The Corporate Finance Project

The Corporate Finance Project

You will act as the senior manager of a large firm and present to its Board of Directors a proposal dealing with a major issue facing the firm. The firm must have stock traded either on the NYSE or Nasdaq and must be a non-financial firm. The proposal presentation should be designed to obtain the Board’s authorization to proceed with the implementation of your proposal. Your proposal should not be something the firm has already done.

The firms you focus on should be large, well-known firms that are of general interest and are not obscure. For example, a proposal that Starbucks should start selling DVDs of independent movies in their stores would be preferable to a proposal that YYBU Technology Inc. should expand into the design and manufacture of equipment that increases wireless network bandwidth.

Your primary sources of data and information will be the firm’s own website and these databases that can be accessed online through the Newman Library: Edgar Oline I-Metrix, Mergent Horizon, and S&P New Advantage.

Step 1

The first major task is for you to develop a proposal for your project. For the proposal, you should do enough background research to know the proposal is feasible for the firm. For example, a proposal that a firm doesn’t pay a dividend should stop paying dividends isn’t feasible. The ideas should not be for an action the firm has already undertaken. For example, you should not propose that eBay should sell its Skype subsidiary because it has already done so. Your subject firms must be included in the Edgar Online and Mergent Horizon databases.

Sample proposals:

Project Proposal 1: Finance Structure or Dividend Policy. This proposal will involve financial leverage and/or dividend policy, and should have a clear relation to the topics in Chapter 16 and 17 of RWJ. For example, you may propose that Google start paying dividend, or that General Motors try to strengthen its balance sheet by seeking private equity financing.

Project Proposal 2: Capital Budgeting Projecting or Acquisition. This proposal will be a major new investment for your firm. It can be an expansion of the one of the firm’s existing lines of business, a new line of business, or an acquisition or merger with another firm. It should refer to capital budgeting and real options (Chapters 9-11, 24, 25) or to mergers and acquisitions, Chapter 26. For example, you may propose that Starbucks should start selling ice cream novelties.

If your proposal is for the acquisition of another firm, the target must also be included in the Edgar Online and the Mergent Horizon databases. Although this means that the target cannot be a privately-held firm, you will be able to locate the financial data on it. Also, it is likely that it will be a US-based firm rather than an international firm. Be sure to check on this before you submit this proposal!

Project Proposal 3: Divestment or Downsizing. This proposal should be for your firm to divest a major product, line of business, or subsidiary. It should refer to capital budgeting (Chapter 9-11), and to mergers and acquisitions, Chapter 26. It may involve a sale, a spin-off, a liquidation, or an equity carve-out. For example, you may propose that General Motors should sell its Cadillac Division.

As reminder and final check, make sure the firms you are including in your proposals are not financial firms, like banks and brokerage houses, and that each is included in both the Edgar Online and Mergent Horizon databases.

Step 2
Study the relevant background on your firm.

This part is to understand the background on your firm. Please focus on the relevant part of the background for your project. Here are some suggestions. Remember for your project you might need information beyond what are suggested here.
Understand your firm’s main business lines. Primary source of information are firm’s own website and Mergent Horizon, which shows firm’s main products and trademarks.
Locate your firm in the Standard & Poor’s Net Advantage, and read its current report about the industry your firm is in. What are the main issues affecting this industry?
In the firm’s 10K reports are two key discussions of the firm’s position and risks. Read Item 1A, “Risk Factors,” and Item 7, “Management Discussion and Analysis” (MD&A). Summarize the key points that management makes about the firm and its prospects. These items are most easily accessed from Edgar Online I-Metrix.
How many directors does the firm have? How many are outside directors? This information is in the firm’s DEF 14 or DEF 14A proxy statements. These are available from Edgar Online I-Metrix.
Look at the list of your firm’s competitors in the Mergent Horizon database. Sort this list by market capitalization. What’s the largest competitor? What is the product overlap between the two firms?
Look at the estimates section in Mergent Horizon for your firm. What are the earnings estimates for the current and next fiscal years? What’s the projected growth rate of earnings for the next five years? What is the range of these five-year growth estimates? How many analysts are making these estimates?
Look at the institutional holdings section in Edgar Online I-Metrix for your firm. What percentage of your firm’s shares is owned by institutions? What institution is the largest single holder? (You might need to sort on the shares outstanding or %TSO column headings.) What percentage of your firm’s share outstanding does the institution hold?

Part B: Work on your project, conduct empirical analysis, and prepare the slides.

Feel free to make necessary assumptions for your analysis. Make sure those assumptions are also stated clearly in your final report.

Step 3 Report
The report proposal should be in the form of slides. The slides need to be comprehensive and well written. It must flow logically and include figures and tables that demonstrate the empirical analysis. Additionally, you need to submit the excel files that you used to produce the reported numbers.