Financial Decision Making Assurance of Learning Project

AACSB’s Assurance of Learning (AOL) project for GSB 625 will help to accomplish the following learning objectives:
1.    AOL-1: Learning Objective: Students will assess the financial strength of a company.
2.    AOL-2: Learning Objective: Students will assess the impact of debt

In order to complete this assignment, each student is provided with a unique firm within the restaurant industry (McDonald’s)  (MCD) and will write a paper assessing the financial health of that firm. In order to assess the firm’s health, each student will use the accompanying Excel worksheet to calculate the intrinsic value of each firm. The Excel worksheet is divided into several sub-sheets:
1.    MASTER INPUTS: In this section, input your firm’s most recent operating income, interest expense, and other financial statement information. Students may also elect to capitalize R&D expenses and convert operating leases to debt. Each student is also asked to estimate how to compute beta and working capital. Be sure to save the assumptions made and include them in the paper.
2.    EARNINGS NORMALIZER: Students may elect to normalize earnings based upon historical averages or sector averages.
3.    VALUATION MODEL: The worksheet entitled Valuation Model provides information on your firm’s final cost of capital, percentage of debt and equity, and the intrinsic share price of the firm’s stock (Line F71).

Your AOL Assessment is a paper (single-spaced within paragraphs and double-spaced between paragraphs). Please use the following guidelines:

1.    INTRODUCTION: Using the Initial Public Offering section from this course, introduce the restaurant. Include relevant information on (but not limited to) the following: brief history of the restaurant, initial public offering details(date it went public, which exchange, capital raised, lead underwriters), description of products offered.
2.    LETTER TO THE SHAREHOLDER: Refer to the annual report (10K) and read the CEO’s letter to the shareholder. In addition to a brief biography of the CEO, briefly discuss what was learned from this letter regarding the firm’s financial health. Briefly summarize the main points of this letter.
3.    MERGERS AND ACQUISITIONS: Refer to the annual report (10K) and outside research articles. Has the firm merged with another? Acquired a company? Created a joint alliance or patent agreements? Discuss findings here in relation to the growth potential of your company.
4.    BANKRUPTCY: Refer to the bankruptcy discussions from this course. After reviewing the most recent annual report, discuss any recent litigation or news negatively impacting earnings and growth.  Using the Altman Z bankruptcy calculators and http://www.creditguru.com/CalcAltZ.shtml, calculate the probability of the firm liquidating or reorganizing.
5.    LEASING AGREEMENTS: Refer to the leasing discussions from this course. After reviewing the most recent annual report, discuss any leases (operating, financial, real estate, equipment, etc.) the firm holds. How does this impact the firm’s debt position in light of your bankruptcy discussion?
6.    VALUATION MODEL-PART 1: In this section, refer to the Excel spreadsheet. Clearly discuss all assumptions made. Present Lines E63:F71 in a Table and discuss the market value of equity per share derived for the firm. Save the Excel worksheet as Valuation-BaseModel.xls
7.    VALUATION MODEL-PART 2: In this section, refer again to the Valuation Model worksheet in Excel. Create a line chart  to highlight how
a.    The change in the percentage of debt impacts the value of the firm (start with 0% and increase in increments of 10%). Save your worksheet as Valuation-DebtChanges.xls.
b.    The change in WACC impacts the value of the firm (start with 0% and increase in increments of 10%). Save your worksheet as Valuation-WACC.
c.    Discuss findings.
8.    ANALYST ASSESSMENT:
a.    Value Line: Refer to the most recent Value Line Report. Prepare a table of the restaurant’s key rankings (upper left-hand corner and lower right-hand corner of the Value Line sheet). Read the report and present an assessment of your firm’s financial health.
b.    Mergent Online Assessment: Using Dominican’s library online, go to Mergent Online and review the restaurant’s financials and analyst reports. How do Mergent’s analysts assess the firm?
c.    Guru Focus: Using Guru Focus, what is the intrinsic value placed upon thefirm? What do current gurus have to say about the company?
9.    CONCLUSION: Students should clearly articulate whether they would recommend investment in this firm. Justify conclusions by pointing towards quantitative and qualitative reasons presented in the paper.
10.    WORKS CITED: Use APA format and cite your paper copiously
11.    APPENDIX: Place any additional information in an Appendix.
12.    Label all Table numbers sequentially and make reference to them in the paper.