Investment Analysis

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Guidance for AC3650 Assignment 2 16/17
The assignment should be around 2500 words but there are no extra marks/penalties if your word
count is more or less than this. The idea of a word count is to set an expectation for how much time
and effort should go into this assignment.
The structure just needs to be clear to the reader. I don’t expect an introduction/executive
summary but a conclusion might be useful to highlight the key points of your argument. As a
minimum I’d expect 3 sections, being the 3 questions highlighted in the assignment brief.
I would expect that subsections will also be useful to clarify the points you’re making.

Some reminders of what I suggested you could include in your analysis of each of the questions:

Part: A) 30 marks
A friend has just said that they believe most people who buy shares do so because they like the
company or their products. Their illustration was that if people like Apple phones then they’d be more
likely to invest in Apple shares.
Discuss the factors that could influence an investor to buy particular securities and so the validity of
your friend’s statement.
As part of the discussion include reference to risk v return, behavioural finance, market efficiency,
insider dealing and an index model (like CAPM).

You should/could:
 Explain why you think people buy shares of one company rather than another
o We’ve covered lots of detail in class (as per the third paragraph in the question) that
you might use to comment on what drives investment decisions

 Comment on whether you think your friend is correct or not
 Conclude with what you think are the prime reasons why people buy certain shares
o Hint: there’s lots of people in the world and so I’d suggest it depends on who we’re
referring to. So there might be lots of answers to this question

I’d like this section to be phrased in a way that your friend would understand. You don’t need to
bring every area of our study into your answer but you need to explain them well.

Part B) 40 marks
For the company that you were allocated in CINEWORLD.
a) Compare the movement in it’s quoted share price on a quarterly basis for the past 3 years with
the change in some market statistics like:
i. Interest rates
ii. Inflation
iii. GDP
iv. Unemployment
v. Any others you believe to be useful

(15 marks)

b) Complete a PESTLE analysis for the company’s industry (some of the sections may be more
brief than others);

(15 marks)
c) Based on your understanding of the company, the economy and the results of a) & b), justify 3
key factors that you’d expect to influence the value of the company’s shares over the next 12
months

(10 marks)

This section doesn’t need to be a report or essay – it’s more like an exam question. So just provide
an answer to each element.
a) You don’t need to compare your share price with all the factors listed. You could use others
if you think they’re more useful.
The idea of this section is to see if there is a link between these factors and the share price
of your company (there might not be, which is OK but could you try to find a market index
which does seem to change with your share price?)
b) The PESTLE could be presented in a table but please make sure you explain each point. The
key is to link the factor with how it could affect the profits of your company. You’ll get very
few marks if you don’t do that or your comments are very general (i.e. they could apply to
any company).小于等于8个points.
c) This is the most interesting bit! After all this analysis you should have a view of what factors
might affect the future performance of your company. This should be highlight some factors
from a) and b) (plus others if you wish) which you think are the most important. You must
justify why they’re important and how they’ll affect profits.
What do you think happen to those factors?

Part: C) 30 marks
a) Explain, in simple terms, the various ways that a target company could be valued as part of a
takeover bid.

(15 marks)
b) What options would a listed company have to raise finance to fund a takeover bid? Explain the
advantages and disadvantages of each option (consider issue costs, issue value, control and life
time costs).

(15 marks)

Like Part b) this is not an essay/report, it’s just like an exam question.
I would imagine that you’re producing a guide for these topics to someone who is new to
accounting.
You need to try to cover most of the areas we’ve been describing in class but in your own words.
Using illustrations or practical examples you’ve found would improve the score but isn’t necessary.
If you search for takeovers you should be able to find lots of practical examples but it might be
difficult to get any details that would greatly assist with these two questions.
a) Try to give a view on what you think would most likely be the best type of valuation
technique for different types of target (as usual there isn’t a right answer here – it usually

depends on the circumstances so think about what type of valuation scenario we might be
dealing with – we did that in class)
b) Again, try to conclude on which method would be better for different circumstances.

Obviously this report is about some very technical concepts.
A report will score well if you
 Summarise things in a simple way. I don’t expect you to be able to write a text book on
these areas. I’m assessing whether you understand what we’ve covered and have an
opinion.
 Give a balanced point of view. Most things in accounting aren’t exact – you need to show
me that you recognise that the best answer probably depends on the circumstances. So
think about what scenarios we might be dealing with.
 Use illustrations to explain the point. This might be tricky in this assignment but it’s always
good if you can do it.
 Convince me of your opinion. This isn’t about being right or wrong, the assignment is about
coming up with a convincing argument.
As always if you have any questions then let me know and if you want me to look at a draft then just
send it to me. I might have to limit the number of drafts you send me at this time of year but there’s
no harm in asking for help!

Description

An investment refers to the outlay of funds to a business or an available opportunity with the expectation of making profits in the future (Levy, 2013). Today, the market goes beyond making investment decisions based on their company preferences to using the available information in the market to make the investment decisions. As a result, the investors depend more on other factors such as perception and investment principles to choose their preferred stocks. Following the advancement in technology, the investors are much knowledgeable about the market trends based on these factors (Gregoriou, 2014). The use of the information available in the market works in contrary to the theory of the efficient market hypothesis (EMH).