FINM2416 Asset Pricing Semester 1, 2023
You will be required to produce a report based on free cash flow valuation of a company from
the standpoint of a financial 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 student’s ability to value the equity of
a company. Student must choose a publicly listed company from a non-financial and non-
regulated industry in Australia which has last 3 years of annual reports available and has
been making profit (EBIT is positive). Please note that one company is recommended to
be chosen by only six students. A blank editable Excel file will be uploaded in due course
where students can enter their selected companies so that other students are aware of that.
Requirements:
1. You will need to gather all the necessary financial data using Capital IQ. You must select
a company that satisfies the following requirements:
i. Primary listing on the ASX.
ii. Included in the S&P/ASX200 index.
iii. Not part of the financials, utilities, and real estate industries.
iv. Market capitalization latest in excess of 2 billion dollar.
v. The company has had positive EBIT for the past three fiscal years (i.e., FY2020 –
FY2022)
Provide a screen shot of your Screen Builder (in appendix). How many companies satisfy the
criteria?
(8%)
2. Provide a brief introduction of your selected company and your report.
(8%)
3. Value your chosen company using free cash flow technique.
a. You need to forecast revenues, cost of goods sold, EBIT, capital expenditures,
working capital, and depreciation for the next 3 years. State these forecasts and
justify your assumptions.
(24%)
b. You need to assume risk free rate, cost of equity, cost of debt, and overall, weighted
average cost of capital (WACC) for valuation. State and justify these assumptions.
Please consider corporate tax rate of 30%.
(12%)
c. You need to assume terminal growth rate. Please state and justify your logic.
(10%)
4. Do some sensitivity analysis for your free cash flow valuation and summarize 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%)
5. Make a summary of your key findings and include a one sentence recommendation to the
investor.
(8%)
6. Include excel output in the appendix (screenshots) and also separately upload a soft copy
of your Excel workings.
(10%)
FINM2416 Asset Pricing Semester 1, 2023
2
Submission:
Excel:
Your Excel file should include all 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 written report (not exceeding 1200 words). The report should provide
responses to the requirements specified above. This includes a detailed calculation of all
results, discussion of assumptions made, justification of estimates relative to market value
and its limitation, discussion of the sensitivity analysis, and recommendation to the
investors. Please provide references where appropriate. References are not included in the
word count.
[Note:
Please note that while examining your quality of report we will also look at the followings:
Critical Thinking: This includes four traits: identification, analysis, consideration &
conclusion, and recommendation.
Professional writing: This includes three traits: structure, professionalism, and research &
referencing.]