In November 2015, Santos (STO) announced an issue of new ordinary shares valued at $2.5 billion. Explain the effect that this issue should have on the share price in theory. Carefully evaluate whether the actual effect of the issue matches your expectations based on the theoretical effect, and provide an explanation if there is a difference. You should include a chart which clearly shows this event. [10 marks]

What is the current price of ordinary common shares in Fortescue Metal Group (FMG)? Using an appropriate chart, describe how has this price evolved over the past 5-years, and compare to an appropriate index. What, in your opinion, has been the main driver for this share price movement? Using an appropriate ratio, evaluate whether FMG is currently over/under-valued. [10 marks]

Use the chart created in question 2, and the technical analysis tools introduced in lecture 4, to predict where the share price of Fortescue Metals Group will be at the end of 2016. What would your recommendation be with regards buying or selling these shares right now? What does your recommendation mean for the concept of market efficiency? [10 marks]

The final task in this section requires you to make an investment decision based on the theoretical value of a firm. This requires you to complete several steps:

Undertake a brief industry and company analysis,
Select the most appropriate present value model and derive a theoretical price for the share,
Determine whether you would invest in the company’s ordinary shares.

The company you will consider investing in is Woodside Petroleum (WPL). You should assume that the equity market risk premium is 5%, and the risk free rate is equal to the RBA cash rate at the time of your analysis.

[20 marks]

In 2015, it was revealed that Volkswagen (VW) had installed software on its diesel cars in order to circumvent US emissions tests. Carefully, outline what this scandal involved, and explain why the actions of the VW management were unethical. Discuss what issues may have caused this behavior to occur, and what you would do to prevent this from happening in the future. Evaluate the impact of this scandal on the value of VW, and explain why the value of the firm may change by more than the cost of the recall to correct the issue.

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Posted on May 5, 2016Author TutorCategories Question, Questions