FALL 2018

TERM PAPER GUIDELINES

CORPORATE FINANCE (FIN 440)
INSTRUCTOR: KAMRUL HUDA TALUKDAR, SCHOOL OF BUSINESS AND ECONOMICS
NORTH SOUTH UNIVERSITY

Guidelines

• This is a GROUP project. Groups should not exceed 5 members.

• Since, it is a group project; the workload should be divided equally among the group
members. It is the task of the group members to make sure that everyone is involved in
the project. If any team member is reluctant to cooperate or do not make any
contribution to the group work, he or she will be penalized. If anyone found not
contributing to the project, please report to me in advance.
• Be original. Avoid copying and pasting from term papers and articles written by others.
If you need to include something from others’ works, it should be supported by proper
referencing (i.e. you have to mention from where you have taken).
• All papers are to be professionally typed on standard A4 paper using 1.5 line spacing.
• Page limit – 30 pages maximum – remember quantity need not reflect quality.
• Cover page and any appendices are included in the page limit
• you should make good use of tables and appendices where applicable
• Both the hard copy and the soft copy of the report should be submitted. The soft copy is
required so that I can check for plagiarism.

Important Deadlines

• Submission of Report → December 22 , 2018

• Group Presentation of the Report →Within one week after the submission

Project Details

Part 1: Forecasting
• All groups have been assigned with DSE listed companies. Collect required financial data
(last 5 years) for the companies (Audited annual reports/financial statements and
trading data).
• Forecast sales for the next 3 to 5 years.
• Create pro-forma income statement for the company (3 to 5 years) assuming sales
growth rate each year is the rate at which all the other major components will increase
(except interest expense which will change at a constant ratio with Long-term Debt).
• Assuming the NWC and Debt ratio is constant create completed pro-forma balance
sheet for the company (3 to 5 years).
o The Long-term Debt and the Equity will initially remain constant to find the EFN
 FALL 2018
TERM PAPER GUIDELINES
CORPORATE FINANCE (FIN 440)
INSTRUCTOR: KAMRUL HUDA TALUKDAR, SCHOOL OF BUSINESS AND ECONOMICS
NORTH SOUTH UNIVERSITY
o Then increase Long-term Debt and the Equity according to the Debt ratio to raise
the EFN.
o The interest expense in the income statement will subsequently increase due to
the change in Long-term debt
o This in-turn will change the retained earnings and EFN. Continue changing the
debt (keeping the debt ratio constant) until EFN becomes zero or negative which
will be your final pro-forma balance sheet
• Provide a write-up describing the steps that you have gone through to prepare the pro-
forma statements and also indicate the assumptions (if any) and decisions you have
taken to fund the EFN. Give proper reasoning for each assumption and decision
• The print outs of the pro-forma statements and the ratios used for calculations should
be attached with the final report.

Part 2: Calculation of Returns and WACC

• Collect the monthly closing prices the company and the DSE General Index (later
changed to DSE-X Index) from the stock exchange for at least 5 years or more.
• Find the monthly rates of return of stock and the index in an excel file.
• Find the beta coefficients of both the companies using the above information. (Use the
index as a proxy for the market) in the same excel file
• Using CAPM find the required rate of return of the stock.
a. Find the latest Treasury bill rate from Bangladesh Bank website and use it as the
risk-free rate of return
b. Use the average market return
• Using the required rate of return as the cost of equity, 27.5% as the tax rate, and the
(Interest Expense / Total Interest bearing debt) ratio as the cost of debt calculate the
latest year’s WACC.
• Write down in a detailed description of all the steps that were done in the excel file and
comment on your findings.

Part 3: Company Valuation

• Calculate the Free Cash Flow (FCF) of the company for each of the forecasted years from
Part-II. Use this formula for Free Cash Flow: FCF = EBIT(1-T) + Depreciation Expense –
(Capital expenditure + Change in NWC)
a. Capital expenditure = Present year fixed asset – Previous year fixed asset
 FALL 2018
TERM PAPER GUIDELINES
CORPORATE FINANCE (FIN 440)
INSTRUCTOR: KAMRUL HUDA TALUKDAR, SCHOOL OF BUSINESS AND ECONOMICS
NORTH SOUTH UNIVERSITY
b. Change in NWC = Present year Net Working Capital – Previous year Net Working
Capital (This can be equal to zero if you have kept NWC constant).
• Assuming the P/E ratio of the last year is kept constant, calculate the Stock Price of the last
pro-forma year using that year’s EPS. Remember if you have increased common stock to
fund EFN before then your number of shares outstanding has increased. Keep that into
consideration while calculating EPS
• Calculate the Enterprise Value of the last pro-forma year using the stock price calculated in
previous point.
• Find the value of the company by adding the present value of all the forecasted FCF and
the forecasted enterprise value. Here the enterprise value is considered as the salvage
value. Use the WACC calculated in Part-III as the discount rate.
• Provide a write-up describing the steps that you have gone through to calculate the
value of the company.