This assignment is to be considered optional, accounting for 20% of the course grade if it is accepted. Students may, either individually or in groups of 2 or 3, work on any of the projects described below. Students should sign up below (either as individuals or in groups) for one of the projects listed below. Groups made up of two or three students will list each of their names together on a sheet that the instructor will make available in the class. The projects are offered on a “first-come, first-serve” basis. Students must inform the instructor by March 31 of their intent to complete the project and whether they intend to do so in a group along with those group members. Some students may wish to have grade feeback for the course prior to the mid-semester break. Completing and submitting the project prior to March 1 would ensure this timely feedback. Students may wish to consider whether they have the technical expertise and interest before selecting a given project. Students who select spreadsheet projects may wish to view a sample student spreadsheet project that may be linked to at http://www.rpi.edu/~tealj2/spreadsheets1.htm . Finally, students should not submit projects which have been submitted in other courses. While the project is expected to be original, any material used for it must be carefully documented and cited. Students should carefully cite any work, paper, book, article, electronic communication or software, whether published or unpublished that was used as a reference for their project. Any material that was copied into their project must be appropriately footnoted and cited. Authors of term papers should take great care in ensuring that their papers are well-written and conform with appropriate style guidelines. Writing style and quality of presentation will count towards the grade for the project. Students who prefer may negotiate terms of some other project type with the course instructor. The project will be due during the last class meeting before the second exam.
Spreadsheet Based Projects
1. Spreadsheet-based Financial Calculator: Students will create a user-friendly Web-based calculator system that could be used by students in this course. The calculator system will be able to perform computations for Capital Budgeting, multi-stage growth models, duration problems, EFN, DOL, DFL, Warrants and Convertibles and other algorithms used in this course. The calculator will be accessible to users of an Excel spreadsheet. Each of the formulas that we have used in this course should be included on this easy-to-use financial calculator. The formulas need not be explained; however, the user must be told where a given formula is calculated, how to use the calculator, what inputs are required for each formula and how to interpret the outputs. You may assume that the user understands all of the financial implications of the inputs, outputs and to formula itself.The spreadsheet is expected to be "user-friendly" spreadsheet files with appropriate documentation and or VBA code capable of performing the task given in the project description list. Students should test their programs, where possible, test each others' programs and to "work out bugs" their own and in each others' programs. The spreadsheet files should be usable in Excel. I emphasize that the package should be user friendly. This means that the project should include adequate documentation, instructions on disk, VBA code (this may be sufficient in and of itself), macros and on-screen explanations for its use by anyone familiar with the analytical and financial technique used in the spreadsheet. You should assume that the user of the spreadsheet file is able to use the spreadsheet only based on the instructions that you provide with the file. Verbal instructions will not be helpful because the user will not be able to remember them. The user of this package should be able to input his own data to generate relevant outputs. It is not necessary for you to input relevant data except for the purpose of testing your program. However, the user of the program (i.e., me) should be able to enter a series of relevant inputs (described below) to obtain the required outputs. (limit: 2 groups with 1-3 students each)
2. Create a comprehensive spreadsheet-based package to be used by a firm for its capital budgeting decisions. The spreadsheet will require the user to enter all of the relevant components necessary for making a broad array of capital budgeting decisions based on criteria discussed in the course (see Chapters 7 and 8 in the Coursepack, and be sure that the calculator includes multi-stage growth models, duration models, depreciation calculations, taxes, salvage value, tax credits, growth, inflation, amortization, projects with different life expectancies, etc.) The spreadsheet is expected to be "user-friendly" spreadsheet files with appropriate documentation and or VBA code capable of performing the task given in the project description list. Students should test their programs, where possible, test each others' programs and to "work out bugs" their own and in each others' programs. The spreadsheet files should be usable in Excel. I emphasize that the package should be user friendly. This means that the project should include adequate documentation, instructions on disk, VBA code (this may be sufficient in and of itself), macros and on-screen explanations for its use by anyone familiar with the analytical and financial technique used in the spreadsheet. You should assume that the user of the spreadsheet file is able to use the spreadsheet only based on the instructions that you provide with the file. Verbal instructions will not be helpful because the user will not be able to remember them. The user of this package should be able to input his own data to generate relevant outputs. It is not necessary for you to input relevant data except for the purpose of testing your program. However, the user of the program (i.e., me) should be able to enter a series of relevant inputs (described below) to obtain the required outputs. (limit: 2 groups with 1-3 students each)
3. One of the most important functions of the corporate treasurer is to manage the firm's cash balances. Unfortunately, most MBA programs provide relatively little training on the subject, often leaving much of the discussion to a managerial accounting course and an introductory finance course. Your mission, if you accept tis project, is to remedy this shortcoming by engaging in some independent research and employing a bit of creativity to develop your own spreadsheet-based cash management program. Perhaps, your goal will be to develop a very flexible skeleton for a cash management program that can be easily and effectively tailored for small business clients. Think of the firm's cash balance as an inventory of cash, which is used by the firm to pay its bills but is replenished with its cash and near-cash receipts and by its liquidation of marketable securities. Your program should balance goals of minimizing the opportunity cost of holding cash while minimizing the costs of running out of cash or maintaining balances that are too low. Your program should be capable of being tailored for a manager who is not a finance specialist, but understands very basic accounting and finance and is fairly comfortable working with a spreadsheet. Your program should be very user friendly, employing appropriate on-sheet documentation and VBA code where appropriate. (limit: 2 group with 1-3 students)
Problem-Based Project
4. Answer a series of questions and problems to be provided by the instructor. The problem sets will emphasize applications of algorithms and concepts discussed in the course to real- world situations and data. On-line and computer-based information and data retrieval systems will be most useful and practically required. Spreadsheet use is encouraged for this exercise. This exercise may serve as useful preparation for the final exam, though the exercises to be provided may be regarded as challenging. Problem sets will be made available by the professor to students who select this project at some point near the middle of the term. limit: 2 groups with 1-3 students each)a. The focus for this project is Kindred
Healthcare Incorporated (KND),
an
NYSE-traded Fortune 500 firm. Record end-of-month stock prices for five
years from December 2008 to December 2013 (sixty-one prices
altogether).
The stock price information can be obtained in ASCII or spreadsheet
format
from Yahoo Finance and from a variety of other sources.
b. Record 61 months of values for the S&P 500 stock market
index (^GSPC is the symbol for Yahoo Finance) for the same periods as
in
Item 1.
c. Compute for your stock each of the following:
i. 60 monthly returns, one
for each month to December 2014, based on the sixty months of stock
price
data for each stock and for the market. Adjust your market returns to
allow
for a dividend yield (not necessary if you use Yahoo Finance –
this data
is dividend adjusted).
ii. historical return
variance based on 60 monthly returns for both the stock and the S&P
500 index. Monthly variances and covariances can be annualized by
multiplying by 12. Standard deviations are annualized by multiplying
monthly standard deviations by the square root of 12. Indicate both
monthly and annual variance statistics.
iii. historical covariance
between the stock and the index over the 60-month period.
iv. historical correlation
coefficient between the stock and the index over the 60- month period.
This value will not be affected by the interval of measure.
d. historical stock beta for the stock using the
S&P 500 as the market index.
e. Gather 10-k and other relevant SEC filings for
Kindred from Kindred’s web site and/or from Edgar.gov. Perform a
fundamental analysis based on financial statements to gauge the risk of
Kindred’s stock. As part of your analysis, answer the following:
i. What is the Degree of Financial
Leverage
for Kindred? What is the Degree of Operating Leverage for Kindred? What
is
the level of Fixed Payments Leverage (total leverage) for Kindred?
ii. Compare DOL, DFL and FPL along with
other
appropriate leverage ratios to those of Kindred’s industry peers.
f. Based on your fundamental analysis of current
balance sheet and income statement data, do your statistical historical
estimates seem to accurately reflect the company's current risk
position?
g. If your answer to Question 5 is no, discuss how
you might provide a revised risk estimate. If your answer is yes,
justify it.
h. What is the current one-year riskless return rate?
(One will be sufficient. List both the rate and the date applicable to
this rate, since the rate changes on a daily basis.)
i. Suppose that the economist for your firm predicts
a ten-percent return on the market portfolio over the next year. Based
on the Capital Asset Pricing Model and your riskless return estimate,
what return might you forecast for Kindred over the next year?
j. What is the average growth rate associated with
dividends for Kindred? For EPS? For Free cash flows on a per-share
basis?
For how long might you expect that these growth rates will be
sustained? What do you think the dividend for your company will be in
ten years? Why? What do you think the earnings growth rate for your
company will be in ten years? For free
cash flows? What do you think will be the share price for this company
in
ten years? Justify all of your answers to this question, though, there
is
quite a bit of "guesstimation" required on your part.
k. At what discount rate would you discount future
cash flows or dividends for this company?
l. Based on your answers to above questions, what do
you think the present value of Kindred stock to be? That is, based on
your answers to above questions, what do you think the intrinsic value
of Kindred stock to be? Is it currently underpriced or overpriced by
the
market?
m. How liquid is Kindred relative to other companies
in
the same industry?
n. Compile a list of what you believe to be
Kindred’s
financial strengths and weaknesses.
o. Prepare a professional quality security analyst
report for Kindred.
p. Provide a comment on the quality of corporate
governance systems at Kindred. How has this changed in the past 5 years?
Your final project should show all of your work and properly cite all
sources (including Web, periodicals and oral) for information. It may
be
useful to submit spreadsheets with calculations. Be certain that all
work
is your own. The following web sites may be helpful:
http://phx.corporate-ir.net/phoenix.zhtml?c=129959&p=irol-IRHome
http://rpi.edu/~tealj2/Yale
NYSSA Student Research Report.pdf
http://finance.yahoo.com/?u
http://rpi.edu/~tealj2/spreadsheets1.htm
http://www.annualreports.com/
Limit: 1 group with 1-3 students)
Term Paper - Based Projects 6. M&A Project: Choose a case
study of a takeover or merger transaction involving two
publically-traded companies announced after October 1, 2013. Your
write-up of this case should carefully detail/analyze/discuss each of
the following:
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