Corporate Finance:Project Help Manual

Last date of submission: within 2 weeks of date of starting of project

Only Soft Copy and word document along with Excel Sheet to be submitted. No Hard Copy
Submission required. No PDF submission.

One final consolidated Excel Sheet and a Consolidated Report to be submitted for each team.

For formatting stick to standard rules. (Times new roman, 12 font size etc.)

Specify the objectives of the project (e.g. estimation of cost of capital, analysis of corporate
government etc.)

Specify the methodology for the objectives by clearly mentioning any assumptions taken.

Conclusions for the consolidated report in brief.

Mention any lengthy data as a part of appendix in your report.

In excel sheet proper linkages for all data is required.

Proper referencing from the sources has to be mentioned.

This lists some of the questions that may come up in the context of the project.

I. Corporate Governance Analysis

To understand the relationship between managers and stockholders, try answering the
following questions. Note that you may not have the information to answer every
question, but try to keep your focus on the big questions.
1. The Chief Executive Officer and Chief Finance Officer
Who is the CEO and CFO of the company? How long has he or she been CEO or
CFO?
If it is a family run company, is the CEO and CFO part of the family? If not, what
career path did the CEO and CFO take to get to the top? (Did he or she come
from within the organization or from outside?)
How much did the CEO and CFO make last year? What form did the
compensation take? (Break down by salary, bonus and option components)
How much stock and options in the company does the CEO and CFO own?
2. The Board of Directors
Who is on the board of directors of the company? How long have they served as
directors?
How many of the directors are insider directors? (i.e. employees or managers of
the company)
How many of the directors have other connections to the firm (as suppliers,
clients, customers...)?
How many of the directors are CEOs of other companies?
Do any of the directors have large stockholdings or represent those who do?

II. Stockholder Analysis

To understand who the average and marginal investors in the firm are, try answering the
following questions:
1. Who holds stock in this company?
How many stockholders does the company have?
What percent of the stock is held by institutional investors?
Does the company have listings in foreign markets? (If you can, estimate the percent of
the stock held by non-domestic investors)
2. Insider Holdings
Who are the insiders in this company? (Besides the managers and directors, anyone with
more than 5% is treated as an insider)
What role do the insiders play in running the company?
What percent of the stock is held by insiders in the company?
What percent of the stock is held by employees overall? (Include the holdings by
employee pension plans)
Have insiders been buying or selling stock in this company in the most recent year?

III. Cost of Capital (WACC) and Risk and Return Calculation

(Major Focus of the Project)
1. Estimating Risk and Return
Calculate your firms last 4-5 years of returns and risk(standard deviation)
Comment on the fluctuating risk-return trade off. As an investor, was it worth
undertaking the investment in share with the given level of risk?
Calculate beta for the last 4-5 years for your firm. This would be used for assessing the
riskiness of the firm w.r.t. the market as well as for calculation of cost of equity (CAPM
approach)
2. Estimating Cost of Capital
Weights for Debt and Equity
What is the market value of equity and debt?
What are the weights of debt and equity?
Cost of Capital
What is the cost of capital for the firm?
Calculate cost of equity through Gordon Model, CAPM model and P/E multiple
approach.
For calculation of WACC you may pick any one of the approaches for cost of
equity however it has to be justified as why do you think this approach is abetter
predictor of WACC.

IV. Comment on Capital Structure Choices

To analyze the existing financial mix of the firm and to assess, from a qualitative tradeoff
between the benefits and the costs of debt, whether the firm has too much or too little debt, try
answering the following questions:
How does the capital structure of firm look like? (find out the trend for last few years for
interpretation)
Whether the firm is leveraging too much or too little?
Whether the firm has too much or too little debt relative to the sector and the market? (this can
be commented once final group project report is prepared)

V. Comment on Optimal Capital Structure

Cost of Capital Approach
What is the current cost of capital for the firm?
What happens to the cost of capital as the debt ratio is changed?
At what debt ratio is the cost of capital minimized and firm value maximized? (If they
are different, explain)

VI. Comment on Dividend Policy

To analyze how much the firm has returned to stockholders in the past, and to assess, from a
qualitative trade off, whether it should return more or less, try the following:
1. Historical Dividend Policy
How much has this company paid in dividends over the last few years?
How much stock has this company bought back over the last few years?
2. Firm Characteristics
Who is the average stockholder in this firm? Does he or she like dividends or would they
prefer stock buybacks?
How does this firm compare with other firms in the sector in terms of dividend policy?

VII Consolidated Report and Comment on Industry

All individual analytical reports should be aggregated into one final report.
Report will include interpretation of findings and Comment on overall structure of industry.
You may like to find answer to following questions:

 Whether the industry as a whole is too much leveraged or too little?(capital structure)
What is the average cost of capital trend for the industry?
Financing is too expensive or too cheap?
What is the dividend payout trend for the industry chosen?
Why some players are paying too dividend while others too little?
What is the difference regarding the capital structure for the different players.
Any other observation.