How To Write An Effective CF Assignment

Corporate Finance Assignment
How to write an
effective CF
assignment
• Very important notes that

every student has to
consider, with regard to the
submission of assignment, is
clearly outlined in the next
few slides!!!
• Assignment deadline time should be before,
11.59pm( Sri Lankan time) on the date of the
deadline, which will be the cut off time. However,
always attempt to, submit the assignment at least 2
days before the last date of submission!
• The deadline for submission is 14th of November -

2019.
• No late submissions, after, 14th of November -2019,

will be allowed, as the submission link will not be
accessible after this date.
• All students are advised to refer to the student
portal & get a sound awareness on the policies
governing late submissions & other academic
regulations!
• Student Handbook, MBA Handbook , and

academic regulations, external examiners report
are all available on the student portal and
students must refer to these handbooks!
• Re sit policy, and the fact that re sit fees are
applicable, are referred to in the handbooks for
further details.
 Students who have been found to have
committed acts of Plagiarism are automatically
considered to have failed the entire semester. If
found to have breached the regulation for the
second time, you will be asked to leave the
course.
 Plagiarism involves taking someone else’s

words, thoughts, ideas or essays from online
essay banks and trying to pass them off as your
own. It is a form of cheating which is taken very
seriously.
Plagiarism and its Consequences
 Maintaining low similarity index count
( i.e. Similarity count from any single source
should be less than or equal to 1% ).
 Any academic matter taken from your own

previous assignment/s and submitted as is,
even though cited, is not allowed as it would
tantamount to “SELF PLAGIARISM”.
 Any referencing made (From the Internet or any

other source/s) MUST be cited AND presented IN
YOUR OWN VERSION.
 Any Direct Copy and Paste even though cited will

be taken as PLAGIARIZED WORK)
 References and bibliographic information is

compulsory.
Submission of answers to the
assignment questions in
IMAGE FORMAT is STRICTLY
PROHIBITED.
• This CF Assignment must include all
relevant in-text citations. If in –text
citations are not included in this
assignment, you will be FAILING the
assignment even if you write a very good
assignment.
• Examiners’ consider not providing in- text

citations to be a major academic offense.
• Every student is strongly advised to cite
accordingly when you directly quote someone
else's work or when you paraphrase someone
else's work.
• The in-text citation should consist of author

surname(s) and followed by the year of
publication of the source placed within brackets
• Select companies listed in Colombo Stock
Exchange or any other globally recognized
stock exchange!
•
Students should have good input on how to
identify a good company for analysis.
• Select a PLC which has financial details over

the last 5 years and having some degree of
gearing
QUESTIONS,
ASSIGNMENT STRUCTURE
AND MARKING SCHEME
FOLLOW IN SUBSEQUENT
SLIDES!!!
THE QUESTION
Choose a company which is listed on the Colombo
stock exchange, the Maldives stock exchange or any
other globally recognised stock exchange.
• Develop a project for the company of your

choice. The project can be a market
development, product development or
diversification.
• The project must have an initial capital cost
of at least 10% of the total long-term capital
of the company (Equity capital + long term
debts) and the project must last at least for
five years. You have to raise at least one
source of finance externally to fund the
project.
• Write a report to the board

of directors of the chosen
company. The report must
cover following areas;
PART-1
1. Justification of the viability of the project for
the chosen company on non-financial grounds
(feasibility study is NOT required).
2. Presentation of investment appraisal.
a) Identify the cash inflows and outflows related to
the project for each year of operation including
the initial capital costs.
b) Calculate the weighted average cost of capital
(WACC) for the project (clearly state the
assumptions with respect to sources of finance
and costs of capital).
c) Evaluate the project using at least two investment
appraisal techniques including net present value
(NPV).
3. Discussion of the potential impacts of
following events on share price (Clearly
state the assumptions you made).
• Announcement of the new project

• Raising capital for the project
• Completion of the project
4. Discuss any of the three
potential sources of finance to
fund the project with their
respective pros and cons.
PART- 2
1. Discussion of any of the three
shareholders’ wealth valuation
methods.
2. Discussion about the signalling

effect of dividend.
Assignment Structure
A. BSC Standard Cover Page
B. Table of Contents/Tables & Figures/Abbreviations
1.0 Justification of the viability of the project
2.0 Introduction of the company and Identify the cash
inflows and outflows related to the
project
3.0 Calculate the weighted average cost of capital
(WACC)
4.0 Evaluate the project using at least two investment
appraisal
5.0 Impact of share price by announcing
the new project
6.0 Impact of share price by raising
capital the new project
7.0 Impact of share price by the
completion of the new project
8.0 Discussion of three potential sources
of finance
Part II
9.0 Discussion of any of the three
shareholders’ wealth valuation methods.
10.0 Discussion about the signalling effect of

dividend.
MARKING SCHEME
1. Research-informed Literature - 15%
Extent of research and/or own reading, selection
of credible sources, application of appropriate
referencing conventions.
• Large Number of credible literatures.
• Range of sources. ( WITH ALL “ IN –TEXT “
CITATIONS)
• In-text referencing.
• Harvard referencing
2. Knowledge and Understanding of Subject – 20%
Extent of knowledge and understanding of
concepts and underlying principles associated
with the discipline.
a)Ability to demonstrate knowledge and

understanding of the company and in key areas
such as financial planning concepts, contexts,
policies, applications, and opportunities faced
within organisational life cycles. – 20%
• Pl provide all relevant definitions,

explanations and sound interpretations'
of financial terminologies such as non
financial factors, cash flows, NPV,
WACC , different sources of finance,
dividends etc.
3. Analysis – 20%
Ability to demonstrate analytical skill by analysing,

evaluating and synthesising information related to
background of the company, financial position of
the selected company, selected project non-
financial factors, share price, source of finance,
shareholders’ wealth and dividend policies.
4. Practical Application and Deployment – 35%
Ability to apply knowledge incorporate strategy
and finance, finance sources, investment,
prioritisation, allocation, shareholder and
company value on the selected company’s
financial and non-financial information and make
financially sensible decisions.
a)Calculations pertaining to WACC & Project

evaluation will be given importance by the
examiners!
b) An attempt at the calculation of the WACC of
the company within the published information
available. Students should be demonstrating the
ability to obtain data and use these to support
their calculations. The main emphasis of the
numerical analysis will be the ability to interpret
and apply the results. A critical awareness of
any underlying assumptions. – 15%
• There may be no ‘right’ answer to any
calculations presented. It involves the ability to
analyse real life situations reflecting on your
own experiences through appropriate theories,
models, techniques and frameworks. The
assignment allows for several assumptions to be
made. This is an attempt to duplicate the reality
of management decision- making where
information is never complete!
It is essential that you document all assumptions
underlying your analysis. In marking the
calculation elements credit will be given
provided the approach adopted is reasonable
and is justified.
5. Skills for Professional Practice – 10%
• Compulsory “In-Text Citation”
• Compulsory Harvard based referencing
• Compulsory Harvard based Bibliography
• Proper numbering, sub numbering

effective arrangement & presentation
• References must be shown in alphabetical order.
• Bibliography must be shown in alphabetical order.
• Proper formatting, proper numbering, proper

paragraphing etc must be pursued.
• There must be a high degree of critical thinking with

the application of good English, effective
presentation, logic of argument and clarity of
exposition must be seen in your assignment.
Answer Plan
PART- 1
QUESTION-1:
1. Justification of the viability of the
project for the chosen company on
non-financial grounds (feasibility
study is NOT required).
Answer Plan for Question-1:
Students must provide a
comprehensive critical discussion of
the following on a generalized basis:
Synergy, market potential, competitive

edge, other benefits derived from the
project etc.
• Synergy – Synergy is the concept that the value
and performance of two companies or two
projects combined will be greater than the sum
of the separate individual parts.
i. The expected synergy achieved
through undertaking the new
project can be attributed to
various factors, such as
increased revenues, combined
talent and technology, or cost
reduction etc.
ii. Another example of synergy will be, if this is
a product development project the product
development team may consist of marketers,
analysts, and R&D experts. This team
formation could result in increased capacity
and work flow and, ultimately, a better
product than all the team members could
produce if they work separately.
iii. There can be sound market potential for the
newly developed project.
iv. The new project can provide the company a

competitive edge in the long term by providing
positive cash flows for a considerable number
of years.
v. The project can yield significant benefits to
the society and so it may be eligible for tax
holidays, tax concessions or perhaps subsidies
from the government
QUESTION-2
a)Identify the cash inflows

and outflows related to
the project
Answer Plan:
1. Use a Public Listed Company
(preferably geared) selected of your
choice.
Introduce the PLC by providing key details

about its major business activities and
producing tables with regard to its profits
and cash flows over the past 5 years.
2. The process of Identifying the cash inflows
and outflows related to the project is as
follows;
With regard to relevant cash ‘in flows’ and

‘outflows’, you need to estimate approximate
figures based on the type of the company and
your own exposure or experiences to such
forecasting activities!!!
3) How to estimate ‘Initial Cash Outlay’( for year-0
only)?
• Cost of initial market research xxx
• Legal & secretarial fees xxx
• Staff training costs xxx
• Cost of buying any capital items xxx

4) How to estimate ’Cash Out Flows’;( Yrs. 1 to 5)?
• Employee salaries xxx
• Material costs xxx
• Marketing costs xxx
• Other operational costs xxx

( utilities, insurance, fuel, internet etc)
4) How to estimate ‘Cash In Flows’;( Yrs. 1 to 5)?
• Estimate the sales per year and also the selling
price per unit (Pl mention all relevant
assumptions)
b) Calculate the weighted average
cost of capital (WACC) for the
project (clearly state the
assumptions with respect to sources
of finance and costs of capital).
Answer Plan:
The WACC which is also known as the
discounting rate used for the purpose
of calculating the Net Present Value(
NPV)
1. Definition
Weighted average cost of capital (WACC) is the

average rate of return a company expects to
compensate all its different investors. The weights
are the fraction of each financing source in the
company's target capital structure.
2.The formula for weighted average cost of capital
is as follows:
WACC = ((E/V) * Re) + [((D/V) * Rd)*(1-T)]
E = Market value of the company's equity

D = Market value of the company's debt
V = Total Market Value of the company (E + D)
Re = Cost of Equity
Rd = Cost of Debt
T= Tax Rate
• Equity capital return is the expected return of
equity shares in that industry - X%
(Calculate ROE over the past 5 yrs and
Obtain the annual average.)
• Existing loan capital - Y%
(Find the interest rates from company
Statistics)
• Long term capital what you have - Z%
Raised for this project
( Check the website for long term rates)
a) Components of the WACC are defined as follows;
• Cost of Equity (Re ) = Rf + [E(Rm) – Rf] x β ( i.e. the

CAPM formulae)
OR
The formulae based on Dividend Growth Model is
as follows;
• Cost of debt(Rd) = K(1-T)
K=Current Market Interest Rate
T=Tax Rate
b.) For example, a firm's financial data shows the
following:
• Equity = $8,000
• Debt = $2,000
• Re = 12.5%
• Rd = 6%
• Tax rate = 30%
c) To find WACC, enter the values into the
equation and solve:
–WACC = 0.1 + .0084 = 0.1084 or 10.84%.

d.)The WACC is the discounted rate

that is applied in the investment
appraisal process (NPV) when
discounting cash flows!
3) Now prepare a NPV statement with
the data that you collected with regard
to;
–Initial capital outlay
–Cash outflows
–Cash inflows
- WACC or the Discount Rate
C.) Evaluate the project using at least two
investment appraisal techniques including net
present value (NPV).
1.) A Typical NPV Statement( Example)

Year Cash flow 10% DCF(WACC) PV
0 (1,000) 1.000 (1,000)
1 500 0.909 455
2 500 0.826 413
3 500 0.751 376
4 500 0.683 342
5 500 0.621 311
NPV = 897
2.) Discounted payback method:
Yr 0 1 2 3 4 5
Discounted (1,000) 455 413 376 342 311

Cash flows
Cumulative Dis
Cash flows (1,000) (545) (132) 244
Discounted
Payback
Period = 2yr + 132/376 = 2.35 yrs
Discounted pay back period = A + B/C
 Where,
A = Last period with a negative discounted cumulative
cash flow;
 B = Absolute value of discounted cumulative cash flow

at the end of the period A;
 C = Discounted cash flow during the period after A.
• If the discounted payback period is less that the

target period, accept the project. Otherwise reject.
QUESTION-3
Discussion of the potential impacts of
following events on share price
(Clearly state the assumptions you
made).
• Announcement of the new project
• Raising capital for the project
• Completion of the project
Answer Plan:
a.) Announcement of the new project

If the market sentiments about the company
and the proposed project is really positive then
the share price will go up and vice versa.
b.) Raising capital for the project
If capital is raised by issuing new shares to the
general public then in the very short term EPS
will come down due to excessive shares in
circulation and thus the overall market value will
also tend to come down immediately. However, if
the project is perceived to yield worthwhile
benefits then in the long term share price will go
up because the investing public perceives the
potential positivism in the new project!
c.) Completion of the project
When the project is completed and set to
take off with a variety of benefits including
increases in dividends then share prices will
increase and vice versa.
4. Discuss any of the three potential
sources of finance to fund the
project with their respective pros
and cons.
Answer Plan:
A.) Equity Finance

• Equity finance, is the process of raising capital
through the sale of shares in a business, can
sometimes be more appropriate than other
sources of finance, eg bank loans - but it can place
different demands on you and your business.
a) Advantages of equity finance
Raising money for your business through equity finance
can have many benefits, including:
• The funding is committed to your business and your
intended projects. Investors only realise their
investment if the business is doing well, e.g. through
stock market flotation or a sale to new investors.
• You will not have to keep up with costs of servicing
bank loans or debt finance, allowing you to use the
capital for business activities.
• Outside investors expect the business to deliver
value, helping you explore and execute growth ideas.
• Some business angels and venture capitalists can
bring valuable skills, contacts and experience to
your business. They can also assist with strategy
and key decision making.
• Like you, investors have a vested interest in the

business' success, ie its growth, profitability and
increase in value.
• Investors are often prepared to provide follow-up

funding as the business grows.
b) Disadvantages of equity finance
However, there are drawbacks of equity finance too.
It's worth considering that:
• Raising equity finance is demanding, costly and
time consuming, and may take management focus
away from the core business activities.
• Potential investors will seek comprehensive
background information on you and your business.
They will look carefully at past results and
forecasts and will probe the management team.
However, many businesses find this process
useful, regardless of whether or not any
fundraising is successful.
• Depending on the investor, you will lose a certain
amount of your power to make management
decisions.
• You will have to invest management time to

provide regular information for the investor to
monitor.
• There can be legal and regulatory issues to comply

with when raising finance, eg when promoting
investments.
B.) Debt Financing
Borrowing money to finance the operations and
growth of a business can be the right decision
under the proper circumstances. The owner
doesn't have to give up control of his business, but
too much debt can inhibit the growth of the
company.
a) Advantages of Debt
• Control: Taking out a loan is temporary. The
relationship ends when the debt is repaid. The
lender does not have any say in how the owner runs
his business.
• Taxes: Loan interest is tax deductible, whereas

dividends paid to shareholders are not.
• Predictability: Principal and interest payments are

stated in advance, so it is easier to work these into
the company's cash flow. Loans can be short,
medium or long term.
b) Disadvantages of Debt
• Qualification: The company and the owner must
have acceptable credit ratings to qualify.
• Fixed payments: Principal and interest payments

must be made on specified dates without fail.
Businesses that have unpredictable cash flows
might have difficulties making loan payments.
Declines in sales can create serious problems in
meeting loan payment dates.
• Cash flow: Taking on too much debt makes the
business more likely to have problems meeting
loan payments if cash flow declines. Investors will
also see the company as a higher risk and be
reluctant to make additional equity investments.
• Collateral: Lenders will typically demand that

certain assets of the company be held as collateral,
and the owner is often required to guarantee the
loan personally.
C.) Government Grants
• If you're planning PLC is planning to expand
consider using government grants. For example,
SEngine Precision Medicine, a start-up involved in
cancer research, got a $3.1 million grant from the
National Institutes of Health.
• As long as your PLC have a plan and a clear

purpose, it may be worth applying for one. Just
beware that eligibility requirements are quite
strict.
a) Advantages of government grant
• One of the primary benefits of government grants
is that you don't have to pay anything back. It's
free money for your business. This can take some
pressure off your shoulders so you can focus on
other aspects, such as improving your products.
• Additionally, funding is available in a wide range

of categories, from health and wellness to
science, commerce and education. You can use
this money to expand your business and generate
more revenue
b) Disadvantages of Government Grants
The government grants often come with strings
attached. Even if you qualify for one, you cannot
use the money however you want. It's
imperative that you stick to the initial plan and
comply with the rules. Plus, you need to track
your progress and submit regular reports to the
agency that gave you the grant.
• The most challenging aspect of a grant
application is crafting the proposal. No matter
how innovative your project is, it's worth nothing
without a convincing proposal and a solid plan.
Government agencies usually have very strict
criteria. Therefore, the completion of a successful
proposal takes a lot of research and know-how.
• Most government grants are short term. When
you run out of money, you have to find new
funding sources. That's why it's important to use
the money wisely and make the most out of your
grant.
Part II
a) Discussion of any of the three
shareholders’ wealth valuation
methods.
b) Discussion about the signalling

effect of dividend.
a) Discussion of any of the three shareholders’
wealth valuation methods.
Answer Plan:
1) Define shareholder wealth value concept
2) Explain three methods used in evaluating

shareholder wealth value
• A company’s shareholder value depends on
strategic decisions made by its board of directors
and senior management, including the ability to
make wise investments and generate a healthy
return on invested capital. If this value is created
over the long term, the share price increases and
the company can pay larger cash dividends to
shareholders. This result in increased shareholder
value & vice versa.
• There are 3 important ways of measuring

shareholder wealth value
a.) Earnings Per Share Valuation Method
If management makes decisions that increase net
income each year, the company can either pay a
larger cash dividend or retain earnings for use in
the business. A company’s earnings per share (EPS)
is defined as earnings available to common
shareholders divided by common stock shares
outstanding, and the ratio is a key indicator of a
firm’s shareholder value. When a company can
increase earnings, the ratio increases and investors
view the company as more valuable.
b.) Asset Based Valuation Method
• Companies raise capital to buy assets and use
those assets to generate sales or invest in new
projects with a positive expected return. A well-
managed company maximizes the use of its assets
so the firm can operate with a smaller investment
in assets.
• Assume, for example, a plumbing company uses a
truck and equipment to complete residential
work, and the total cost of these assets is
$50,000. The more sales the plumbing firm can
generate using the truck and the equipment, the
more shareholder value the business creates.
( i.e. Sales /Assets)
c.) Cash Flow Based Valuation
• Generating sufficient cash inflows to operate the
business is also an important indicator of
shareholder value, because the company can
operate and increase sales without the need to
borrow money or issue more stock.
• Firms can increase cash flow by quickly

converting inventory and accounts receivable into
cash collections
• A high rate of both inventory turnover and
accounts-receivable turnover
increases shareholder value.
b) Discussion about the signalling
effect of dividend.
Answer Plan:
Discuss what is signalling effect of

dividends and how does it occur
Signalling effects of dividends
• The asymmetric dividend theory says that financial

information is asymmetric and managers will
always know more than shareholders, about the
future financial prospects of the company.
• As a result, shareholders will read signals into the

dividend decision that managers make to try to
discover this extra knowledge
• Asymmetric information can occur when
management has more (inside) information about
the firm than stockholders have access to.
• Consider the case where the firm has followed a
particular pay-out policy for a long time, when it
is somewhat secretive about its plans or
strategies, or when stockholders don't make an
effort to keep up on the factors impacting the
value of their stock investment. In this case
signalling will be most pronounced when an
existing dividend policy is changed unexpectedly.
• Dividends are paid out when a company satisfies
its internal needs for cash. But, if a company cuts
its dividends, stockholders may become worried
that the company is not generating enough
earnings to satisfy its internal needs for cash as
well as pay out its current dividend.
• The dividend cut can be for a good investment

purpose or perhaps money used to pay for a law
suit.
• In both instances share prices can be positive and
negative respectively but the shareholder is
unaware of these information until a later date
though managers will be aware of these two
developments immediately
• This is how asymmetric information is at work. It's the

uncertainty about the worth of one's investment as
produced by lack of information about dividend
changes that can really hurt a company's stock price.
That’s it!!!

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Corporate Finance Assignment

• Very important notes that

• The deadline for submission is 14th of November -

• No late submissions, after, 14th of November -2019,

• Student Handbook, MBA Handbook , and

 Plagiarism involves taking someone else’s

 Any academic matter taken from your own

 Any referencing made (From the Internet or any

 Any Direct Copy and Paste even though cited will

 References and bibliographic information is

• Examiners’ consider not providing in- text

• The in-text citation should consist of author

• Select a PLC which has financial details over

• Develop a project for the company of your

• Write a report to the board

• Announcement of the new project

2. Discussion about the signalling

10.0 Discussion about the signalling effect of

a)Ability to demonstrate knowledge and

• Pl provide all relevant definitions,

Ability to demonstrate analytical skill by analysing,

a)Calculations pertaining to WACC & Project

• Compulsory Harvard based referencing

• Compulsory Harvard based Bibliography

• Proper numbering, sub numbering

• Bibliography must be shown in alphabetical order.

• Proper formatting, proper numbering, proper

• There must be a high degree of critical thinking with

Synergy, market potential, competitive

iv. The new project can provide the company a

a)Identify the cash inflows

Introduce the PLC by providing key details

With regard to relevant cash ‘in flows’ and

• Legal & secretarial fees xxx

• Staff training costs xxx

• Cost of buying any capital items xxx

• Material costs xxx

• Marketing costs xxx

• Other operational costs xxx

Weighted average cost of capital (WACC) is the

E = Market value of the company's equity

• Cost of Equity (Re ) = Rf + [E(Rm) – Rf] x β ( i.e. the

K=Current Market Interest Rate

–WACC = 0.1 + .0084 = 0.1084 or 10.84%.

d.)The WACC is the discounted rate

1.) A Typical NPV Statement( Example)

Discounted (1,000) 455 413 376 342 311

 B = Absolute value of discounted cumulative cash flow

 C = Discounted cash flow during the period after A.

• If the discounted payback period is less that the

a.) Announcement of the new project

A.) Equity Finance

• Like you, investors have a vested interest in the

• Investors are often prepared to provide follow-up

• You will have to invest management time to

• There can be legal and regulatory issues to comply

• Taxes: Loan interest is tax deductible, whereas

• Predictability: Principal and interest payments are

• Fixed payments: Principal and interest payments

• Collateral: Lenders will typically demand that

• As long as your PLC have a plan and a clear

• Additionally, funding is available in a wide range