Section 1. Capital Structure Analysis: Describe the existing capital structure of the firm in terms of ingredients and characteristics. Then, compare the leverage of the firm against that of comparable firms. Does the firm have more or less leverage with respect to comparable firms and can this be justified? Furthermore, analyse the appropriateness of the existing capital structure for supporting the particular activities/strategy of the firm at the specific point of time in its life cycle and given the external environment. (30 marks)
Section 2. Capital Structure Recommendation: Using the cost of capital approach, examine if an increase in the Debt/Capital ratio by 0.04 (e.g., if the ratio is currently 0.03, this would increase to 0.07) would be beneficial for the firm, by investigating how the increase would affect the risk and the value of the firm. You should assume that credit agencies would downgrade the firm due to the increase in the debt by one notch (for example from Aa1 to Aa2). (20 marks)
Section 3. Payout Policy Analysis and Recommendation: Describe the existing payout policy of the firm and compare it against that of the comparable firms you chose in Section 1. Analyse the appropriateness of the payout policy for supporting the activities/strategy of the firm at the specific point of time in its life cycle and considering the external environment. Recommend whether and how the firm should change its payout policy, justifying your recommendation. (25 marks)
Section 4. Acquisition Recommendation: Identify a public or private company which may act as an acquisition target for the firm. Explain what the motive(s) for the acquisition would be and analyse any sources of operating and financial synergy. Recommend whether the firm should use cash, stock or both as a means of financing the acquisition. (25 marks)