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FINM7402: Corporate Finance
In this assignment, you will analyze the corporate governance, cost of capital, capital structure
and dividend policy of Brambles Limited (ticker code: BXB), which is a company listed in the
Australian Securities Exchange (ASX).
The submission will comprise of two parts:
(a) Report (word/pdf): discussing corporate governance, cost of capital, optimal capital
structure and dividend policy (using the report template).
(b) Spreadsheet (excel): Showing all the calculations relating to cost of capital, capital
structure and dividend payout (using the spreadsheet template).
Requirements of the submission:
1. Corporate Governance (8/40):
a. Monitoring: Discuss about the features of the board (refer to aspects that we
covered in the class: size, independence, classified) (3/50)
b. Incentives/Compensation: Discuss about the compensation policies of the firm
(2/50)
c. Your overall view of the firm’s corporate governance: Discuss how severe is
the agency problem in the firm and whether the board and compensation policies
are helping to mitigate the problem (3/50)
2. Cost of Capital (8/40)
a. Estimate the firm’s cost of debt (1)
b. Estimate the firm’s cost of equity (estimating beta using the regression).
Comment on some of the issues when calculating cost of equity using the
CAPM approach (5+1)
c. Estimate the firm’s WACC (1)
3. Capital Structure (14/40)
a. Discuss the firm’s current capital structure (2)
b. Discuss the firm’s cost and benefits of using debt for the following factors: Tax,
financial distress, and financial flexibility. You will need to discuss each of
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these factors in relation to the firm and not in general (3)
c. What is the firm’s optimal capital structure (using cost of capital approach and
regression analysis)? Discuss the strengths and limitations of your estimate of
the optimal capital structure. What should the firm do with respect to its level
of debt and equity given your estimate of the optimal capital structure? (4 + 4 +
1= 9)
Assume: cost of debt increases by 0.10 for every 10% increase in
debt to capital ratio above 50%; it remains constant up to 50% debt
to capital ratio.
4. Dividend Policy (6/50)
a. Discuss the firm’s current dividend policy (cash dividends and share buyback).
(2)
b. How is the firm’s dividend policy different from that of its peers or the market?
(2)
c. Would you suggest any changes to the firm’s current dividend policy? (2)
5. Presentation of the report (4/40)
a. Sequence/Structure (Is the writing a logical sequence of ideas, organised into
paragraphs that works to establish a clear line of argument for the reader?)
(1.2/40)
b. Language/Mechanics/Professionalism (Has the vocabulary and expression
appropriate for formal academic writing within this discourse been used? Has
the work been edited for lapses in spelling, grammar, or sentence construction?
) (1.2/40)
c. Referencing (Has broad research been conducted, in order to achieve
a synthesis of personal ideas and those of the extant literature? Have
the researched sources been referenced correctly, both within the
document, and in the Bibliography?) (1.6/40)
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Submission Format and Guidelines
The report should be named in the following format StudentNO._Report_FINM7402'.
The excel workbook should be named as 'StudentNO._Calculation_FINM7402'.
Report format: The report should be in Calibri 12, and 1.5 spacing. Please try to keep your
report brief. Consider the following:
a. This assignment is not only about performing calculations. It is also about making
qualitative judgments and recommendations based on the results of your analysis.
b. You should also keep in mind that there is no single right or wrong answer. It all
depends on your views. All I am looking for are good arguments based on your views
and assumptions. If you make a decision without justification, I will mark it down
even if the decision appears to be valid. However, if you can clearly articulate why
you made a particular decision, even if I believe that is not correct, I will mark it
favorably.
c. So, clearly articulate your assumptions that you made to get to your conclusion.
d. Remember, do not show any calculation in the report (all calculations should be
shown in the spreadsheet). Only include summary tables and graphs in the report.
Excel workbook format: The Excel workbook should contain 5 worksheets that are named
respectively as ‘Beta Regression’, ‘Cost of Capital’, ‘Capital Structure -1’ Capital Structure -
2’ and “Dividend Policy’.
‘Beta Regression’ sheet: include the data you use to estimate stock beta, the regression plot
and the estimated beta value.
‘Cost of Capital’ sheet: show computation of cost of debt and cost of equity/capital/discount
rate
‘Optimal Capital Structure -1’ sheet: show all the calculation relating to optimal capital
structure using WACC
‘Optimal Capital Structure -2’ sheet: show all the calculation relating to optimal capital
structure using the regression analysis
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‘Dividend Policy’ sheet: show all data and calculations relating to dividend payouts and other
forms of payout to shareholders.
Time: Assume that we are at the beginning of 2022 (Using data available as of the end of
December 2021).
Submission: Both the files needs to be submitted through Turnitin – link will be provided
closer to the due date.
Data Sources (Available in the Data folder) & References
1. Corporate Governance:
a. Data: Annual report 2021
b. References: Slides week 1 and chapter 29 of the Berk & DeMarzo textbook)
2. Cost of capital:
a. Data: Market Data
b. References: Slides week 2 and chapter 12 of the Berk & DeMarzo textbook
(Chapter 12 Appendix very useful)
3. Capital Structure
a. Data: Financials
b. References: Slides week 4 & 5 and chapters 15 & 16 of the Berk & DeMarzo
textbook
4. Dividend Policy
a. Data: Financials
b. References: Slides week 7 and chapter 17 of the Berk & DeMarzo textbook
Page limits: please adhere to the following page limits. I will not mark any content that goes
beyond the following page limits. Remember it is the quality not the quantity than counts.