FINA 202 Group Assignment

Revised: 9 August 2014

Goal: First, students are expected to use the skills learned from the course
to analyse the equity value of a firm. Second, students are expected to
think through the ethical issues that may arise when a research analyst
carries out his/her job.
Page limit: 8 (not including cover page and executive summary).
Students should use the first 4 pages to deal with the equity valuation
project. The remaining 4 pages should be dedicated to the relevant ethical
issues. Students may add 1-2 pages to include references and calculations.
Deadline: 3 October 2014 (Friday).
Delivery: A hard copy should be put in the designated drop box on the
mezzanine floor.
Penalty: Late submission of the group assignment will result in a 5%
discount of the group assignment mark per day (applies to each of the
group members).
Marking criteria:
Are issues listed below fully addressed? (30%)
Depth of research and analysis (40%)
Creativeness in providing advice on both topics (20%)
Background information, summary, charting, etc. (10%)
Definition:
The buy side: makes investment and manages portfolios for
institutional clients, retail investors, and wealthy individuals. Buyside analysts provide their recommendations to portfolio managers.
Their research pays for itself when portfolio managers profitably
trade on it.
The sell side: provides investment banking and brokerage services.
Investment banking clients are typically corporations that are
seeking to raise capital by selling securities. Hence the term sell
side.

Project description:
You are a team of outstanding sell-side equity research analysts. Your job
is to select a firm and make recommendations to portfolio managers so
that they know whether they should buy or sell that stock.
1. You need to create your own recommendations (e.g., buy, sell, or
hold) and determine the plausible stock price, using models you
have learned from the course (e.g., DDM- Dividend Discount
Model, etc.) CAPM, DGM, PE,2: Various methods.
2. The valuation of stock prices will involve analyzing the companys
accounting information so that you can estimate the future earnings
and dividends of the company, from which the stock price can then
be determined. They are therefore not requiring CAPM valuations.
3. Note that you should clearly state your assumptions behind your
calculations. E.g., How do you come up with the growth rate and
the discount rate? Why do you believe a certain model is better
than other alternatives? (We will make use of the dynamic model)
4. Do not show your calculations in your report; please lump them
altogether in appendix. What should appear in your report is a clear
and consistent argument, supported by evidence that justifies your
recommendations. Remember, its a sell-side report through which
you communicate your ideas with fund managers. (Communicate
ideas to the fund manager)
On the potential ethical issues, please comment on the following two
scenarios.
Scenario1 (answer this within 1 page):
The firm that your team follows announces its fourth-quarter earnings,
which have beat the consensus forecast by a considerable margin.
Analysts begin posting revisions in their forecasts for the next year.
Your boss is pressuring you to post your forecasts soon, so that the
firm and its investors are not left behind. You usually use both a model
and further fundamental analysis when making changes to your
forecasts. But due to the pressure you are under, you simply update the
inputs into your model and post the output as your new earning
forecasts. Is this ethical? Why or why not? No- not professionally
competent
Please use the Best Practice Guidelines Governing Analysts
compiled by CFA Institute as a guide when answering these questions
2

(shown below). It is not going to give the most accurate picture. {The
thing is that the firm and investors buy into this stock.
Analyst Conduct
A. Analysts must issue objective research and recommendations that
have a reasonable and adequate basis supported by thorough, diligent,
and appropriate research and investigation. (His was not objective as
he just copied the market)
B. Analysts must distinguish between fact and opinion and ensure that the
information contained in their reports is clear and complete. (Fact but
accounting numbers does not take the full picture into account)
C. Analysts must not bias their research reports or threaten to use their
recommendations in an effort to manipulate their relationship with
corporate issuers. If the fundamentals were bad it was possible that
he potentially left it out.

Scenario 2 (answer this within 1 page):

Please read the article Do Business Schools Incubate Criminals
(posted on Blackboard), and investigate the case mentioned in the
article (keyword: Rajat Gupta). Comment on this article.