Assignments must be typed and submitted
before the start of class on the due date.
Pick a US company that belongs to one
of the following sectors. You should stay with this company for
the assignments that follow as well. You must confirm
your company selection with me before you start your analysis.
|
| Materials |
| Industrials |
| Consumer Discretionary |
| Consumer Staples |
| Transportation |
You can find companies in these sectors
by using StockVal or a similar program. The company that you choose
should satisfy the following conditions:
- Make sure that the market value
of your chosen firm is at least 0.75 billion dollars.
- It should have public debt, preferably
publicly traded.
Write a report on Corporate Governance
at your company. Start your report by providing a brief description
of the company (about half a page), taken from Yahoo or another source.
Use another two to three pages to present a well-organized report on
"Who own/runs your firm. Make sure to put the important analyses
up front; all detailed information, including tables, particularly if
they are long, should go at the end as an appendix. If the table
or the graph is small, then you can include it up front, particularly
if you're going to refer to the contents of the table in detail.
In any case, you should not include any information in Appendices that
you don't refer to at all in the text.
And don't forget to use spell check
and grammar check!
Some of the questions that you should
think about in writing up your report:
- Who are the institutions holding
the stock? (Such information can also be found on Yahoo at
http://biz.yahoo.com/hd/m/msft.html for
Microsoft -- msft; replace msft with the symbol for your stock.)
What conclusions would you draw from the quality and number of these
institutions, as well as the proportion of the firm's stock
that they hold?
- How many analysts follow the stock?
What implications would you draw from the quality and number of analysts?
- Who are the mutual funds that hold
the stock? (Check http://biz.yahoo.com/hd/mf/m/msft.html;
replace msft with the symbol for your stock.) What conclusions
would you draw from this information?
- Are there major conflicts of interest
in the running of the company that have not been addressed by compensation
contracts, etc.?
- Have there been major events in
the life of the company recently that are indications of conflicts
of interest?
- Get information on the covenants/bond
indentures of the company. Can you conclude that the bondholders
are well protected from stockholder aggression?
- How does the company see its role
as a corporate citizen? For example, is it respectful of its
social obligations?
You can use the following analysis
of Disney, Inc. done by Aswath Damodaran, in 1997. Focus on
the first two sections, Corporate Governance Analysis and Stockholder
Composition. This is a very good model to use.
You can use the following general sources:
For company specific information,
- You can search the Wall Street Archive.
- You can use the Lexis-Nexis database
from the Pace Library homepage (go to http://library.pace.edu,
click on Databases, then choose Lexis-Nexis Universe from Complete
Alphabetical Listings) to search for information regarding your company.
You can select Business News, then search using your company name,
as well as other useful keywords, such as executive compensation or
shareholder rights, or other terms that you can come up with based
on your reading of Chapter 2 and my webnotes/slides.
- Search Lexis/Nexis, focusing on
publications such as the Economist, Forbes, Fortune, etc. using appropriate
keywords.
- You can also look at the Annual
Report of the company, which you can find at the company website (you
can find the company website by searching on Google, or by going to
http://biz.yahoo.com).
- Search on Google using the company
name and relevant keywords.
- Use the information on analysts
at http://www.zacks.com
- Use information that you may be
able to find at http://biz.yahoo.com
or at http://www.marketguide.com.
(Use the same company, as for Assignment
1, if possible. If not, pick another company satisfying the conditions
specified in Assignment 1.) Do either part A or
part B, whichever will allow you to stay with your company. (If
you need to switch companies, you have to get permission from me beforehand.)
This assignment should be done in Excel. Make sure that you provide
sources for all your data and other information. You can use http://10kwizard.com;
note, however, that access to 10kwizard.com is no longer free.
You can get the same information from the Library's databases, or from
Yahoo or Edgar Online (http://www.edgar-online.com/).
- Go through the company's
most recent 10K . Search for research and development expenses.
If you find any, capitalize them, and make up a revised balance sheet,
including the capitalized R&D. Also, show a revised income
statement. (Include the original balance sheet and income statement,
as well.) Leave out all the details of these financial statements
that are irrelevant for the purposes of this exercise; i.e., do not
itemize them. (Obviously, the left and right sides of a balance
sheet have to match!) Present all relevant information from
the 10K. If you need to go to any other sites, do so.
Explain all the assumptions that you make. In particular, justify
your choice of the amortized life of R&D for your company.
- Go through the company's
most recent 10K. Search for operating lease expenses. If you
find any, capitalize them, and make up a revised balance sheet, including
the capitalized operating lease liability. Also, show a revised
income statement. (Include the original balance sheet and income
statement, as well.) Leave out all the details of these financial
statements that are irrelevant for the purposes of this exercise;
i.e., do not itemize them. (Obviously, the left and right sides
of a balance sheet have to match!) Present all relevant information
from the 10K. If you need to go to any other sites, do so.
Make as few unsupported assumptions as possible.
Download historical price information
on the stock that you worked on for Assignment 1, using the information
given below, and compute market betas as described below:
Download daily closing price data on
your stock for the periods required. (You can get this information
from Yahoo or other sources.) Do the same for the NYSE Composite
(^NYA). Compute the return on the stock and on the index.
Then compute the daily return by using the formula, R8/11/99
= P8/11/99/P8/10/99-1, where Rt, Pt
stand for the return and price on date t. If a stock went
ex-dividend on August 11, 1999, use the formula, R8/11/99
= (P8/11/99+Div8/11/99)/P8/10/99-1,
where Divt is the amount of the corresponding dividend.
Similarly, download monthly closing
price data on your stock and on the index for the required periods.
Compute monthly returns, assuming that the dividends are paid at the
end of the month in which they are actually paid.
Now run two sets of regressions:
- Regress the daily stock returns
on the stock against the index for the period -- beginning 1999 to
end 2001);
- Regress the monthly stock returns
for the months 1/96 to 12/98 on the index returns for the corresponding
period;
- Regress the monthly stock returns
for the months 1/99 to 12/01 on the index returns for the corresponding
period.
Use Excel to run the regressions; interpret
your results. (You can get more information on regression analysis from
my
website. You may also want to consult the solution to Q. 2
on Midterm
II for FIN 320 in Spring 2000.)
Prepare a table as follows:
| |
|
NYA (Your regression
betas) |
| Monthly data |
Beg. 1996 - end 1998 |
|
| Monthly data |
Beg. 1999 - end 2001 |
|
| Daily data |
Beg. 1999 - end 2001 |
|
Now plot beta pictures of your stock
for the time-periods and index specified above, using Excel.
Next,
- Compare the betas computed with
respect to the index, using daily data versus monthly data, for the
period 1999-2001.
- Compare the betas computed with
respect to the index using monthly data for the period 1996-1998 versus
the period 1999-2001.
If there are any differences in the
betas, explain them. (Keep in mind also, the R2s of
the regression, the standard errors of the estimates, and the characteristics
of the firm and the indices over time.)
Submit your results in an Excel file.
Your submission should have the following structure:
- Worksheet 1: Name of Group with
names of members, and details of individual participation in different
parts of the project.
- Worksheet 2: Introduction, Table
of betas as described above. Analysis discussing differences
in the beta estimates. In terms of explaining beta changes over
time, your analysis should focus on how the beta determinants changed
from one period to another. For example, has the financial leverage
changed significantly, have the assets changed, has operating leverage
changed, etc. In terms of explaining the beta difference between
the two indices, look carefully at the section entitled "Betas"
in the text (2nd edition), at page 196-210.
- Worksheet 3: Your beta regressions
- Worksheet 4: Your raw data plus
your dividend computations. Your return calculations should
be shown using Excel formula, so I can see exactly how you have computed
them.
The actual work should be shown in
other worksheets in the same file.
Compute the weighted average cost of
capital for the company that you chose in Assignment 1.
You can use the following exam problems
for hints on what sort of information you will need, as well as on how
to process the information.
Among other sources, you can also use:
Make sure your report is well researched,
well analyzed, based on theory, and written up in a form easy to understand.
