THE INSTITUTE OF FINANCE MANAGEMENT

FACULTY OF ACCOUNTING, BANKING AND FINANCE

DEPARTMENT OF ACCOUNTING AND FINANCE
Master of Science in Finance and Investment

AF09108: Computing for Finance and Investment Analysis

2018-2019 Academic year
Individual Assignment
GENERAL INSTRUCTIONS
1. Answer ALL questions. The answer to each question should be clearly shown (indicate
clearly the answers to each section; one section must be fully completed before dealing
with another section). Answers should be presented in a report format with Section One
and Section two for the two respective questions.
2. All your calculations should be clearly shown on the Excel Spreadsheet.
3. There should be only one spreadsheet file saved in your First name (like “Felix”) and
Surname (like “Machibya”). Thus the file name will be: Lulu Machibya
4. The report summarizing (Note: follow all report requirements including table of contents,
introduction, results output and discussions of the answers) should be word processed and
submitted in a loose bound copy and in electronic version with name as in 3 above.
5. All Excel outputs should be well drafted in a report and clear understanding via a report
should be well shown, copying the outputs and pasting in a word processing without proper
discussions will lead into the lowest marks being awarded.
6. Submission Date: Monday 1st, April 2019 at or before 1715Hrs in Block D, Room No D008B
for MF –Dar es Salaam and for MFI - Dodoma to Dr Lyimo G.
7. The name and Registration number of the candidate should be written on the hard bound
copy starting with first name and ending with surname. The Registration number should
follow thereafter. [e.g. John K. Joseph: IMC/MFI/18/98555]
8. The use of the appropriate formatting tools will be rewarded.
9. Electronic copies may be submitted as attachment to [email protected]
Otherwise the electronic versions should be saved in flash disk (free from virus) that should
be correctly labeled and well secured with the hard copy.

1|Page
 10. SECTION A: CAPITAL BUDGETING AND USE OF EXCEL TOOLS (50%)
Kand Golf Ltd currently produces and sells H-Q line of golf clubs. Kand Golf Ltd has
decided to produce and sell a new medium-price line of golf clubs to complement its H-
Q Line golf clubs’ business. The clubs will sell for £700 per set and have a variable cost
of £320 per set. The company has spent £150,000 for a marketing study that
determined the company will sell 55,000 sets per year for the coming seven years. The
marketing study also determined that the company will lose sales to the tune of an
annual average of 13,000 sets of its high-priced clubs. The high-priced clubs sell at £
1,200 and have variable costs of £700. The company will also increase sales of its
cheap clubs by an annual average of 12,000 sets. The cheap clubs sell for £ 400 and
have variable cost of £200 per set. The fixed costs each year will be £7,500,000. The
Company has also spent £1,000,000 on research and development for the new clubs.
The plant and equipment required will cost £18,200,000 and will depreciated on a 20
percent reducing balances basis. At the end of the seven years, the salvage value of
the plant and equipment will be equal to the written-down of residual value. The new
clubs will also require an increase in net working capital of £950,000 at the onset of the
project increasing at an annual rate of 5% based on previous year’s cumulative net
working capital level for years 1 to 5; all investment in working capital will be recovered
at the end of the project. The corporation tax rate is 30 percent payable one year in
arrear, and the cost of capital is 14 percent.

a) Prepare the statement of tax shield on capital allowance (or economic

depreciation) for the project and calculate its value at time zero. Hint: The
statement should show annual capital allowances and corresponding tax shield
in separate rows.
b) Prepare the estimate of “Statement of Comprehensive Income” showing all
income and all expense items up to the tax liability
c) Prepare the statement of an estimate of incremental cash flows resulting from
implementing the project and show change in net cash flows.
d) Use the net cash flows estimated in part (c ) above to calculate the following:
 The payback period,
 The NPV and
 The IRR

e) You feel that most of the values of the variables influencing net cash flows are
not accurate and can fluctuate within 10 percent of the values used in the
analysis. Consequently, you decide to conduct sensitivity analysis of all variables
affecting net cash flows. Prepare the values that reflect both the worse and best
case for all relevant variables and Estimate and present the best case and worst-
case NPVs as reflected by expected fluctuation. (Hint: Tax rate, capital

2|Page
 allowance rate, the price and variable costs for the two existing sets of clubs are
known with certainty)

f) Use data table to generate NPV associated with possible fluctuations in cost of
capital if the cost of capital cannot fall below 1% and cannot exceed 25%.
g) Consider the following possible values of some project variables and choose five
out of possible scenarios such that one of the chosen scenarios reflect worst
cases, one reflects best cases and the remaining three scenarios (namely
combined one, combined two and combined three) reflect combinations of worst
and most likely cases of these variables and use Scenario manager to show NPV
for each scenario chosen. What do the results imply to management in terms of
risk of this investment project? (Hint: Make sure that the determined scenarios
show each variable at least once)

Ite m Pe s s imis tic Value Mos t Like ly value Optimis tic Value
Price of New golf club (in £) 500 700 800
Quantity of new golf club (sets) 45,000 55,000 65000
Lost sales H-Q golf club (sets) 11,000 13,000 15,000
Fixed costs per year (in £) 7,000,000 7,500,000 9,000,000
Cost of Capital 12% 14% 16%

h) Management is worried on uncertainty of variable cost per set of the new golf
clubs and wish to establish the annual growth rate in that variable cost that is
necessary for the project to break even, other variables remaining unchanged.
As expert in Computing for Investment Analysis explain how management can
establish that growth rate describing any tool(s) you used to estimate that growth
rate.
i) With the use of original data from this investment project demonstrate how you
will use Solver tool to achieve the NPV of 17,500,000 if there are uncertainties on
sales of new golf clubs, variable cost per set of the new golf clubs, cost of capital
and capital allowance rate such that:
 Sales of new golf clubs cannot fall below 45000 and cannot exceed
57,000
 The lowest possible variable cost per set is 300
 The minimum cost of capital is 12%
 Capital allowance rate cannot fall below 20%

3|Page
 SECTION B: REGRESSION ANALYSIS AND USE OF EXCEL TOOLS (50%)

This part contains two questions which carries a weight of 45% of the total assignment
weight. Please attempt all Questions

QUESTION ONE

You have been provided with an excel file links which can be downloaded that requires you
to prepare the data for answering QUESTION TWO. Follow the instructions that follow in (a)
and (b) below.

(a) Open the Students_Respective_Companies in the excel worksheet file and identify the
“security name” against your registration number. This is your company to be used for
this part when answering all questions that follow. Please Click on the symbol
(hyperlinked to your company’s website) make sure your computer is connected to
internet. A webpage for your company will open

(b) Do the following actions, in a step by step:

1. From the opened webpage click on the Historical data a new window like seen below
will open then follow steps 1 to 4.

You need to set Data Range by clicking on the Time period and set your date back
two years from the date of your download (if applicable). Frequency should remain
“weekly”, and then click “Apply” followed by Download data a “csv excel” file named

4|Page
 “BAC.csv” (if your symbol is BAC) will be available to open, then save this file using
your name and in format of Excel work book (*.xlsx).
2. Then Open the following link (Ctrl+Click):
http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
The window contains the following extract will appear.

Under the Changes in CRSP Data click CSV on Fama/French 3 factors [Weekly] the the “F-
F- Research_Data_Factors_weekly.csv” worksheet is in the first cell A6 format of 19260702
which means 02 July, 1926; and last cell A4835 format of 20190125 means 25 January,
2019 (arrange in ascending order-note select whole data to avoid mixing up cells) while the
downloaded data for your company date formats is in 25/1/2018. You will need to format the
table’s dates to be uniform before Conducting a VLOOKUP to match the data in the two
tables in later stages. Remember to Copy data from

3. Copy the data from 4 above into the Sheet2 of “F-F- Research_Data_Factors_
weekly”. Rename this worksheet as “table-data”
4. Then copy again data from “table-data” to sheet3, and in a Colum just after “Adj
Close” Type the name of your company in the heading, then compute the returns as:

Where LN stands for Natural Logarithm

- Convert these returns into percentage
5. Repeat No 4 above for each row in a Table by using techniques taught in the class
6. Then using VLOOKUP FUNCTION, remember to make “Students downloaded data”
as Absolute reference, then use dates as per the new format (see 6 above) to import
the column of returns obtained in 4 to its respective dates in the “F-F-
Research_Data_Factors_ Weekly” worksheet.

5|Page
 7. In the “F-F- Research_Data_Factors_ Weekly.csv” worksheet, the column just after
the newly inserted return from downloaded data, Compute excess returns as:

8. Repeat No 7 above for each row in a Table by using techniques taught in the class

QUESTION TWO
After preparing data in Question one above, open another sheet and name it regression
analysis, then run regression Using Fama – French three factor Model as show below then
answer question questions (i) to (iii).
Ri =RF + βMktRMRF + βsizeSMB + βvalueHML
Where:

Ri = Excess return

SMB = The return to Small Stocks minus the return to large Stocks

βsize = The sensitivity of Security i to the movement in Small Stocks

HML = The return to value stocks minus the return to growth stocks

βvalue = The sensitivity of Security i to the movement in value stocks

i) Use Linest function to estimate the coefficients of Fama–French three factor Model
ii) Use the“F-F- Research_Data_Factors_daily” to run a Regression analysis to
determine values of RF, βMkt, βsize and βvalue
iii) Comment on the reliability of the coefficients

END OF ASSIGNMENT

6|Page