Page 1 of 3 FINC2012 Assignment 2 - Semester 2, 2021 Due 23.59pm, 29th October, 2021 (Upper word limit: 2,000 words) This is an individual assignment. This means that you are required to write your own answers to the questions, the Turnitin system checks for copied work. You are hired as an external consultant to carry out the following analyses and produce a report. Refer to the below table to look up your assigned company based on the last digit of your Student Identification (SID) number. For example, if the last digit of your SID is 0, then your assigned company is Reece Limited (REH). Your task is to review the company capital structure decisions before and during the COVID-19 pandemic. You may assume that the impact of the pandemic began in March, 2020. You are required to identify three peer companies for comparison analysis. The peer companies may be chosen using the Peer Firms worksheet in companies.xlsx. 1. Compare the capital structure trends of your assigned company and the three peer companies in the fiscal years ending in 2015 through 2019. Discuss these trends using the capital structure theories under the topics covered in weeks 8 and 9. (8 marks) 2. Identify the capital structure decisions of your assigned company in response to COVID 19 (since March 2020). Check their annual reports, press release or ASX filings for any decisions related to debt issuance, debt repayment, equity issuance or share repurchases. For example, see ASX or Datanalysis - Company financial data. What are the impacts of these decisions on capital structure? What do you think are the reasons for these decisions? (7 marks) 3. Calculate the annual cost of capital of the assigned company fiscal year ending in 2015 through 2021. How did the capital structure decisions (discussed in Question 2) affect any changes in the cost of capital over the period? Given the current state of corporate financing, what are your suggestions to optimise the assigned company’s cost of capital? (7 marks) 3 marks for presentation and writing quality. TOTAL: 25 marks Last SID digit Assigned Company GICS ASX Sector 0 Reece Limited (REH) Industrials 1 Emeco Holdings Limited (EHL) Industrials 2 Ramsay Health Care (RHC) Health Care 3 Cochlear (COH) Health Care 4 NewCrest Mining (NCM) Materials 5 Bellevue Gold Limited (BGL) Materials 6 Vicinity Centres (VCX) Real Estate 7 Lendlease Group (LLC) Real Estate 8 Flight Centre (FLT) Consumer Discretionary 9 Webjet (WEB) Consumer Discretionary Page 2 of 3 FAQ 1. What do I include in my submission? You will need to submit ONE word document. This document should include the main body of the report and if necessary, an Appendix. 2. Do I need to separate my responses with enumerated headings for each question? Yes. 3. What are the most relevant dimensions for selecting peer firms? Size and industry (or sector). E.g. you can look at firms in the same industry and find 3 peer firms with the closest size (market capitalisation or total assets) to your firm. 4. Should I look at capital structure of the entire industry? It’s recommended if you are a capable researcher (and good with Excel), but you should concentrate only on the mean or median statistics. 5. Do I need to calculate other firm characteristics for the capital structure discussions? You need to provide sufficient data to support your arguments. 6. How do I discuss if the company’s capital structure decisions are consistent with the capital structure theories? You need to understand the essence of these theories. For instance, it is important to understand how each theory predicts a firm would carry out changes to its capital structure given the firm’s specific characteristics. Are the actions you find and the leverage trend you calculate consistent with what these theories predict? 7. What about the impact of off-balance sheet liabilities? You may but our recommendation is that there is no need to consider these items in this assignment. 8. Should I try to obtain credit ratings? Not all firms are rated but it’s worth searching for ratings of both your allocated firm and its peer firms. This provides you some information on expected bankruptcy costs. 9. Do I use book values or market values when calculating capital structure measures? This is up to you. We expect you to provide reasons for your choice. 10. Should I analyse total liabilities or just focus on interest bearing debt? This varies from one industry to another, but interest-bearing debt is more relevant to capital structure theory. 11. Does the Appendix have word limit? No. 12. Should I include an executive summary, introduction or conclusion section? No. 13. Are there penalties for paraphrasing and not citing the corresponding research papers? Yes, this will most probably be red flagged by Turnitin and Academic Dishonesty team will investigate your case. Page 3 of 3 14. Are there penalties for going over word limit? There will be heavy penalties. 15. Are there marks for professional presentation? Yes. This criterion is listed out on page 1. 16. Is the Appendix or References included in the word count? Both sections are not included in the word count. 17. Where is the marking rubric? It is at the bottom of the same Canvas page as the assignment question. 18. It is recommended not to leave your submission time until the few minutes before the deadline. Murphy's law tells us that technical issues tend to occur around that time.