality is reliably achieved. He notes that their biggest competitor in the premium dolls market, Charley Hills, has a stockmarket Beta of 1.2. Charley Hills has a share price of HK$5.20 and there are 15 million shares in issue. Charley Hills issued HK$30 million of 7 year floating rate debt 2 years ago, with an annual coupon of 11%, redeemable at par; which is currently trading with a Yield To Maturity of 10%, slightly above the Risk Free rate of 9%. The expected return on the Hong Kong stockmarket is 20% per annum. 
What impact does this have on the Investment Appraisal that you carried out so far, if any? Is there anything the company could do to ensure that the project was still worthwhile? 
(15 marks )
• Paul Cheng is considering the impact on Great Eastern Toys of their pending flotation on the stockmarket. In particular he is concerned with the impact on the company of Shareholders’ dividend expectations. Critically discuss a range of academic theories on dividend policy, and the implications on Great Eastern Toys. 
(15 marks )

Any results should be analysed and evaluated. A portion of the marks in the calculation questions are attributable to the analysis accompanying the numbers.

In your answers, in addition to the information from the Case Study, please apply the concepts from the appropriate areas of financial and economic theory, discussed during this and all previous modules during your course. Your answers should include appropriate numerical data and, if appropriate, charts/graphs.