FINC5001 Foundations in Finance
Semester 2, 2024
Weighting: 25%
Due date: Sunday 13th October 11:59 PM
You currently work as a team at a major investment bank and have been tasked by the
Investment Management Division (IMD) to analyse a stock that will be incorporated into a
portfolio with other assets from the same market. You will need to prepare a professional
business report that will be submitted to the Investment Management Division (IMD) that
answers the questions proposed in this investment brief as well as a final recommendation.
Stock Details [10 marks]
1. Select a publicly listed company that is a constituent of the S&P 500 Index (US), Russell
1000 Index (US) that has at least 10 consecutive calendar years of dividend history from
2014-2023 (i.e. January 1st, 2014 to December 31st, 2023). The selected company cannot
be one which is listed on the last page of the Assignment instructions. Describe the
company that you have chosen, so that the IMD has a comprehensive understanding of
its operations and risks (If the company did not pay dividends in 2020 due to COVID-19
but paid dividends in every other year, including 2021 and 2022, this will be allowed).
2. Find two news articles from June 1st to September 10th, 2024 about your chosen company
and briefly summarise each article (1 sentence). Briefly explain how the event(s) detailed
in the news articles have affected your company (1 sentence).
3. List the Global Industry Classification Standard (GICS) sector, industry, and sub-industry
for your chosen company. List one other public company that is in the same sub-industry
as your chosen company and briefly describe its operations. This competitor does not
have to be listed in any of the indices nor is subject to the restrictions in part 1.
FINC5001 Foundations in Finance
Semester 2, 2024
4. Present a table of a current “stock quote” with the following characteristics: (1) Current
Price, (2) 52 Week Range, (3) Market Cap, (4) Beta, (5) P/E Ratio, (6) EPS, (7) Forward
Dividend and Yield, and (8) 1 year Target Estimate for both your chosen company and
competitor. Interpret and compare each characteristic for your chosen company and its
competitor for your IMD with respect to four measures: Market Cap, Beta, EPS, and
Forward Dividend and Yield. Be specific about what the values for your company and
competitor mean and consider the comparability of the measures.
5. Compare the P/E ratio of your chosen company and the competitor to the average P/E
ratio of the industry of your chosen company. Compare these numbers with the average
P/E ratio of your chosen stock market index as well. Discuss in detail with references.
Summary Statistics and Risk Characterisation [25 marks]
6. List the current US Government bond rates of the following maturities: (i) 1-year, (ii) 5- year, (iii) 10-year, (iv) 20-year, and (v) 30-year. List and graph the 10-year government
bond rate over the time period 2014-2024.1 How has the 10-year rate changed over this
period? In particular, has there been a shift in the 10-year rate from 2019-2022 (post- COVID-19)? Why do you think this has occurred? Discuss with references to the
appropriate academic literature.
7. Calculate the annual returns (from January 1st to December 31st for each year) for the
market index that your chosen company belongs to for the last: (i) 5-year period, (ii) 10- year period, and (iii) 20-year period. Calculate the average annual return and standard
deviation of annual returns over these 3 time periods using both the arithmetic and
geometric averages (for the standard deviation, you can use just the arithmetic average).
Show your results in a table. How have these values changed over time? What do you
think these changes mean for the average investor? Discuss in detail.
8. Calculate the annual returns (from January 1st to December 31st for each year) of your
chosen company from January 1st, 2014 to December 31st, 2023. Annualise all dividends
paid out.2 Calculate the average annual return and standard deviation of annual returns
from 2013-2023 using both the arithmetic and geometric averages (for the standard
deviation, you can use just the arithmetic average). How has your company performed
over this period? Do the arithmetic and geometric averages differ for your company?
Why or why not? Interpret these numbers for your manager.
1 You can generate the graph using either monthly or daily data. Be sure to indicate the frequency of the data
clearly in the report.
2 Add up all dividends paid (not declared) during the period from January 1st to December 31st for each year.
FINC5001 Foundations in Finance
Semester 2, 2024
9. Calculate the annual beta for your chosen company returns using the annual returns from
2014-2023 along with the annual returns and standard deviation of your market index
that you calculated above. Compare your calculated annual beta with the beta found in
your stock quote. Are these values the same or different? Explain and discuss why they
may be similar and/or different. Calculate the annual beta for the subperiod between
2014-2019 (pre-COVID-19) and compare this number with your other betas. Compare
and discuss the stability (or instability) of your company’s beta values with references to
the appropriate academic literature.
10. Graph and compare the annual returns and standard deviation of your company with the
market index. Discuss and relate this comparison to your company’s beta(s). Does your
beta calculation explain your company’s returns with respect to the market? Explain in
detail why this may or may not be the case for your company.
11. Using the Capital Asset Pricing Model (CAPM), calculate the required rate of return on
equity for your chosen company using all the different government bond rates in part (7),
as proxies for the risk-free rate. Select one of the annual return calculations calculated in
part (6), as a proxy for the expected market returns and justify your choice. Discuss how
appropriate your choices are as proxies for the theoretical values in the CAPM equation
for your specific company.
Growth Rates and Valuation [30 marks]
12. Estimate the growth rate of your chosen company’s cash flows by using the following
three methods:
(a) Calculate and list the annual growth rates for dividends from 2014-2023 (For any years
within your sample with anomalous dividend growth rates discuss why this might have
occurred. If your company did not pay dividends in 2020 due to COVID-19 just use the
dividends in the prior year as a proxy). Calculate the arithmetic and geometric average
annual growth rate of dividends over this period. Also calculate the arithmetic and
geometric average annual growth rate of dividends for the subperiod between 2014- 2019 (pre-COVID-19) and compare the values. Do you think your company’s dividends
will grow at these rates for the foreseeable future? Explain in detail why or why not
with references.
(b) Calculate and list the annual growth rates for net income from 2014-2023 (For any
years within your sample with anomalous net income growth rates discuss why this
might have occurred). Calculate the arithmetic and geometric average annual growth
rate of net income over this period. Also calculate the arithmetic and geometric
FINC5001 Foundations in Finance
Semester 2, 2024
average annual growth rate of net income for the subperiod between 2014-2019 (pre- COVID-19) and compare the values. Do you think your company’s net income will grow
at these rates for the foreseeable future? Explain in detail why or why not with
references.
(c) Using the formula g = b * ROE, calculate and list the growth rates, plowback ratios,
and ROE for the time period between 2014-2023 (For any years within your sample
with anomalous plowback ratios and/or ROE discuss why this might have occurred).
Calculate the arithmetic and geometric average annual growth rate over this period
(remove any rates that are negative from your sample). Also calculate the arithmetic
and geometric average annual growth rate for the subperiod between 2014-2019
(pre-COVID-19) and compare the values (remove any rates that are negative from your
sample). Do you think this method of calculating growth rates is useful for valuation
for your specific company? Explain in detail why or why not with references.
13. Using the Discounted Cash Flow (DCF) models you have learnt in FINC5001, determine
the intrinsic value of your chosen company using an appropriate required rate of return
(from part 11) and (a) growth rate(s) (from part 12). Justify the choices and assumptions
you have made in undertaking this calculation in detail and why you did not choose any
other values instead. Discuss why you chose your valuation model and its key
assumptions and why you believe your chosen rates satisfy these assumptions for your
specific company. Do you think the GGM is preferred to a two-stage or multi-stage
growth model for your company? Why? Explain all the questions above in detail. (If you
make deviations from the choices in part 11 and/or part 12, clearly justify why you made
these changes and why these new values are more sensible for this analysis for your
specific company).
14. Draw a cash flow timeline (like discussed in the Modules) of your company’s future
dividends (implied by your valuation model in part 13) to support the discussion above.
In the cash flow timeline, include annual projected dividends implied by your model up
to at least the year 2026.
15. Calculate the Present Value of Growth Opportunities (PVGO) for your chosen company
using the current stock price. Interpret this value for your company for your manager.
16. The values that you have utilised in part 13 represent only one possible set of choices for
a valuation model. Your task is to perform a sensitivity table on the intrinsic value of the
chosen company. Create a two-way sensitivity table to show how changes in the key
variables of the DCF model affect the intrinsic value. Discuss your results.
FINC5001 Foundations in Finance
Semester 2, 2024
Recommendation [22 marks]
17. Using the DCF analyses performed in parts 1-16, make a recommendation, in one
paragraph (max word count 200), for your chosen company as to whether to buy, sell, or
hold this stock, using your analysis in part 13 as your main guide.
18. Large language models (LLM) such as ChatGPT have become a very powerful tool for
financial analysis. Nevertheless, like any tool, using it without a solid understanding of
underlying financial concepts may lead to misleading answers. Ask ChatGPT to make both
a positive and negative stock recommendation for your chosen company. You will use
this information for part 19. Summarize the ChatGPT input in your own words in one
paragraph (max word count 150). Cite the output link for ChatGPT within the Appendix.
Find the appropriate citations and references for any used in your summary (i.e. ChatGPT
will tell you facts with no references. Your job is to find those references). (Example text:
Give me a positive recommendation for Coca-Cola stock.)
19. For which range of values for your future estimates of growth rates and discount rates
would you suggest a buy recommendation, and which range of values would you suggest
a sell recommendation (i.e. for growth rates greater/lower than X% and discount rates
greater/lower than Y%, I recommend buy/sell)? Which of these ranges sound more
reasonable to you and why? Does your original recommendation in part 17 still sound
reasonable? Using both your findings in this entire report along with part 18, discuss in
detail why or why not. Within your discussion detail the limitations of your analysis and
assumptions relative to your specific company chosen. Finally, discuss which parts of
ChatGPT’s analyses you found useful for your analysis that you had not considered
before. Do you believe everything ChatGPT told you? Why or why not? Provide examples.
For parts of the ChatGPT analysis that sound reasonable to you, be sure to find the proper
citation (i.e. ChatGPT will tell you facts with no references. Your job is to find those
references). Also do not just copy and paste ChatGPT’s output but summarize and take
the key points you find reasonable for your analysis. You are also free to use external
information outside of the ChatGPT analysis from part 18 if you feel it bolsters your
analysis.
20. Using your findings in parts 17-19 make a final recommendation, in one paragraph (max
word count 150), for your chosen company as to whether to buy, sell, or hold this stock.
Presentation and overall style of the report [5 marks]
FINC5001 Foundations in Finance
Semester 2, 2024
Peer evaluation (will be made available after the due date) [8 marks]
• List and date all your data sources. Depending on the day and time with which you collect
the data, this will be different. For each set of data used in the report, present a screenshot
of this data in the Appendix. For the ChatGPT analysis, provide the output link that
ChatGPT provides.
• Investopedia and Wikipedia are not allowed as references.
• Justifications in the report should be made with references to appropriate academic
literature.
• The Excel workbook needs to be properly formatted and appropriately labelled such that
the instructors can read, interpret your calculations, and replicate all results presented in
the report without assistance.
• With the rise of generative AI (i.e. ChatGPT), it has become apparent when students use
these tools without citation as there are stylistic and tonal inconsistencies within student
reports. Please keep a consistent style throughout. A good idea is to task one member
(ideally your best writer) to keep the style of the report consistent. Any suspected misuse
of generative AI or large stylistic inconsistencies in the report may be deducted a penalty
of up to 15%, with significant breaches reported to the academic integrity team as stated
below.
Use of AI Rules:
Use of AI is permitted when
specified
Penalties for minor breaches will be
levied
You are permitted to use artificial
intelligence (AI) tools i.e.
ChatGPT
to generate material that you will
then evaluate and analyse only for
part 18 above.
You must indicate where AI tools
have been used. AI generated text
cannot be used or represented as
original, self-authored work.
Failure to declare the use of AI tools
will be reported as a major breach of
policy for investigation.
In line with the Academic Integrity
Procedures (2022), minor breaches
of academic integrity (including poor
paraphrasing, failure to
acknowledge the work of others or
incorrect citations, use of AI tools
where not permitted) may be
subject to a penalty of up to 15% of
total available marks at the point of
grading.
Major breaches of the Policy will be
submitted for investigation to the
Faculty's Academic Integrity staff.
FINC5001 Foundations in Finance
Semester 2, 2024
Marking Criteria
The criteria below will be followed when marking each part of the assessment:
1. The extent and quality of critical reasoning and thinking skills
2. The demonstration of knowledge of the relevant theory
3. The successful usage and interpretation of the relevant data
4. The extent to which the work is clearly and concisely presented
Weight of the Final Mark: This assignment will be marked out of 100 marks and will be scaled
to account for 25% of the course’s total marks.
Assessment Criteria:
1. Conforming with instructions (e.g. word length, font, other instructions)
2. Presentation, communication & style (written)
3. Clarity of expression (incl. accuracy, spelling, grammar, punctuation)
4. Referencing
5. Use of literature/knowledge of theory
6. Data/information gathering/processing
7. Conclusions
8. Analysis
9. Problem solving
10. Reflection/evaluation
Formatting and Presentation:
1. The maximum number of pages allowed is 25 pages with 1.5 line spacing and size 12 Arial
or Calibri Font. It should have normal-sized (2.54cm) margins on all sides. Please number
the pages of your report. Marks will be reduced by 5% for each page you exceed the page
limit. Hence, your mark will be reduced to zero if the report exceeds 45 pages. You will be
penalised for inappropriate formatting.
2. Text presented in tables and graphs do not need to follow this formatting requirement.
However, these will still need to be professionally presented in the report.
3. Ensure you use proper academic referencing in supporting the ideas and discussion within
your report. All reports must include a list of references in academic form using the APA
7th method. Further information on the APA referencing style can be found here:
https://libguides.library.usyd.edu.au/citation/apa7. You will be penalised if you forget to
reference your sources or use inappropriate referencing.
4. Pay particular attention to presentation. A component of your mark will be based on
presentation. Avoid overdoing formatting and ensure that the report is very clear, logical,
and professional. Pay attention to grammar. Clear and logical presentation is a major
challenge in report preparation.
FINC5001 Foundations in Finance
Semester 2, 2024
5. Preparing a concise report poses a major challenge. Brevity and conciseness are key
ingredients of a highly successful report. Every part of the report should somehow add to
the end result; otherwise, it is superfluous and distracting.
6. Use headings in the report to separate key ideas. Using paragraphs will also assist with
structuring ideas.
7. The report must be submitted as a PDF document. You must submit the report
electronically via the Turnitin link on Canvas. Excel spreadsheets with all your calculations
must be submitted as a .xlsx workbook. You must submit two files electronically via the
link on Canvas.
The page limit for the report is 25 pages.
What is included in the 25 page limit?
• Report body
• Tables
• Diagrams
What is excluded from the 25 page limit?
• Title page
• Table of contents
• Executive summary
• Reference list
• Appendices (For each set of data used in the report, present a screenshot of this data in
the Appendix)
Submission:
1. The only acceptable form of submission is electronic via the submission link in the
unit’s Canvas site. Hardcopy and email submissions will NOT be accepted. Late
submissions will be penalized according to the Business School’s assessment policies.
All submissions will be checked via Turnitin for similarities with external sources.
2. Submission format – Each group can only submit ONE report. The group leader (as
decided in your group formation form) is required to submit the assignment. It is
imperative that your report is submitted in ONE document. Only PDF formats will be
accepted, and it is the group’s responsibility to ensure all pages correctly display your
original content. Missing or distorted figures and content will be penalized.
3. Document name – Your project PDF file must be named in the following format:
Group250_FINC5001_S22024, where you would put your group number instead of the
example provided here. Your Excel file must also be named in a similar fashion:
Group250_FINC5001_S22024, where you would put your group number instead of the
example provided.
FINC5001 Foundations in Finance
Semester 2, 2024
4. All aspects of your report must be replicable through your Excel file to ensure that the
work was done by the group. Please make sure that anyone reading your Excel file is
able to generate all the results provided within your report.
Marking Guide:
Company selection, Financial data – company and competitor
/10 marks
Returns – market index, Government bonds, company
/10 marks
Beta calculation and discussion with risk and returns
/10 marks
Required rate of return on equity – company
/5 marks
Growth rates
/15 marks
Stock valuation and sensitivity analysis
/15 marks
Final recommendation
/22 marks
Presentation and style of report
/5 marks
Peer evaluation
/8 marks
Penalties
Incorrect dating of data sources
up to -10 marks
Incomplete screenshots of data sets in Appendix
up to -10 marks
Inappropriate use of literature
up to -10 marks
Non-replicability of Excel files
up to -20 marks
Incorrect referencing
up to -10 marks
Failure to comply with formatting requirements
up to -10 marks
Poorly presented report, tables, graphs
up to -10 marks
Missing/incorrect ChatGPT output link
up to -20 marks
Suspected minor breaches of academic integrity (see above) up to -15 marks
Incorrect selection of companies
-50 marks
Failure to submit Excel file with calculations
-25 marks
Failure to complete peer evaluation (individual deduction)
-15 marks
Each page over the 25 page limit
-5 marks per page
TOTAL MARKS
/100 marks
FINC5001 Foundations in Finance
Semester 2, 2024
List of Prohibited US-listed Stocks:
1. 3M (MMM)
2. Abbott Laboratories (ABT)
3. American Express (AXP)
4. Amgen (AMGN)
5. APA Corp (APA)
6. Apple Inc (AAPL)
7. AT&T Inc (T)
8. Bank of America (BAC)
9. Best Buy Co Inc (BBY)
10. Boeing (BA)
11. Caterpillar Inc (CAT)
12. Chevron Corporation (CVX)
13. Cisco Systems (CSCO)
14. Citigroup Inc (C)
15. Coca-Cola Co (KO)
16. ConocoPhillips (COP)
17. Colgate-Palmolive (CL)
18. Costco (COST)
19. Domino’s Pizza Inc (DPZ)
20. Dow Inc. (DOW)
21. Duke Energy Corp (DUK)
22. Eli Lilly and Co (LLY)
23. Estee Lauder (EL)
24. Exxon Mobil Corp (XOM)
25. FedEx Corporation (FDX)
26. Ford Motor Co (F)
27. Goldman Sachs (GS)
28. Hershey Co (HSY)
29. The Home Depot (HD)
30. Honeywell (HON)
31. HP Inc (HP)
32. IBM (IBM)
33. Intel (INTC)
34. International Paper Co (IP)
35. Johnson & Johnson (JNJ)
36. JPMorgan Chase (JPM)
37. Kellogg Company (K)
38. Lockheed Martin Corporation (LMT)
39. Mastercard Inc (MA)
40. McDonald’s (MCD)
41. Merck & Co (MRK)
42. Microsoft (MSFT)
43. Nike, Inc (NKE)
44. NVIDIA Corp (NVDA)
45. Oracle Corp (ORCL)
46. PepsiCo (PEP)
47. Pfizer Inc (PFE)
48. PPG Industries (PPG)
FINC5001 Foundations in Finance
Semester 2, 2024
49. Procter & Gamble (PG)
50. Qualcomm Inc (QCOM)
51. Salesforce (CRM)
52. Starbucks (SBUX)
53. Target Corp (TGT)
54. The Coca-Cola Company (KO)
55. The Travelers Companies (TRV)
56. Texas Instruments Incorporated (TXN)
57. UnitedHealth Group (UNH)
58. United Parcel Service, Inc (UPS)
59. Verizon Communications (VZ)
60. Visa Inc (V)
61. Walgreens Boots Alliance (WBA)
62. Walmart (WMT)
63. The Walt Disney Company (DIS)
64. Wells Fargo & Co (WFC)
65. Yum! Brands, Inc (YUM)
51作业君版权所有
