Acf 302

Reports
 The purpose of the reports is to provide an opportunity

to get some hands-on experience applying corporate
finance theory and models in the area of capital structure
to real firms
 The reports are assessed as group work only.
 The total weight of the 3 reports is 22% of the overall

assessment.
 Report 1: 4% (Submission deadline Week 4)
Important information
 You will be allocated into groups during tutorial time in week 2.

 Each group member has to choose 1 non-financial firm listed in the
FTSEAll index. The list of FTSEAll non-financial firms can be found in
LUVLE. Make sure that your company has at least four years of
trading history and four annual financial statements (2006-2009). You
have to carefully choose your firms as you will analyze and compare
the same firms in each of the three reports.
 Each person will be responsible for doing the entire analysis
for the company that he or she has chosen.
 Each group will produce three reports by the end of the term. In
these reports, your firms will be compared and contrasted and the
results will be presented as a whole rather than as separate parts.
Important information (cont.)
 You must use font size 12 and single spacing. You are
highly advised not to include appendix.
 No marks will be given for purely quoting text and for
any material included in the appendix of the coursework.
 Each report must have a reference list that conforms to
academic standards. (Listing websites only is not sufficient.
Good examples can be found in good journals such as the
Journal of Finance.)
 Include in the front page of each report the full
name, the library card number and the firm of
each group member.
Important information (cont.)
 The reports have to be submitted as a hard copy to the
Undergraduate Office (in the coursework box located
outside C38).
 All email communication has to use the email accounts
from Lancaster University. Emails from other accounts
will be treated as spam, i.e. deleted immediately. All
communication has to mention the names of all group
members.
Report 1
Submission deadline: Week 4, Friday 5 of November at 12:00 (noon)
This first report should:
 Be limited to 1000 words (this does not include tables).

 Briefly describe the firms that you choose to analyze for your coursework
assignments.
 Provide information on the capital structure of your firms for the last 4
years. Explain clearly how you measure leverage and why.
 If significant changes occurred in the capital structure try to explain what
might have triggered these changes.
 Useful tips:
 For this report you will mainly use material from Lecture 3.
 The paper by Rajan and Zingales (1995) provides some useful information
on how to measure leverage.
Report 2
Submission deadline: Week 6, Friday 19 of November at 12:00

(noon)
This second report should:

 Describe the current capital structure of the firms and try to
explain why it is chosen.
 Link the decisions to the content of the lectures and/or required
readings and try to apply this content to the firms.
 Compare the firms and try to explain why capital structure
decisions differ or not. The firms may have similar or different capital
structures.
 Include some critical evaluation of the decisions.
Report 2 (Cont.)
Useful tips:
 For this report you will mainly use material from Lectures 4, 7 and 8.
 Look at the benefits of debt, for example:
 What marginal tax rate does the firm face?
 Are there other tax deductions that this company has (like depreciation) to reduce the
tax?
 Does your company have high free cash flows?
 Has it taken and does it continue to have good investment projects?
 Will there be an advantage to using debt in this firm as a way of keeping managers in line
or do other (cheaper) mechanisms exist?
 Look at the costs of debt, for example:
 How high are the current cash flows of the firm (to service the debt) and how stable are
these cash flows (look at the variability in the operating income over time)?
 How important is bankruptcy cost?
 How easy is it for bondholders to observe what equity investors are doing?
 Are the assets tangible or intangible?
 Are there any bond covenants?
 How much does your firm value flexibility?
Report 3
Submission deadline: Week 9, Friday 10 of December at 12:00 (noon)
This final report should:

 Estimate the optimal capital structure of your firms based upon the cost of capital approach.
 If the actual debt ratio of your firm is different from its “recommended” debt ratio, how
should the firm get from the actual to the optimal? In particular,
 Should they do it gradually over time or should they do it right now?
 Should they alter their existing mix (by buying back stock or retiring debt) or should they
take new projects with debt or equity?
 What type of financing should this firm use? In particular,
 Should it be short term or long term?
 What currency should it be in?
 Useful tips:
 For this report you will mainly use material from Lectures 9 to 13.
 You can use beta from the spreadsheet provided in LUVLE.

Acf 302

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Reports

 The purpose of the reports is to provide an opportunity

 The reports are assessed as group work only.

 The total weight of the 3 reports is 22% of the overall

 You will be allocated into groups during tutorial time in week 2.

This first report should:

 Be limited to 1000 words (this does not include tables).

Submission deadline: Week 6, Friday 19 of November at 12:00

This second report should:

 Be limited to 2000 words (this does not include tables).

Submission deadline: Week 9, Friday 10 of December at 12:00 (noon)

This final report should:

 Be limited to 1200 words (this does not include tables).

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