MF2 Principles of Finance Group Project Groups of 4-5 students Worth 25 marks

10 marks for 8 minute presentation on 29 November 2011 (final lecture). 15 marks for written report of max. 3,000 words

The report should comprise four sections: (i) short executive summary, (ii) introduction which states the scale and scope of the project, (iii) analysis, (iv) recommendations and conclusion. Appendices do not count towards the maximum word count. The report should contain references to key academic papers that are relevant for the analysis and recommendations. Recommended reading: Becht, M., Bolton, P. and Roell, A., 2002, Corporate

governance and control, ECGI Working Paper 2. Submission deadline: 2 December 2011

Each group should pick a publicly traded non-financial company to analyze along the broad topics discussed in class. Suggestion: the library has best access to data on the Standard and Poors 1500 companies. Recommended databases available through the library include CRSP, Compustat, RiskMetrics, I/B/E/S (all via WRDS), Factiva, Datastream, Thomson ONE Banker, Bloomberg. 1. Corporate governance

What can you say about the quality of the companys corporate governance structures? Major shareholders, board effectiveness, managerial entrenchment through the use of

anti-takeover devices, level and structure of managerial compensation, shareholder proposals submitted against the firm etc.

How does the company view its social obligations and manage its image in society? How does the company interact with financial markets? How do markets get information

on the company? Useful sources: SEC filings (10-k, 10-q, DEF14a) at http://www.sec.gov/edgar.shtml,

company websites, RiskMetrics, Factiva, Thomson ONE Banker, Hoovers. 2. Capital budgeting

Is there a typical investment project for this company? If yes, what does it look like in terms of life (long-term or short-term), investment needs,

and cash flow patterns? How good are the projects that the company currently has on its books? Are the companys future projects likely to look like the projects in the past? Why? Useful sources: SEC filings, company websites, Factiva, Hoovers.

3. Capital structure

What are the different types of financing that this company has used to raise funds? Where do they fall in the continuum between debt and equity?

How risky is the companys equity? What is its cost of equity?

How risky is the companys debt? What is its cost of debt? How large, in qualitative or quantitative terms, are the advantages of using debt to this company?

What is the companys current cost of capital? Does the company look like it has too much or too little debt? How does the companys

capital structure compare to those of its peer group and to the rest of the market? Useful sources: Bloomberg, CRSP, Compustat, Datastream, Thomson ONR Banker,

Moodys, Standard and Poors. 4. Dividend policy

How has the company returned cash to its owners? Describe its payout policy i.e. whether it has paid dividends, bought back shares etc.

Given the companys characteristics today, how would you recommend that they return cash to shareholders (assuming that they have excess cash)?

How much could the company have returned to its stockholders in the past few years? How much did it actually return?

Given the dividend policy and current cash balance of the company, would you push the company to change its payout policy (return more or less cash to its owners)?

How does the companys dividend policy compare to those of its peer group and to the rest of the market?

Useful sources: SEC filings, Compustat, Datastream, Thomson ONE Banker, company websites.