Business Finance

Mid-term Assessment – Summer II – 2021
Written assignment (essay)
Activity brief – 4 mini essays
BCO222 – Business Finance II
Online campus
Professor: Miguel Corte-Real. Email: Miguel.corte-real@euruni.edu
Description Please read the four cases below, and answer the
corresponding questions.
Format This activity must meet the following formatting
requirements:
• Font size 12
• Double-spaced
• 3000 words
• Harvard Referencing System
• pdf only
Goal(s) The student should be able to demonstrate the learning
of the above outcomes making the link between the
material covered during the seminars and the research
requested to answer each of the questions.
Due date Date: WEEK 4, August 23th, 2021, 14:00hrs
Weight towards
final grade
This activity has a weight of 50% towards the final
grade.
Learning
outcomes
The Student should be able to demonstrate the
knowledge gathered during the seminars in reference to
the following topics:
• Investment in Long-Term Assets/Capital
Investment Analysis
• Capital Investment Decision Analysis and Free
Cash Flows
• Financial Leverage and Capital Structure Policy
Assessment
criteria
Please refer to: Rubric written assignment provided
below.
CASE 1 (25 points)
From the video shared in the class “How The Economic Machine Works” (please see link to the video:
https://www.youtube.com/watch?v=PHe0bXAIuk0) by Ray Dalio – what have you learned? (please do not describe the video since I watched it – I would
like to know what you have learned – as discussed in the video by Ray Dalio the macroeconomic cycle has direct implications on the cost of capital and the
capital budgeting decision criteria) – please elaborate in a detailed manner and link your answer to the material discussed in class. (25 points)
CASE 2 (25 points)
You just graduated from European University and in your first job as an analyst at Joma Sports Goods is to evaluate two new capital budgeting proposals.
Since this is your first assignment after University you have been asked to provide a detailed financial analysis by providing a recommendation and the
reasons for that decision.
The mini-project states the following:
Provide an evaluation of 2 proposed projects, both with a 5 year expected lives and identical initial outlays of $10,000. Both of these projects involve additions
to Joma Sports Joma created a new highly successful tennis shirt product range, and as a result, the required rate of return on both projects has been
established at 12%. The expected FCF (free cash flows) for each of the projects are as follow:
Project A Project B
Initial Outlay -$110,000 -$110,000
Inflow year 1 20,000 40,000
Inflow year 2 30,000 40,000
Inflow year 3 40,000 40,000
Inflow year 4 50,000 40,000
Inflow year 5 70,000 40,000
In the process of evaluation these projects, please respond to the following questions:
1) Why is the capital-budgeting process important?
2) Why is it difficult to find exceptional profitable projects?
3) What is the payback period on each project? If Joma imposes a 3-year maximum acceptable period, which of these projects should be accepted?
4) What are the potential criticisms of the payback period?
5) Determine the NPV for each of the projects. Should these projects be accepted?
CASE 3 (15 points)
Nike Sport Industries is considering a new project with a 4-year life with the following cost of revenue data. This project will require an investment of $140,000
in new equipment. This new equipment will be depreciated down to zero over 4 years using the simplified straight-line method and has no salvage value. This
new project will generate additional sales revenue of $112,000 while additional operating costs, excluding depreciation, will be $68,000. Nike marginal tax rate
is 35%. What is the project’s free cash flow in year 1?
CASE 4 (35 points)
1. On the back of the current COVID-19 and macroeconomic situation the European Central Bank asked the European Banks to refrain from or limited the
dividends distribution – describe on your own views and considering the material we covered during classes the trade-off between paying dividends and
retaining (reinvesting) firm profits.
2. Suppose I own 10% of the Yonex Sports Industries. An equivalent to 30,000 shares of common stock, which most recently traded for a price of $98 a share.
The company has since declared its plans to engage in a two-for-one stock split.
1) What will my financial position be after the stock split, compared to my current position? (Assume the stock price falls proportionally)
2) The executive vice-president is charge of finance believes the price will not fall in proportion to the size of the split and will only fall 45% because she
thinks the pre-split price is above the optimal price range. If she is correct, what will be my net gain from the split?
Rubric: written assignment
Criteria Accomplished (A) Proficient (B) Partially proficient (C) Borderline (D) Fail (F)
Problem
identification
The business issue has been
correctly identified, with a
competent and comprehensive
explanation of key driving
forces and considerations.
Impact on company operations
has been correctly identified.
Thorough analysis of the issue
is presented.
The student correctly identified
the issue(s), taking into account
a variety of environmental and
contextual drivers. Key case
information has been identified
and analyzed.
The student correctly identified
the case (issues), considering
obvious
environmental/contextual
drivers. There is evidence of
analysis, but it lacks depth.
The student correctly identified
the issue(s) but analysis was
weak. An absence of context –
the work is basically descriptive
with little analysis.
The student failed to correctly
identify the issue(s); analysis
was incorrect or too superficial
to be of use; information was
misinterpreted.
Information
gathering
The student showed skill in
gathering information and
analyzing it for the purposes of
filling the information gaps
identified. Comprehensive and
relevant.
Relevant information gaps were
identified and additional
relevant information was found
to fill them. At least two different
types of sources were used.
The student demonstrates
coherent criteria for selecting
information but needs greater
depth.
The student correctly identified
at least one information gap
and found relevant information,
but which was limited in scope.
Some evidence of sound
criteria for selecting information
but not consistent throughout.
Needs expansion.
An information gap was
identified and the student found
additional information to fill it.
However, this was limited in
scope. Weak criteria for the
selection of necessary
information.
Information was taken at face
value with no questioning of its
relevance or value. Gaps in the
information were not identified
or were incorrect.
Conclusions The student evaluated,
analyzed, synthesized all
information provided to create a
perceptive set of conclusions to
support the decisions and
solutions.
The student evaluated,
analyzed and synthesized to
create a conclusion(s) which
support decisions and
solutions.
The student reached
conclusions, but they were
limited and provided minimal
direction for decision-making
and solutions.
The conclusion was reasonable
but lacked depth and would not
be a basis for suitable strategy
development.
The student formed a
conclusion, but it was not
reasonable. It was either
unjustified, incorrect or
unrelated to the case in hand.
Solutions The student used problem
solving techniques to make
thoughtful, justified decisions
about difficult and conflicting
issues. A realistic solution was
chosen which would provide
maximum benefit to the
company. Alternative solutions
were explored and ruled out.
The student used problem
solving techniques to make
appropriate decisions about
complex issues. Relevant
questions were asked and
answered. A realistic solution
was chosen. Alternatives were
identified, explored and ruled
out.
The student used problemsolving techniques to make
appropriate decisions about
simpler issues. The solution
has limited benefit but does
show understanding of
implications of the decision.
Alternatives were mentioned
but not explored.
The student used problem
solving techniques to make
decisions about simpler issues
but disregarded more complex
issues. Implications of the
decision were not considered.
Alternatives were not offered.
The student formed a
conclusion, but it was not
reasonable. It was either
unjustified, incorrect or
unrelated to the case in hand.

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