Objective of the Assessment:
This assignment has been designed to test elements of the module’s Intended Learning Outcomes number 1 to 6, as specified on the Module Specification. It allows students to exhibit and apply their knowledge and skills in analysing one of the key, strategic financial issues of a corporation.
Students will be required to apply the concepts studied in this module and covered within the recommended reading material. The key to success in this assessment is to use critical reflective skills to analyse and apply the theory relevant to the assessment topic.
Project Description
In finance, capital structure is the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. The optimal capital structure for a company is one that offers a balance between the ideal debt-to-equity ranges and minimizes the firm’s cost of capital.
One of the tasks a Finance Manager must perform is the adequate balance of debt and equity that minimizes the company’s cost of capital. Understanding that the best debt-to-equity ratio for a firm is the one that maximizes its value, Managers must understand the main components of Capital Structure in order to achieve the goals of the corporation.
Having as an example recent event on Abengoa, and trying to make a comparison between the Enron Case, students must analyze the main components of the Capital Structure, Managers decisions and Financial information available for both companies in order to compare and contrast such cases.
This project contains two parts:
In the first part students should critically discuss the main components of the Capital Structure of a Company, how it is balanced, and the impact of each element in the capital structure, using as support the available theories covered during class (M&M Theory). This will involve, but not exclusively, an explanation of the M&M proposition, the elements involved (such as tax elements and bankruptcy costs) and how those elements affect the Value of a Corporation.
In the second part, students should briefly explain the Enron case and make a comparison (comparing and contrasting) with Abengoa’s current case.
The grade for this assignment will be determined by the level of critical analysis carried out by the student. In doing this analysis, students should make use of the theory studied in the module and apply it to the case study. It is therefore necessary to proceed beyond a description of the issues, to explaining the rationale, advantages and disadvantages of the choices that might be taken.
Structure of the Report
Cover Page
Table of Contents
Brief Introduction (not included in word count)
Body of the Report
Part A: Theory Section
Comprehensive critical analysis of Capital Structure, brief description of M&M proposition. This should include an analysis of each component of Capital Structure and M&M proposition:
– Equity (all components)
– Debt (types of debt, bonds, …)
– Value of firm (leverade & unleverade)
– Tax components
– Bankruptcy costs
Part B: Case Study
– Brief introduction to the Enron case and comparison with Abengoa case (not included in word count).
– Once the student identified the main issues regarding the Enron and Abengoa cases, a comparison and contrast should be made in order to state the similarities and differences, how Directors managed the situations, and how was the process of closure (regarding Enron).
– Provide analysis of the main financial statements in order to identify relevant aspects regarding capital structure:
– Income Statement
– Balance Sheet Statement
– Cash Flow Statement
Summary & Conclusion
List of References
Appendices, including an appendix showing all workings for Part B
NOTE: The title page should include the name of the module, the title of the project, the student’s full name, the lecturer’s name and the date. The table of contents should include all the headings with appropriate page numbers, including the Appendices.
Format of the Project:
The project should be prepared as a neatly typed Word document (Times New Roman or Arial), with 1.5 spacing and page numbering.
The project is expected to consist of approximately 2,500 words (not counting tables or inserts, and introductions).
Tables or work/data taken from other sources maybe included in an appendix.
All sources must be referenced in the text and a full bibliography must be provided (including visited websites) in the Harvard style.
All work must adhere to the University regulations on ‘Cheating, Collusion and Plagiarism’. A spelling and grammar check should be done.
Deadline for submission by email and on Turnitin: TBD
Deadline for submission of hardcopy: TBD
Projects must be delivered by email to the lecturer and the academic office, and be loaded on Turnitin by the deadline.
A paper copy of the project must also be delivered to the lecturer.
Only when this has been done will the project be considered submitted. Late submission will carry a penalty of 5% per day (for example after one day grade x 95%, two days grade x 90% etc.)
Turnitin Code: TBA
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