2. Report on Long-term Financing Policy and Capital Structure, Risk Management Policy, and Acquisition Analysis [e-Portfolio Assignment]
Using the publicly traded company identified and approved during Week One, submit one re-port with three 1,050-1,400-word sections regarding that company’s long-term financing policies and capital structure (section 1), risk management policies (section 2), and an acqui-sition analysis for that same company (section 3). Please note the last requirement of the acquisition analysis and its association with the risk portion of the report.
Section 1: Report on the company’s long-term financing policy & capital structure.
a. Identify the firm’s most recent long-term financing decision (e.g., debt, IPO, seasoned equity offering, secondary offering). Analyze the economic, business, and competitive background in which the financing occurred, and identify cost and risk trade-offs.
b. Identify your firm’s book value, market value, and levered value according to the M&M model. For a 20 percent increase in assets, perform a quantitative analysis and recom-mend the optimal capital structure mix for your company. Your analysis should include an estimation of that company’s cost of capital, price per share, and market value of the firm.
c. Discuss what changes you think would occur to your finance policy and capital structure if your firm was forced to consider re-organization and bankruptcy strategies.
d. Assume that your firm will be investing in the global market. What international invest-ment and financing opportunities would you consider and why? Also, discuss foreign exchange risk and give an example that analyzes how foreign exchange rates could cause a loss to the firm.
Section 2: Use the following list of risk management tools and describe the circumstances under which they would be applied to the risk categories of corporate (including risk associ-ated with acquisition analysis and capital budgeting), economic, foreign currency, political, and other relevant global business risks.
e. Black-Scholes options pricing model
f. Simulation analysis
h. Feel free to add other tools that you find that are relevant to your chosen company.
Section 3: This will be a report to the board of directors that identifies a synergistic acquisition candidate for your company.
i. This report should clearly identify the following:
1) Your proposed acquisition terms
4) Potential negotiation strategies
j. Supporting financial data should include the following:
1) Price/earnings ratios
2) Book value
3) Current market value
5) Diluted price per share
6) Capital Budgeting tools learned from FIN 544 (NPV, IRR, Profitablility index, payback optional: Discounted Payback and Modified Internal Rate of Return)
k. Discuss the general risks inherent in an acquisition strategy.
l. Discuss the specific risks that should be included in the quantitative analysis. For exam-ple, what risk factors should be included in the discount rate (sometimes known as the hurdle rate, or required rate of return).
Note: Use MS Excel spreadsheets as support showing your computations where applicable.
3. Respond to the Discussion Questions posted by your instructor. Post to the Main Newsgroup by 5/10/07 and 5/12/07.
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