Financial Management Experimental Learning Assignment Dr. Vaishali Pagaria Instructors note: 1. Students are required to coordinate with each other for understanding the company profile. Refer attached excel sheet for team details and company allotted. 2. Cite from reliable sources: Make realistic assumptions and research for the main elements you want to include in your calculations 3. Attach any financial information (statements, overviews & links) downloaded from internet related to your company in the appendices. PAPERS THAT DO NOT INCLUDE THIS INFORMATION WILL NOT BE GRADED BECAUSE YOUR CALCULATIONS CANNOT BE CHECKED. 4. Write a financial report of minimum 1500 and maximum 2000 words. The report must have a cover page with details of group members who contributed to the assignment. Without cover page, the assignment will not be graded. 5. Though this is a group assignment, every student must submit their report before the deadline through assignment submission online areas on Taxila. 6. All submitted files should be in a digital editable format preferably MS Word/PDF with Attachment Calculation Excel File Total Marks: 15 Dead Line: 11/09/2022 Assignment Questions Assume you are the project manager of the company allotted to you (team). This company is considering to invest in ONE project/business for a period of 5 years and move on to other projects afterwards. The investment can be of any type (purchase of equipment, vehicles, property, another business/store etc., new or old). You are required to undertake following analysis. 1. Description of the investment and cash flow analysis: Describe the investment of of your company. In case of multiple investments, you can select the investment of your choice and present an annual cash flow statement (for the selected investment only) with all the estimated cash flows (initial cost of investment and annual cash flows) for the next 5 years. Present your calculations and discuss the findings. 2. WACC analysis: Refer the capital structure of your company and calculate the weighted average cost of capital (WACC). Present your calculations and discuss the findings. 3. Capital budgeting analysis: Apply NPV, IRR and Payback techniques for investment appraisals methods to evaluate your project/investment. Use the WACC as discount rate. Present your calculations and discuss the findings. 4. Risk analysis: Name and discuss at least 2 risks associated with this specific investment and your strategy towards these risks. Carryout sensitivity/scenario analysis on your investment project. Note: Take the current rate of taxation in your calculations. Do not forget to include a front page/ cover page Refer Module 3 lecture slide desk and recorded live sessions for further details. FM Assignment Guidelines for Calculations 5. Description of the investment and cash flow analysis: Describe the investment of your choice and present an annual cash flow statement (for this project only) with all the estimated cash flows (initial cost of investment and annual cash flows) for the next 10 years. Present your calculations and discuss the findings. You need to find out any investment of the allotted company. The investment can be of any type (purchase of equipment, vehicles, property, another business/store etc., new or old). You can find this information from the annual report or companys official website. If you do not get the exact value of the investment, you can assume 20% of the fixed assets value in the last published financial statement as cash outflow of your selected investment. Now to estimate the cashflow, follow the following steps: 1. Download last 10 years financial statements (cashflow statement, profit and loss account and balance sheet) of the company. You can download it from www.screener.in 2. Project Profit and Loss account and Balance Sheet for next 10 years. To do so, follow the following steps: To Forecast Profit and Loss Account i. Forecast sales by calculating growth rate of sales (CAGR) on last 10 years sales data. You can also use Trend analysis/Forecast Sheet in MS Excel. ii. Calculate operating profit margin ratio for last five years. Operating Profit Margin (OPM) = EBIT/Sales. Then calculate CAGR of OPM. Apply this on the projected sales to project operating profit iii. To calculate depreciation, assume the economic life of the investment as 10 years. iv. Take tax rate as 30% on estimated EBIT (Operating Profit) assuming the new investment will be financed completely from equity contribution only. To Forecast Balance sheet (only Assets) i. Calculate Fixed assets to Sales ratio and Working capital to Sales ratio for last five years. Then calculate CAGR of both. Apply this growth rate on the projected sales to project fixed assets and working capital for next five years. ii. Calculate change in fixed assets and change in current assets iii. You can also use trend analysis/forecast sheet to calculate the same. 3. Forecast the free cash flow (10 years) by using the projected profit & loss account and balance sheet as the source of information. Apply following formula FCF = NOPAT + Depreciation - Tax Net investment Here, Net Investment is simple the change in net fixed assets + change in net working capital 4. Take 20% of forecasted cashflow as cash inflow for the selected investment project. 6. WACC analysis: Refer the capital structure of your selected company and calculate the weighted average cost of capital (WACC) using the last financial years balance sheet i.e., 2020-21 or 2021-22. Present your calculations and discuss the findings. To calculate WACC, follow the following steps a. Calculate cost of equity by applying Dividend growth model or CAPM model. You can cross check your companys cost of equity from www.yahoofinance.com. You will also find the present market price of equity share on the said website. If you are applying CAPM model, take risk free return are as 7.167% and to calculate market return take NIFTY MIDCAP 50 (^NSEMDCP50) last five years return. Or you can use equity risk premium from http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html. b. Calculate cost of debt using the approximation formula. If you dont find the current market price of the debt, take post tax rate of the coupon rate or interest rate. That will be used as cost of debt. c. Calculate weightage of each source of capital in the total capital structure of the company. d. Calculate WACC. 7. Capital budgeting analysis: Apply NPV, IRR and Payback investment appraisals methods to evaluate your project. Use the WACC as discount rate. Present your calculations and discuss the findings. a. Use the FCF estimate in the Q.1 and discount it at the discount rate calculated in Q.2 b. Use Payback, NPV and IRR method to evaluate the investment c. For cash outflow, if you do not find exact value of your selected investment, take 20% of Fixed Assets from the last financial year balance sheet. 8. Risk analysis: Name and discuss at least 2 risks associated with this specific investment and your strategy towards these risks. Carryout sensitivity/scenario analysis on your investment project.