FINC6001 Finance: Theory to Applications
1
Semester 2, 2023
Group Project
Weighting: 100 points (worth 30% of the total unit)
Assessment Due Date: Friday13 Oct. 2023 at 23.59pm
I. INTRODUCTION AND GUIDELINES
The assessment a group assignment, which means that you will work in groups.
This project is based on evaluation of equity prices. You are required to analyse the
financial statements published by the three chosen companies listed on the New
York Stock Exchange (NYSE). The analysis will be both numerical and written in the
form of a report.
 The written report should be no more than 2,500 words with normal-sized
margins, 1.5 line spacing and size 12 Arial Font. Please number the pages of
your report.
 All assignments must include a list of references in academic form using
the APA 7th method.
 The report must be submitted as a .docx document. The Excel spreadsheet
must be submitted as a .xlsx workbook. The Excel spreadsheet should
contain all the calculations used to generate the values in your report. The
Excel spreadsheet will not be explicitly graded but must be submitted at the
same time as the report to verify your calculations.
 The group representative must submit two files electronically. Failure to
submit both files will result in penalties - late penalties will apply until both files
are submitted. They also need to ensure that all files submitted can be opened
and read in Canvas.
II. REPORT STRUCTURE
Your report must contain the following information:
1. Executive Summary
2. Introduction
3. Body of the Report
• DCF evaluation
• Role of ESG in stock price evaluation
• Alpha evaluation using a factor model
• Portfolio construction using two NYSE listed companies
4. Conclusion and Recommendation
5. References
Note: Remember that all calculations conducted in requirements should be
provided in excel form and submitted.
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III. TASK OBJECTIVES
 Apply theory in practice
 Conduct a stock evaluation
 Consider ESG non-financial information for evaluation purposes
 Execute an asset pricing factor model
 Find optimal portfolio when investing in two risky assets
 Enhance communication skills in writing.
IV. BACKGROUND AND REQUIREMENTS
Stock valuation is an important activity routinely performed by financial analysts and
financial investors. As discussed in Module 2 to 6, there are different cash flow
methods that can be used to estimate the equity value of a corporation. Alternatively,
in Modules 8 and 9 the assets were combined to create a portfolio which were
assessed against different asset pricing factor models. We will explore some of these
in this Written Report.
As part of an investment fund, your group will need to report a recommendation in
relation to whether an international stock portfolio should be added to the fund’s
portfolio. Your team is currently working at Vangaurd Sydney office which offers the
Vanguard Australian Shares Index ETF which is listed as ‘VAS’ in the ASX. Recently
you were directed to investigate whether to include international shares listed in the
NYSE equity market to the company’s investment portfolio. The head of your team is
interested in the following three companies: Exxon Mobil (XOM), Mcdonald (MCD)
and Walmart (WMT). She wants to select the top two stocks to create an
international portfolio. You are required to write a report to give your recommendation
on which two stocks and how the international portfolio compares to the Australian
listed ETF. Your interpretation and recommendation must be justified with reference
to the calculations and analysis results.
You are required to complete the followings tasks:
1. Obtain the financial statements of 2022 Exxon Mobil (XOM), Mcdonald (MCD)
and Walmart (WMT). Note: Financial statements are contained within the annual
reports. Alternatively, you can use other financial databases provided by the
business school or through the internet.
2. To make a recommendation in relation to the stock analysed, the group will have
to estimate the fair stock value and compare it to the corresponding market price.
For this task, the discounted cash flow (DCF) methodology discussed in Module 2
will have to be employed using a 10-year horizon and with a terminal value
calculated according to the following methods:
-Constant growth model
-Valuation by multiples (P/B and P/E ratios)
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In applying the DCF methodology, a table containing the estimated free cash
flows (FCFs) will have to be generated and assumptions will need to be made in
relation to the company’s profitability (ROA) and the growth rate of both (i) assets
and (ii) earnings per share (EPS).
3. Australia's whole-of-economy Long-Term Emissions Reduction Plan has been
developed to achieve net zero emissions by 2050. Already, there are literature
(Matsumura et al. 2014) that states that carbon emissions have a negative effect
on firm equity values. Discuss how Carbon Emissions for the three companies,
which is non-financial information related to ESG, should be considered in the
valuation. Are there any other ESG factors that could affect the value of the
companies? Present appropriate research literature as reference to support your
argument.
4. Rank the three companies based on DCF valuation and select two stocks. What
should be the optimal weight invested in the two stocks to achieve the highest
Sharpe Ratio? To calculate the Sharpe Ratio, select and describe the asset
pricing factor model you used.
5. How does the new NYSE based international portfolio’s Sharpe Ratio compare to
the Sharpe Ratio of the existing Australian ETF (VAS)? Discuss whether the
inclusion of the new international portfolio should proceed or not.
6. Write a report which brings all the above analyses together by summarising and
interpreting the analysis results.
Note: Your report needs to contain a critical evaluation, rather than mere description
of the analysis results.
Reference:
Matsumura, E. M., Prakash, R., & Vera-Muñoz, S. C. (2014). Firm-Value Effects of
Carbon Emissions and Carbon Disclosures. The Accounting Review, 89(2), 695–724.
http://www.jstor.org/stable/24468367
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MARKING CRITERIA (Total Marks 100 points)
Criteria Mastery Proficient Developing Beginning Poor Marks Marks/ite
m
A.
References
of
ideas/argum
ents and
overall
recommend
ation
A1: Effective
answers supported
by excellent
references
throughout the
report.
A1: Most
referencing is
acknowledged
throughout the
report.
A1: Multiple
references used
but often ineffective
or only in parts of
the report
A1: Inappropriate
or no references
throughout the
report.
No attempt
Or lacks effort
Or significant
errors
8
 A1: 4
 A2: 4
A2: Excellent flow of
ideas and/or
arguments in the
recommendation.
A2: Good flow of
ideas in the
recommendation
exists.
A2: The content of
the
recommendation
exists, but only
adequately.
A2: Little or no
argument in the
recommendation.
B. DCF Stock
Evaluation
(item 2)
B1: All the relevant
assumptions are
accurately selected.
B2: 75% - 100% of
the calculation of
evaluation is without
errors.
B1: Most of the
relevant
assumptions are
accurately
selected.
B2: 50% - 74% of
the calculation of
evaluation is
without errors.
B1: Half of the
relevant
assumptions are
accurately
selected.
B2: 25% - 49% of
the calculation of
evaluation is
without errors.
B1: The relevant
assumptions are
mostly inaccurate.
B2: Less than
25% of the
calculation of
ratios is without
errors.
No attempt
Or lacks effort
Or significant
errors
36
 B1: 12
 B2: 24
C. Expected
impact of
C1. All the relevant
calculations are
C1: Most of the
relevant
C1: Half of the
relevant
C1: The relevant
calculations are
No attempt
20
 C1: 12
5
ESG on
Evaluation
(item 3)
accurate. calculations are
accurate.
calculations are
accurate.
incorrect or
irrelevant.
Or lacks effort
Or significant
errors
 C2: 8
C2: All the
discussion on
explanations for the
difference in stock
prices are valid with
excellent supporting
references.
C2: Most of the
discussion on
explanations for
the difference in
stock prices are
valid with good
supporting
references.
C2: The discussion
on explanations for
the difference in
stock prices are
partially valid with
partially supporting
references.
C2: most of the
discussion on
explanations for
the difference in
stock prices are
invalid and has
little supporting
references.
D. Sharp Ratio
and optimal
weight of risky
assets (items
4 and 5)
D1: The Carhart four
factor model was
used to calculate the
alpha of the portfolio.
D2: All the relevant
calculations and
discussions are
accurate.
D1: The Fama-
French three factor
model was used to
calculate the alpha
of the portfolio.
D2: Most of the
relevant
calculations and
discussions are
accurate.
D1: The CAPM one
factor model was
used to calculate
the alpha of the
portfolio.
D2: Half of the
calculations and
discussions are
accurate.
D1: No factor
model was used
to calculate the
alpha of the
portfolio.
D2: The calculations
and discussions are
incorrect or
irrelevant.
No attempt
Or lacks effort
Or significant
errors
36
 D1: 24
 D2: 12