2017 S1 FINA2222 FMC - student assignment 代写

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  • 2017 S1 FINA2222 FMC - student assignment 代写

    2017 S1 FINA2222 CFP  JOEY YANG  Page 1
    FINA2222 Case Study (20%)
    2017 Semester 1
    Fraser & McKenzie Cookware Inc.
    Jamie Smith, CEO of Fraser & McKenzie Cookware, Inc. (FMC), sat in his office reflecting on a
    meeting he had with an investment banker earlier in the week. The banker, whom Jamie had known
    for years, asked for the meeting after a group of private equity investors made discreet inquiries
    about a possible acquisition of FMC. Although FMC was a public company, a majority of its shares
    were controlled by family members descended from the firm’s founders together with various family
    trusts. Jamie knew the family had no current interest in selling – on the contrary, FMC was
    interested in acquiring other companies in the kitchen appliances space – so this overture, like a few
    others before it, would be politely rebuffed.
    Nevertheless, Jamie was struck by the banker’s assertion that a private equity buyer could “unlock”
    value inherent in FMC’s strong operations and balance sheet. Using cash on FMC’s balance sheet and
    new borrowings, a private equity firm could purchase all of FMC ’s outstanding shares at a price
    higher than $16.25 per share, its current stock price. It would then repay the debt over time using
    the company’s future earnings. When the banker pointed out that FMC itself could do the same
    thing – borrow money to buy back its own shares – Jamie had asked, “But why would we do that?”
    The bank’s response was blunt: “Because you are over-liquid and under-levered. Your shareholders
    are paying a price for that.” In the days since the meeting, Jamie’s thoughts kept returning to a share
    repurchase. How many shares could be bought? At what price? Would it sap FMC’s financial
    strength? Or prevent it from making future acquisitions?
    Fraser & McKenzie Cookware’s Business
    Fraser & McKenzie Cookware was a mid-sized producer of branded small appliances primarily used
    in residential kitchens. For the period 2012-2016 the industry posted modest annual unit sales
    growth of 2% despite positive market conditions including a strong housing market and product
    2017 S1 FINA2222 CFP  JOEY YANG  Page 2
    innovations. Competition from inexpensive imports and aggressive pricing by mass merchandisers
    limited industry dollar volume growth to just 3.5% annually over that same period.
    Under Jamie Smith’s leadership, FMC operated much as it always had, with three notable exceptions.
    First, the company completed an IPO in 2014. This provided a measure of liquidity for founders’
    descendants who, collectively, owned 62% of the outstanding shares following the IPO. Second,
    beginning in the 2010s, FMC gradually moved its production abroad. Finally, FMC had undertaken a
    strategy focused on rounding out and complementing its product offerings by acquiring small
    independent manufacturers or the kitchen appliance product lines of large diversified manufacturers.
    Thus far, all acquisitions had been for cash or FMC stock.
    Fraser & McKenzie Cookware’s Performance
    During the year ended December 31, 2016, FMC earned net income of $54.9 million on revenue of
    $350.6 million. Exhibits 1 and 2 present the company’s recent financial statements. The company’s
    2016 EBITDA margin of nearly 22.2% was among the strongest within the peer group. During 2013-
    2016, compounded annual returns for FMC shareholders, including dividends and stock price
    appreciation, were approximately 11% per year. This was higher than the ASX S&P200, which
    returned approximately 6% per year. However, it was well below the 16% annual compounded
    return earned by shareholders of FMC’s peer group during the same period.
    Fraser & McKenzie Cookware’s Financial Policies
    FMC’s financial posture was conservative and very much in keeping with FMC’s long-standing
    practice and, indeed, with its management style generally. At the end of 2016, FMC’s balance sheet
    was the strongest in the industry. Not only was it debt-free, but the company also held a large
    amount in cash and securities. Given such substantial liquidity, the management had terminated in
    2014 a revolving credit agreement designed to provide standby credit for essential needs; the CFO
    argued that the fees were a waste of money and Jamie agreed.
    In recent years the company’s largest uses of cash had been common dividends and cash
    consideration paid in various acquisitions. Dividends per share had risen only modestly during 2012-
    2016. However, as the company issued new shares in connection with some of its acquisitions, the
    number of shares outstanding climbed, and the payout ratio rose significantly, to 100% in 2016.
    2015  2016
    Net income (000s)  52,435  54,929
    Average number of shares outstanding (000s)  57,321  59,052
    Earnings per share (EPS)  0.92  $0.93
    Effective tax rate (corporate)  30%  30%
    2017 S1 FINA2222 CFP  JOEY YANG  Page 3
    1. What is the ultimate goal of financial management? Using the corporate finance theories you
    have learned so far, do you think FMC’s current capital structure is optimal? Why? (10 mark)
    2. Given the cash position of FMC at the end of 2016, do you think its payout policy is optimal?
    Explain. (10 mark)
    Consider the following share repurchase proposal from FMC’s CFO: the company will use $209
    million of cash from its balance sheet and $50 million in new debt-bearing interest (on permanent
    basis) at the rate of 6.75% to repurchase 14 million shares at a price of $18.50 per share. Consider
    the impact of this repurchase by answering questions 4 to 7.
    3. How does the proposed share repurchase plan affect FMC’s leverage? (10 mark)
    4. How does the proposed share repurchase plan affect FMC’s profitability and debt coverage?
    Compare its earnings per share (EPS), return on equity (ROE) and interest coverage. (22
    5. How does the proposed share repurchase plan affect the total value of FMC? (Hint: cash is
    treated as negative debt, and this will affect the value of interest tax shield.) (8 mark)
    6. You are FMC’s shareholder supporting the repurchase proposal and you have a personal tax
    rate of 36%. What is your after-tax dividend income under 1) the traditional tax system; and
    2) the imputation tax system? Which tax system do you favour? Why? (25 mark)
    7. Is there a downside to the above repurchase proposal? Explain. (10 mark)
    2017 S1 FINA2222 CFP  JOEY YANG  Page 4
    APPENDIX (Spread Sheet)
    Case Exhibit 1: Fraser & McKenzie’s Balance Sheet (in  000s )
    Cash & Cash Equivalents
    Accounts Receivable
    Other Current Assets
    Total Current Assets
    Property, Plant & Equipment
    Other Assets
    Total Assets
    Liabilities & Shareholders'
    Accounts Payable
    Accrued Liabilities
    Taxes Payable
    Total Current Liabilities
    Other liabilities
    Deferred Taxes
    Total Liabilities
    Shareholders' Equity
    Total Liabilities & Shareholders' Equity 592,253
    Case Exhibit 2: Fraser & McKenzie’s Income Statement (in  000s )
    Operating Results:
    Less: Cost of Goods Sold  253,684
    Gross Profit
    Less: Selling, General & Administrative  29,698
    Operating Income
    Plus: Depreciation & Amortization  10,681
    Plus: Other Income (expense)  11,292
    Earnings Before Tax
    Less: Taxes
    Net Income
    Gross Margin
    EBIT Margin
    EBITDA Margin
    Effective Tax Rate (1)
    Net Income Margin
    Dividend payout ratio  100.0%
    2017 S1 FINA2222 CFP  JOEY YANG  Page 5
      Complete your assignment in MS Word format using size 12 pt Times New Roman font and
    1.5 line spacing.
      The attached MS Excel spread sheet tables must be completed and pasted into your
    assignment as appendix.
      CLEARLY SHOW THE BASIS OF YOUR CALCULATIONS in the main text, so that partial credit
    can be earned where possible.
      Submit your case study in PDF or MS Word on LMS. Include your tutorial time, tutor’s name,
    group member names and their student numbers on the front page of your submission.
      SUBMIT THE MS WORD DOCUMENT ONLY. Excel files are not acceptable.
      PAGE LIMIT: 5 PAGES (excluding tables).
    Q  Assessment Criteria
    1  Answer the question; provide a brief discussion.  10
    2  Answer the question; provide a brief discussion.  10
    Complete the spread sheet table, and show your workings clearly in the
    Word document.
    Complete the spread sheet table, and show your workings clearly in the
    Word document. Briefly discuss your findings.

    2017 S1 FINA2222 FMC - student assignment 代写
    Complete the spread sheet table, and show your workings clearly in the
    Word document. Briefly discuss your findings.
    Complete the spread sheet table, and show your workings in clearly the
    Word document. Briefly discuss your findings.
    7  Answer the question; provide a brief discussion if you can.  10
    Total  100
    Ensure you identify ALL references you use and use the Harvard style which you can find on the
    Library website at http://libguides.library.uwa.edu.au/content.php?pid=43218&hs=a
    2017 S1 FINA2222 CFP  JOEY YANG  Page 6
    Register for SPARK – go to https://uwa.sparkplus.com.au
    SPARK will be open in Week 6 and Week 8.
    Register and complete the task by the end of week 8.
    Look out for the reminders on LMS.
    You will need to complete at least one SPARK assessment. Failure to complete at least one SPARK
    assessment will result in the group score being multiplied by 0.8 to provide your individual mark
    (unless your SPARK assessment was lower).
    2017 S1 FINA2222 FMC - student assignment 代写