corporate finance
AIMS OF THE CASE STUDY AND LEARNING OBJECTIVES
The aim of this case study is to help you to understand and apply financial analysis.
The assignment assesses all 4 module learning outcomes.
Your Task
Having completed your Masters degree at Coventry University you now work in the
finance department at Carter Dicks.Your boss, Mrs.Dicks, the Chief Financial Officer,
has asked you to:-
Prepare and comment on the company’s 5 year plan.
Evaluate the company’s policies and objectives.
Value the company and its shares.
REQUIRED
Working individually or in pairs prepare a report for Mrs.Dicks
The report should be presented in 3 clearly defined sections to cover the following 3
specific tasks.
Task 1
Prepare a 5 year Financial Plan for the company. Summarise your findings and, in
the light of the plan, advise the company what action to take now.
(weighting 30%)
Task 2
Calling upon finance theory and research findings on current business practice
critically appraise the company’s policies on dividends and long term borrowing
and advise the company on whether its current policies should be changed.
(weighting 35%)
Task 3
Determine the company’s Cost of Capital and then apply Shareholder Value
Analysis (SVA) to put a value on the company and its equity. Identify the main
strengths and weaknesses of the valuation method you have applied.
(weighting 35%) WORD LIMIT: 3,000 words excluding calculations.Carter Dicks
Carter Dicks is a successful UK house builder operating in the Midlands building
retirement homes. It hopes shortly to obtain a listing on the Alternative Investment
Market (AIM).
Carter Dicks uses a formal scheme of long range planning and the Finance Department is
currently charged with producing an updated five year plan. At a recent meeting the
following estimates emerged.
Sales in the year just ended (December 2014) were £10 million and sales forecasts for the
next 5 years are £10.6m, £11.4m, £12.4m, £13.6m, £15.0m.
The current rate of net profit after tax to sales is 10%, and this rate is expected to
continue throughout the planning period.
The asset turnover (Sales : Capital Employed) currently 0.8 times, will continue more or
less constant, given management’s expectations about the required expenditure on fixed
assets and investments in working capital.
It was agreed by the Board at the meeting that:
If profits rise dividends should rise by at least the same percentage and the current
dividend payout ratio of 50% should be maintained.
The ratio of debt to long-term funds (debt plus equity) should be kept at the current
industry average of 30% which happens to be the current gearing level of the company.
New share capital should only be raised as a matter of last resort.
Other information:-
In 2014 the net operating profit before tax was £1.475m and the net operating profit after
tax was £1.18m.
Corporation tax is 20% and the pre tax cost of long term borrowing is 6%.
Assessment Criteria.
Pass Criteria.
All 3 tasks must be attempted.
The questions asked must be directly answered.
Answers must contain some relevant calculations and/or comment.
There must be some evidence of outside reading.
Higher marks will require:-
Appropriate data collected
Critical appraisal and evaluation
Accurate and appropriate calculations.
A clear explanation of any figures used and the calculations made.
A professional presentation.
Outside reading (e.g. research findings on dividend policy and capital structure.)
Sound conclusions based on supporting argument.
