Term Paper ChecklistWritten in the form of a business report
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Did not include the instructions
Followed the administrative guidelines using the correct font, size, line-spacing
Checked for typos
Overview
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Did not exceed 2 pages
Ratio Analysis
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Included at least 10 ratios
Included at least 2 ratios of each of the 5 types
Had at least three years of data for each ratio
Had industry average for each ratio
Discussed the meaning of the 3-year trend of each ratio
Discussed the meaning of the comparison to industry average of each ratio
Projected Income Statements
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Produced actual income statements, not just words, in the proper format
Projected income statements for 3 individual years
Discussed your reasoning for your revenue projection for each of the 3 years
Discussed the drivers of each significant expense type, noting your assumptions about which are
variable and which are fixed
Discussed your reasoning for each expense projection, based on the drivers, for each of the 3
years
Stock Valuation
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Used the Dividend Growth Model that was discussed in class
Used growth rate based on projected income statements
Used most recent full-year dividend
Compared valuation to current stock price and noted if fairly priced, undervalued or overvalued
Calculated required return using current stock price and growth rate based on projected income
statements
Recommendation
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Made a recommendation about buying the stock
Supported the stock recommendation with facts from your prior analyses
Made a recommendation about buying the bonds
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Supported the bond recommendation with facts from your prior analyses
Term Paper
OVERVIEW
You are the head of financial analysis for Truly Voracious Holdings, a company with no assets
other than lots of money, and an unlimited appetite. You have been told to analyze a potential
acquisition.
Please analyze and discuss the company and its industry, from the perspective of a potential
shareholder.
Your final product will be a report that shows your various analyses, discusses the pros and cons,
and ultimately recommends either going ahead with the takeover, or not. (Please see discussion
of Content, below.)
You will be rewarded by your senior manager based on the logic of your conclusion, and how
well supported it is.
GUIDELINES
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This is an individual assignment.
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You must choose one of the companies from the attached list.
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You must use the most recent, publicly available information and financial statements. This
information should be readily available online, as well as or from industry reference books,
such as Dun & Bradstreet, Moody’s or Value Line. Refer to the Bobst Library for additional
resources.
CONTENT
The following items are required to be incorporated into your report, each in a section of its
own.
Page 1 of 6
1. Present a high-level overview of your target company and its industry. Focus on the key
drivers of success (i.e., shareholder value maximization), including products, markets,
and competition. (5% of Term Paper grade)
The purpose of this section is only to provide context for your financial analysis. It may
not exceed 1-2 pages.
2. Perform a detailed ratio analysis of your target company, specifically from the
perspective of a shareholder. (30% of Term Paper grade)
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Perform both trend (company historical) and benchmarking (industry) analyses.
Present 2 or more ratios for each of the five types of ratio, showing the three most
recent years for your target company, and the industry average for at least the most
recent of those years. You do NOT need to calculate the ratios, if you can find them
elsewhere.
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Explain the implications of these ratios on the company, and comment critically on
the direction of the trends, and why the company’s ratios may differ from the industry
average. This is the most important element of the ratio analysis. Cite specific
examples from the analysis above to support your comments. For instance, “The
company’s liquidity seems adequate, as both the Current Ratio and Quick Ratio have
been relatively steady over the last three years, and are currently slightly above
industry averages of 2.4 and 1.3, respectively.”
3. Develop projected Income Statements for each of the next three years. (25% of Term
Paper grade)
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Project annual revenues based on any reasonable sales forecast, but explain your
thinking. For example, “I expect sales to grow 1.4% per year, compared to the
average growth over the last three years of 1.2% per annum, due to the recent
expansion into Sweden and Norway.”
Project the major Expense lines, based on what should be driving the expenses. For
example: “Cost of Goods Sold is expected to rise at the same rate as the increase in
Sales.” “Administrative Expense is expected to grow at the overall rate of inflation,
which I project to be 1% per year.” “Income Tax is expected to remain at the same
rate as the previous year of 36.2% of Pre-Tax Income.”
Your explanations of the revenue and expense drivers are the most important element
of the income statement projection.
Page 2 of 6
4. Use the Dividend Growth model to calculate a valuation for the company’s stock. (15%
of Term Paper grade)
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Assume the dividend will grow at the average rate of change in your projected Net
Income over the next three years.
Assume the required return is 3% higher than the dividend growth rate. Thus, if the
calculated growth rate of Net Income over the next three years is 6.2%, then assume a
required return of 9.2%
Compare your calculated valuation to the company’s current stock price, and
comment on any significant variation.
Using your assumed dividend growth rate from above, calculate the market’s
expected return based on the company’s current stock price.
5. Finally, make a specific investment recommendation regarding the acquisition of the
target’s bonds, stock, neither, or both (20% of Term Paper grade)
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You should primarily base this on the financial analyses you’ve done. Please give
your reasons, with specific references to all the above analyses.
For example, “The company’s profitability ratios handily exceed the industry
average, and the company’s liquidity seems adequate, based on its Current Ratio of
…Therefore, I recommend acquisition of the company’s bonds. However, the
projected Income Statements show declining profitability, and the current stock price
is 12% higher than the valuation of the Dividend Growth model…Therefore, I do not
recommend acquiring the company’s stock at the current price”
An additional 5% of Term Paper grade is for Presentation (professionally written, lack of typos;
use of supporting tables and graphs, as appropriate; etc.)
You must also submit the Term Paper Checklist document, as your acknowledgement that
you have reviewed your paper to ensure all requirements have been met.
ADMINISTRATIVE ITEMS
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Please keep the paper finance-oriented.
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The paper can be a maximum of 20 pages long, including tables, charts, graphs, and
appendices.
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Please double-space, using Arial 12-pt. font, to make the paper more manageable.
Page 3 of 6
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You may include an Executive Summary of your report on the first page (optional).
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Please include any tables, charts and graphs you wish. You must include a bibliography
stating your sources. Everything except the Bibliography is included in the 20 page
maximum.
Good luck!
Page 4 of 6
List of Target Companies
Apple
Best Buy
Caterpillar
Cisco Systems
Clorox
Costco
CVS Health
Ford
Harley-Davidson
IBM
Intel
Lockheed Martin
Macy’s
McDonald’s
Microsoft
Nike
Nordstrom
Southwest Airlines
Starbucks
Target
Page 5 of 6
Gap
Verizon
Walmart
Page 6 of 6
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