FINM2416 Asset Pricing Report Assessment Semester 2, 2024
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Free Cash Flow Valuation Report – Individual Assessment (25 percent of total grade)
You are required to produce a report based on a free cash flow valuation of a company from
the standpoint of an equity analyst. Overall, you will provide an evaluation of the investment
potential of the company's shares.
Overview: The objective of this assignment is to assess a student’s ability to value the
equity of a company. The student must choose a publicly listed company from a non-
financial and non-regulated industry in Australia which has the last 3 years of annual results
available and has been making profit (EBIT is positive). Please note that one company is to
be chosen by only ten students. A blank editable Excel file with a predetermined list of
companies from the Company selection excel link is available under the Assessment Free
Cash Flow Valuation of a Company. It is recommended students enter their LAST and FIRST
name in the row of the company they wish to select, and save the file. The assignment is a
total of 100 marks for 25 percent of the total grade.
Requirements:
1. You will need to gather all the necessary financial data using Capital IQ (after first
registering). You must select a company that satisfies the following requirements:
a) Primary listing on the ASX.
b) Included in the ASX200 index.
c) Not part of the financials, utilities, and real estate industries.
d) Market capitalisation latest more than AUD 2 billion dollar.
e) The company had a positive EBIT for the past three financial year ends (i.e. FY2021–
FY2023, or FY2022–FY2024 depending on when the financial year ends for the
company)
Provide a screen shot of your Screen Builder (in Appendix). How many companies satisfy
the criteria? (5 marks)
2. Provide a brief introduction of your selected company and your report. (5 marks)
3. Value your chosen company using free cash flow methodology.
a) You need to forecast revenues, cost of goods sold, EBIT, capital expenditures,
working capital, and depreciation for the next 3 years from today. State these
forecasts and justify your assumptions. (25 marks)
b) You need to assume an appropriate risk-free rate, cost of equity, cost of debt, and
overall, weighted average cost of capital (WACC) for valuation purposes. State and
justify the assumptions used in your model. Please assume a corporate tax rate of
30%.
(15 marks)
c) You need to assume a terminal growth rate. Please state and justify your logic.
(10 marks)
4. Prepare sensitivity analysis for your free cash flow valuation and summarise your range
estimate for the intrinsic value of the share. Justify “why you think the elements (at least
three) you analyse are important for the estimates?” (20 marks)
FINM2416 Asset Pricing Report Assessment Semester 2, 2024

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5. Make a summary of your key findings and include a one sentence recommendation to
potential investors. (10 marks)
6. Include an excel output in the Appendix (screenshots) and separately upload a soft copy
of your Excel workings in the Blackboard submission points. (10 marks)

Submission:
Excel:
Your Excel file should include all your workings and calculations. Formulas for the
calculations should have cell references wherever possible. If you have computed a number
incorrectly and just typed that number into the spreadsheet (or typed a formula using
numbers when cell references could have been used), you will not receive partial credit for
any portion of your computation that is correct.
Written Report:
Please provide a professionally written report (not exceeding 1,200 words). The report
should provide responses to the requirements specified above. This includes a company
overview, detailed calculations of all results, discussion of assumptions made, justification of
assumptions and estimates relative to market value and any limitation(s), discussion of the
sensitivity analysis, and a recommendation to investors. Please provide references where
appropriate, noting references are not included in the word count.
Marking guide:
Refer to the marking guide rubric under the Assessment folder.