Financial Statement Analysis
Quantum
FINA6305TermProjectOptionalExtraCredit.docx
FINA 6305
Managerial Finance
Fall 2020
Term Project Extra Credit (Optional)
General Guidelines:
The term project extra credit items are optional. If you do not work on it, you will receive no extra credit. To earn extra credit, you have two optional questions. You can work on one or both of them. The deadline of extra credit points are the same as your term project report.
Optional Question 1: Executive report on company’s financial healthiness vs investor’s analysis of stock prospect (2% extra credit on final grade).
Instructions:
(a) Assume you are the CFO of your term project company. Based on your term project report and from the executive perspective, what is your company’s financial healthiness and what are your suggestions to improve the company’s financial position during-Covid and post-Covid? Please explain. (expected words: 500)
(b) Assume you are an investment portfolio manager and you make decisions on stock investments. Who is the company’s major competitor in stock market? What is the company’s comparative strength and comparative weakness compared to its competitor? Please explain. (expected words: 500)
Optional Question 2: Manually calculate beta from Regression Analysis. (3% extra credit on final grade).
Instructions:
Please go to finance.yahoo.com ad download the ending monthly stock prices (your term project company) for the last 60 months. Use the adjusted closing price, which adjusts for divided payment and stock splits. Next download the ending value of the S&P 500 index over the same period. For the historical risk-free rate, go to the St. Louis Federal Reserve website (www.stlouisfed.org) and find the three-month Treasury bill secondary market rate. Download this file.
· Step 1: Calculate the monthly returns, average monthly returns, and standard deviations for your company’s stock, the 3-month Treasury Bill, and the S&P 500 for this period.
· Step 2: Beta is often estimated by linear regression. A model is commonly used is called the market model, which is:
(Ri - Rf) = alpha + beta*(Rm - Rf) + error term
In this regression, Ri is the return on the stock and Rf is the risk-free rate for the same period. Rm is the return on a stock market index such as the S&P 500 index. Alpha is the regression intercept, and Beta is the slope. Please estimate Beta and plot the SML by following the example https://www.youtube.com/watch?v=7LiK-qbmPsw
Please note extra credit will be assigned only if your calculation is correct. If your calculation is incorrect, you will no extra credit.
