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Assessment Information Coursework 2020-21
Module name: Corporate Finance Practices
Module code: MSIN0224
Module leader name(s): Leila Pinto Campillo
Academic year: 2020/21
Term 1, 2 or 3: Term 2
Type of assessment: Coursework assignment
Nature of assessment – individual
Content of this Assessment Brief
A Core information
B Coursework Brief and Requirements
C Module learning outcomes covered in this
D Assessment criteria
E Groupwork instructions (if applicable)
F Additional information from module leader (if
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Section A: Core information
This assessment is
marked out of:
% weighting of this
assessment within total
Word count/number of
pages - maximum
Maximum number of words: 3000
There is not a penalty for using fewer words.
Determining word count
impacted by Turnitin
• After submission to Turnitin, the Turnitin recorded word
count is usually higher than the word count in a Word
• Where the assessment brief specifies a maximum word
count, on the front cover of your submission record the
number of words as recorded in your Word document.
• It is the Word document word count which will be taken
account of in marking, NOT the Turnitin word count.
tables, figures, diagrams,
in/excluded from word
Appendices, tables and charts are excluded from the word count.
Everything else is included.
in/excluded from word
Title page, table of contents, any bibliography are excluded from the
You don’t need to include a table of contents in this assessment.
Penalty for exceeding
• Where there is a specified word count/page length and this is
exceeded, yes there is a penalty: 10 percentage points
deduction, capped at 40% for Levels 4,5, 6, and 50% for Level
7. Refer to Academic Manual Section 3: Module Assessment -
3.13 Word Counts.
Requirements for/use of
• Where you draw upon sources you must cite them
• As appropriate, you may draw upon a range of sources
including, illustratively, journal articles, other textbooks,
• As appropriate, you may draw upon course materials –
lecture slides, notes, handouts, readings, textbook(s) - you
engaged with in your studying of this module.
• Unless citing content specifically (e.g. a quote from a book)
you should not be copying word for word from lecture
slides, notes, handouts, readings, textbook(s).
• You should capture, articulate and communicate your views,
thoughts and learning in your own words .
• If you do provide quotes from any lecture slides, notes,
handouts, readings, textbook(s) you should cite them and
provide references in the usual way.
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• Be aware that a number of academic misconduct checks,
including the use of Turnitin, are available to your module
• If required/where appropriate UCL Academic Misconduct
penalties may be applied (see immediately below).
• Academic integrity is paramount.
• It is expected that your submission and content will be your
own work with no academic misconduct.
• Academic Misconduct is defined as any action or attempted
action, including collusion with other students, that may
result in a student obtaining an unfair academic
advantage. There are severe penalties for Academic
Misconduct, including, where appropriate and required,
exclusion from UCL.
• Refer to Academic Manual Section 9: Student Academic
Misconduct Procedure - 9.2 Definitions.
Submission date Monday, 15th of March, 2021
Submission time 10am
Penalty for late
Yes. Standard UCL penalties apply. Students should refer to
The assignment MUST be submitted to the module submission link
located within this module’s Moodle ‘Submissions’ tab by the
Anonymity of identity.
Normally, all submissions
are anonymous unless
the nature of the
submission is such that
anonymity is not
as in presentations or
where minutes of group
meetings are required as
part of a group work
• Anonymity is required.
• Your name should NOT appear anywhere on your submission.
Return and status of
• At the latest this will be within 4 weeks from the date
of submission as per UCL guidelines, but we will
endeavour to return it earlier than this.
• Assessments are subject to appropriate double
marking/scrutiny, and internal quality inspection by
a nominated School of Management internal
assessor. All results when first published are
provisional until confirmed by the relevant External
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Examiner and the Examination Board.
• No appeals regarding your published mark are
available until after confirmation by that
Examination Board. UCL regulations specify that
academic judgment applied within the marking
process cannot be challenged.
Uploading your submission
• Unless specifically instructed otherwise in the assessment document, please upload your work as a
single file via the submission link on Moodle . This document could be in word or PDF format.
• It is recommended that you use Excel to solve PART C. Make sure you include your workings for
PART C in the assessment as a copied/pasted table or photo of your calculations I excel (tables won’t
count against your word count). Do not submit an additional excel file since it won’t be marked.
• Only one file in word/PDF will be marked. This file should include your workings for PART C.
• Please DOUBLE CHECK that the file you are uploading is the correct one and is complete (with all
pages visible). You should only submit your final version of the work to the submission box. Once the
original deadline has passed, any submission made to the official submission box will be taken as
the final submission. Work submitted after the original submission deadline will NOT be removed
and a new version cannot be submitted. If you wish to check your work before submitting your final
version, you can use the Turnitin Drafts Checker rather than your official submission inbox. Please be
sure that the version of the assignment you submit is the version you intend to be marked for that
module. If you are granted ECs in relation to a piece of work already submitted, the mitigation
applied will be a deferral and not an extension. If you are unable to submit on time, you may submit
an EC form to request an extension if you have legitimate mitigating circumstances.
If you encounter difficulties submitting your assessment via Moodle, then please immediately notify (by
email) your department (Programme Administrators ONLY), explaining the problem and including a copy of
the work you are trying to submit. ONLY use this approach if you can show that you have tried to download
from/upload to Moodle and encountered technical difficulties.
Advice and other support
• Student Support and Wellbeing
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Section B: Coursework Brief and Requirements
This assignment comprises three (3) parts, all parts are unrelated.
Part A has 5 questions and you are asked to indicate if they are TRUE or FALSE and justify
your decision. This part carries 20 marks [5 x 4 marks]
Part B has 3 questions. Dedicate time to understand what you are being asked, organise
your thoughts and draft each response. Each question carries 15 marks and you are
required to answer the questions in depth. An in-depth answer means writing all you know
about the questions asked including all possible considerations. Part B carries 45 marks: [3
questions x 15 marks each = 45 marks]
Part C is a valuation exercise in an M&A deal. You are required to calculate the
value of the target company with and without improvements and the value of the
combined firm after the acquisition takes place. PART C has 6 questions and
carries 35 marks. Marks for each question are as indicated. Use Excel to create
your workings/answers and thereafter cut and paste your workings/answer into
your word/pdf document.
Total: 100 marks
PART A [5 questions x 4 marks = 20 marks]
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Indicate if the following statements are TRUE or FALSE (1 mark). Justify your decision (3
marks). Total 4 marks per question.
“Companies are more likely to acquire other businesses when the market growth rate has
slowed.” [4 marks]
“Companies are more likely to acquire other businesses when industry capital costs are
low, all other things being equal.” (Capital costs doesn’t refer to the cost of capital, it refers
to fixed costs). [4 marks]
“Companies with non-diversified parents are more likely to enter new markets through
acquisition rather than internal development. “ [4 marks]
“Markets that have long- term growth potential but are not currently profitable are more
attractive to established competitors.” [4 marks]
“All the following variables except one influence IPO timing: Real GDP growth rates,
change in stock markets index returns, growing number of domestic listed companies,
publicity, image enhancement, company growth and leverage.” [4 marks]
END OF PART A. PLEASE CONTINUE TO PART B.
PART B [45 marks]
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B1 [15 marks]
The company Berkshire Hathaway does not pay dividends. The firm does not believe in
paying dividends based on Buffett’s own aversion to doing so. Buffett justifies the lack of
dividend payments as follows:
“The five-year test should be:
(1) during the period did our book-value gain exceed the performance of the S&P; and
(2) did our stock consistently sell at a premium to book, meaning that every $1 of retained
earnings was always worth more than $1?
If these tests are met, retaining earnings has made sense.”
You are a conservative analyst when it comes to the dividend policy and are of the strong
opinion that payments dividends would increase the firm value.
Identify and explain five (5) reasons that justify why Berkshire Hathaway would be a
good candidate to pay regular dividends to shareholders. Be specific and base your answer
on Berkshire Hathaway’s current financial situation.
[5 reasons x up to 3 marks each = 15
B2 [15 marks]
The finance director of your firm is interested in understanding how to calculate the
company’s weighted average cost of capital (WACC). The firm is based in the United States
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but most of its revenues come from global operations in Nigeria, the United Kingdom as
well as locally, in the United States. You are an expert in the CAPM model (Capital Asset
Pricing Model) and understand that operating in different countries underpins additional
risks for the firm, with these risks having to be included in the calculation of the cost of
a) Identify and explain each of the adjustments you would need to make to the three
components of the CAPM model to obtain the cost of equity for the firm. Take into
consideration internal and external (macro) potential risks. No calculations are
required in this question. This company is private
[3 x up to 4 marks each = 12 marks]
b) Explain how to calculate the after-tax cost of debt for this global company. [3 marks]
B3 [15 marks]
Your family founded a company ten (10) years ago. It has been growing steadily. It has
arrived at the stage where it can only expand if it attracts additional capital. The company
has an attractive 25% operating margin, year on year revenue growth of 10% and 30% debt
to capital employed (financial gearing, financial leverage) ratio. The founder, your
grandfather, is risk averse and is not keen to add more debt to the capital structure.
You are considering the following options to support your family business expansion:
• A direct listing.
• A reverse merge.
• An initial public offering.
Having graduated from an MSc Finance, your family needs your advice on the advantages
and disadvantages of the three options specified above and how suitable they are for your
objective of expanding the firm in the near future.
Explain the nature of each of the three options specified, and also explain how suitable, or
otherwise, each is to assist in helping to expand the business.
[3 x up to 5 marks each]
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END OF PART B. PLEASE CONTINUE TO PART C.
PART C [35 marks]
As an analyst for J.P. Bank you were tasked to analyse a prospective acquisition deal
whereby Hina Kachun Inc (referred to as Hina) wishes to acquire Ziel Incorporated (referred
to as Ziel). Hina expects synergies in the form of cost savings and higher sales growth.
The 10-year Treasury bond rate is 2%, the equity risk premium is 5.5%, and the marginal
tax rate is 21%. All growth numbers in this exercise are compounded annually.
Ziel Inc has the following characteristics for the current period:
• Revenue = $2,500 million
• Operating margin before tax= 5.00%
• Unlevered beta = 0.76
• Before tax cost of debt = 5.50%
• Debt ratio = 25%.
Operating income is expected to grow at the rate of 10% a year for the next five years. The
Return on Capital (ROC) is equal to 40% and is expected to remain so for the next five
After Year 5, operating income is expected to grow at the rate of 3% a year forever, while
the ROC as above is expected to stabilize at 20% forever.
To value control of Ziel assume that:
• Hina would raise Ziel’s debt ratio to its optimal level of 50%. Due to a reduction in
operating leverage, the unlevered beta is expected to fall to 0.65 and new before- tax
cost of debt becomes 6% given the higher company financial leverage.
• Hina would take Ziel’s pre-tax operating margin to 6.0%.
Hina Kachun Inc data is as follows for the current period:
• Revenue = $18,000 million
• Operating margin before tax = 4.0%
• Unlevered beta = 0.85
• Before tax cost of debt = 4.00%
• Debt ratio = 30%
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Operating income is expected to grow at the rate of 5% a year for the next five years.
During the next five years, the reinvestment rate remains constant at 20%.
After Year 5, operating income is expected to grow at 3% a year forever, while the
reinvestment rate falls to 10% a year in perpetuity. The long-term strategy of the firm after
Year 5 is to raise the debt ratio to 50%, this increase in debt will change the before-tax cost
of debt to 5%.
Note that the status quo value of Hina is given to you in question C6.
The combined firm
The operating margin of the combined firm will be 4.5%. The combined firm would also
have a slightly higher growth rate of 7.00% in operating income over the next five years
because of operating synergies, during which time the reinvestment of the combined firm
would be the sum of the reinvestments of the two individual firms (simple average). The
combined before tax cost of debt, unlevered Beta and debt to capital ratio are 5.25%, 0.85
and 50% respectively.
After Year 5, the reinvestment rate stabilizes at 15%, while the operating income is
expected to grow at 3% forever. The before tax cost of debt of the combined firm would fall
to 5.00%. The unlevered beta of the combined firm is equal to 0.85 and remains unchanged
forever. The debt to capital ratio of the combined firm is 50% forever.
C1. The current WACC for Ziel (target firm) is 6.55%. Compute Ziel free cash flows to the
firm (FCFF) during the high growth stage (next five years) and the terminal value right after
this. Obtain the status quo value for Ziel. [8 marks]
C2. If Hina would acquire Ziel (and increase Ziel’s debt level to 50%), WACC would change
to 6.57%. Compute the free cash flows to the firm for Ziel during the high growth stage
(next 5 years) and its terminal value to obtain Ziel firm value with improvements.
C3: Compute the value of control. [2 marks]
C4: Compute WACC of the combined firm during the high growth stage. [3 marks]
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C5: Compute the value of the combined firm by forecasting 5 years of high growth and the
terminal value (stable stage) after this. Don’t forget to include synergies in your FCFF!
C6: The status quo value of Hina is $11,855 million. Assume that Ziel has 1,000 million
shares outstanding and a market value of debt of $250 million.
a) Calculate the maximum price per share that Hina should be willing to pay for Ziel if it
takes two years for control and synergies to materialize. [5 marks]
b) b) Calculate the premium that Hina would need to pay to acquire Ziel. [1 mark]
Note for question C6
Maximum price to pay = Target company status quo value (or market price if listed) +
[(value of control + value of synergy) / (1+WACC)^n]
END OF PART C
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Section C: Module Learning Outcomes covered in this Assessment
This assignment contributes towards the achievement of the following stated module
Learning Outcomes as below:
1. Understand how international capital markets work, and assess their effectiveness.
2. Understand, critique and evaluate differing approaches to Dividend Policy.
3. Perform company valuation through conventional techniques (DCF) and relative
valuation (multiples); as a consequence be able to analyse the viability of leveraged
by out (LBO) deals.
4. Comprehend the nature of mergers in today’s global financial markets.
5. Understand the IPOs process and its purpose of as a source of value creation.
Section D: Assessment criteria
Within each section of this coursework you may be assessed on the following aspects, as
applicable and appropriate to this particular assessment, and should thus consider these aspects
when fulfilling the requirements of each section:
• The accuracy of any calculations;
• The strengths and quality of your overall analysis and evaluation;
• Appropriate use of relevant theoretical models, concepts and frameworks;
• The rationale and evidence that you provide in support of your arguments;
• The credibility and viability of the evidenced conclusions/recommendations/plans of
action you put forward;
• Structure and coherence of your considerations and reports;
• As and where required, relevant and appropriate, any references should use either
the Harvard OR Vancouver referencing system (see References, Citations and
• Academic judgement regarding the blend of scope, thrust and communication of
ideas, contentions, evidence, knowledge, arguments, conclusions.
• Each part has requirements with allocated marks, maximum word count limits/page
limits and where applicable, templates that are required to be used.
You are advised to refer to the UCL Assessment Criteria Guidelines, located at
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Section E: Groupwork Instructions
• Not applicable as this is an individual assessment
Section F: Additional information from module leader(s)
• Avoid copying and pasting from public sources, books, notes and from the slides, it is not
scholarship and it could lead to your work being investigated by the SoM Misconduct Panel.
• This assessment does not require any external research.
• I won’t be able to answer any questions related to the workings on the assessment given
that you will be under exam conditions.
• I will be available via email and the Q&A chat for questions related to the module content.