investment banking

 

 

 

Instructions

• The grade in this assignment has a weight of 100% on the final course
• The maximum grade for this assignment is
• The pass grade for this assignment is 5.
• Each part is worth 20% of the assignment
• Each part in the assignment covers one course learning outcome, as per the below
• Students are expected to upload on Moodle an Excel file with calculations and a pdf file with the written report, by the given
• Deadlines for all assignments are strict and no extension will be granted, except for proven major unfortunate
• The answers must match what is asked in each part (nothing more, nothing less).
• Keep it to-the-point, but make sure nothing is missing in the answer, max 5 pages plus 5 pages appendix
• Incomplete answers get partial points, as per grading rubrics (see below).
• Please note that all assignments are checked for plagiarism, and cases will be reported and punished according to the MSM Academic Misconduct Policy and

 

Mapping of the course learning outcomes to the parts in the assignment

The mapping of the parts in this assignment to the course learning outcomes, is:

 

	Part 1	Part 2	Part 3	Part 4	Part 5
DD 1
DD 2
DD 3
DD 4
DD 5

 

Grading rubrics

Please note that each part is graded according to the following rubric:

 

Grade	Meaning Grade
10.0	Outstanding
9.0 – 9.9	Very Good
8.0 – 8.9	Good
7.0 – 7.9	More than Satisfactory
6.0 – 6.9	Satisfactory
5.5 – 5.9	Almost Satisfactory (Pass)
< 5.5	Unsatisfactory

 

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The assignment covers some of the issues faced (and decisions to be made) by (financial) managers in an international context for their companies. Based on the course topics you should be able – as (financial) manager – to answer the questions in order to cover the problems, calculate the relevant figures, and come up with alternative solutions. Please answer each question by calculating your answers in an excel sheet and showing them in the report together with the required comments, in a short paragraph for each question.

 

Part 1: Amsterdam Sports Company (ASC), a Dutch company, considers to invest in a Mexican sports company to have its supply under control. It can do so by a so-called greenfield investment in Mexico or by an international acquisition.

1. What is the difference between the two? For both give two advantages and two disadvantages.

 

ASC decides to investigate a take-over of the local club Mexico Sports (MS), let a Dutch staff member join the board of MS, improve its performance, and sell the company after 3 years.

• The expected free cash flow for next year is 10.000.000 MPS (Mexican Pesos), 11.000.000 MPS in the second year and 12.000.000 in the third
• The expected value of MS at the end of the third year (on top of that year’s free cash flow) at which MS is expected to be sold will be 6 times MS’s free cash
• All free cash flows are after tax (so disregard Mexican and Dutch taxes).
• The current exchange rate is MPS 10,00 per EUR. The rate is expected to change according to its PPP. The annual inflation rate for the coming three years in the Eurozone is expected to remain low. In South America however the inflation for the next years depends on the government’s planned fiscal and monetary policy and that is not clear yet. Estimated is
  • 60% probability that inflation will be suppressed and the exchange rate will remain 10,00 MPS/EUR (scenario I)
  • 40% probability that the policy will fail, inflation will increase and the the euro will rise to MPS 12,00 next year, 14,00 the 2^nd year and 16,00 the 3^rd year (scenario II).
• At the end of the first investment year it will be clear what the policy and so the inflation rate will be for that year and the years to follow – and consequently the development of the MPS/EUR-rate.
• ASC’s minimum required rate of return on investments is 20%, not a basispoint
• The current owners want not a peso less than MPS 60.000.000 for their

 

As financial expert you start doing the necessary calculations for ASC:

 

1. Make an overview of the pros and cons of the take-over bid not only based on the provided data above but also take into account the issues with regard to an M&A transaction in
2. Mention the impact the two scenarios will have on the outcome of the take-over transaction. Explain the difference between a scenario analysis like this and a sensitivity
3. Show how the calculation of the expected value of MS for ASC from the expected cash flows and required rate of return on investment will look like based on NPV and payback method. So will ASC buy MS?
4. Describe the multiples method for valuating this
5. In case the NPV is positive indicate what the IRR of this same project would be? Also explain
6. Describe the risks of the implementation of an acquisition like this. Include the risks of an investment decision in an international

 

Part 2: Because of the Corona crisis a company needs to raise additional funding for its operations. The management decides to enter international capital markets (equity and debt) to find investors and asks an investment bank to manage the whole process. The company has a good rating (A), so the issue(s) are expected to be a success.

The questions are: how will the process of issuing in international capital markerts be organized by the investment bank? Describe the different elements of the issuing process. And which factors determine whether the issue will be a success? Elaborate on the international dimensions as well as on the impact of the crisis.

 

Part 3: Select a listed (public) international company of your choice. Describe the investment worthiness of the company using as much relevant data like ratios and the valuation (eg DCF and multiples method) as needed. In order to get the full picture whether this is a company to invest in, go online again and search for the industry numbers or a peer company, to compare with the company and comment these in this paragraph. Be critical in your analysis (so marketing language of the company is not so relevant, find  outside sources).

 

Part 4: Look now at the same company data and take for your judgement of the investment worthiness of the company also into account the (financial) risks, the riskmanagement and how these risks are or can be mitigated (in which way? Do use scenario and/or sensitivity analysis). Elaborate on the trade off between risk and (potential) return (is this a value investment or a growth stock? Might this company a potentail take over candidate or will the company grow by taking over other companies? Judge how the dividend policy is and the potential to buy back stocks).

 

Part 5: Please write a brief APA-compliant report putting together the results of all previous parts. Make sure the text flows clearly and be straight to the point, by highlighting the results that you think are most interesting for a finance reader, assuming financial terminology is known, focusing on applying theory, critical comments, interpretation of results, relevant Excel screenshots. The report should not be too long but should contain all the answers and the information required. Overall a good report should not exceed 5 pages. Please remember that the points for this part are assigned to the structure, layout, grammar, and APA compliance of the report, as well as to the complete referencing of all values, rates, decision making criteria (and other information sourced from anywhere) to the source. Referencing is to be included in both the body text and the final bibliography (list of references). The content is supposed to include the answers to all parts, including the calculations made (formulas used), the variables included in the calculations (the name and value of each variable has to be clearly stated), brief but complete paragraphs for all the theory parts (including comments, comparisons, and all you are asked for in each part). Please do not copy paste in the report the parts as they are presented in the assignment, as this may generate a high percent of plagiarism report in Turnitin. Just give the report a structure based on short titles for the assignment parts, without pasting the text of these parts.

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