Statistical methods in Finance | Instant Homework Solutions

PART 1   This part should be approximately 2200 words.   Part 1-A   Task of the Assessment   This task relates to another one of the underlying principal functions of finance that is allocating funds to appropriate projects which are value enhancing. In this assignment we look at this issue from the company’s perspective and thus this involves analysing a problem that faces corporate treasurers. First, the appropriate weighted average cost of capital for the project needs to be determined, which depends on the capital structure of the firm and the risk of the project amongst other factors. Secondly, capital budgeting needs to be implemented to decide whether the project should be implemented as well an assessment of the risks and benefits from undertaking the project via sensitivity analysis and critical evaluation of the methods implemented. The task should take the form of a report with a conclusion that summarises your key recommendations to managers.   Assignment Instructions   Choose any two companies in different business sectors (e.g. different GICS sub-industries) that have a primary listing on in the UK on the London Stock Exchange (either the Main Market or the Alternative Investment Market (AIM)). Company accounts need to be in British Pounds. Each company must have: • Company market capitalization between £10,000,000 and £5,000,000,000 • Total debt of more than £500,000 • Total debt divided by total firm value between 5% and 95% • Been trading on the Stock Exchange for a minimum of two years with financial data available   Neither company should be in the financial sector; name them respectively Company A and Company B. Company A wishes to diversify its activities, and has identified a project with 5- year maturity in the business sector of Company B. It decides to use Company B as a comparison company for calculating the appropriate Weighted Average Cost of Capital (WACC) with which to undertake the NPV evaluation of this project.   Please note that for simplicity your best estimate of the WACC should be based on: Gearing ratio calculated as total debt divided by total firm value (total debt plus total equity). A risk-free rate of 1.1% and a market equity premium of 5.8%.   1)    Provide a best estimate for the WACC that Company A should apply to the new project. Discuss precisely how this WACC value is calculated. This should incorporate information from part 1), follow the guidance above and include additional information as appropriate.               Part 1-B   In order for Company A to undertake this project, it is necessary to purchase a new piece of machinery immediately at a cost of £2,000,000. It is anticipated that this will have a resale value of £200,000 at the end of year 5. For tax purposes, capital allowances are calculated on a straight-line basis.   The firm is already committed to spending £50,000 on developing this new product over the next year and will spend an additional £25,000 on adapting the product to market requirements if the project goes ahead. There is a fee of £15,000 to undertake the project evaluation.   It has been estimated that sales will be 50,000 items of the new product in year 1. You expect items to sell at £20 per item in nominal terms. The nominal variable costs of production will be £10 per item in year 1. The project will lead to an increase in the firm’s fixed costs of £200,000 but the toy division will be allocated with £300,000 of fixed costs. The project is expected to increase dividend payments by £75,000.   Assume that this project a negligible amount of working capital will be held. Assume that sales will grow from year 1 to year 3 at 30% per annum but will decline by 10% in year 4 and year 5. The firm is expected to sell the machinery at the end of year 5 rather than continue production into year 6. Inflation is expected to be 5% per annum and will impact all revenues and costs.   2) Estimate the NPV of the project that Company A will undertake. Conduct sensitivity analysis on key inputs into the NPV decision making process. Justify clearly which variables are crucial for determining whether the project should be implemented or not. Provide a final recommendation to management on the viability of the project.     PART 2   1.What stylised features of financial data cannot be explained using linear time series models? [10 marks]   2. Which of these stylised features could be modelled using a GARCH (1,1) process? [10 marks]   3. Why, in recent empirical research, have researchers preferred GARCH (1,1) models to pure ARCH(p)? [10 marks]   4. Describe two extensions to the original GARCH model. What additional characteristics of financial data might they be able to capture? [20 marks]     b) Suppose that a research wanted to test the null hypothesis that ??1 + ?? = 1 in this equation. Explain how this might be achieved within the maximum likelihood framework. [10 marks]   c) Suppose now that the researcher had estimated the above GARCH model for a series of returns on a stock index and obtained the following parameter estimates: ???= 0.0023, ???0 = 0.0172, ??? = 4 0.9811, ???1 = 0.1251. If the research has data available up to and including time T, write down a set of equations in  2 ??????  their lagged values, which could be employed to produce one-, two- and three-step-ahead forecasts for the conditional variance of ??t. [15 marks]   d) Suppose the coefficients estimate of for this model is 0.98 instead. By reconsidering the forecast expressions, you derived in part C) explain that would happen to the forecasts in this case. [15 marks]

Struggling to find relevant content or pressed for time? – Don’t worry, we have a team of professionals to help you on
Statistical methods in Finance | Instant Homework Solutions
Get a 15% Discount on this Paper
Order Now
Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
Sign up, place your order, and leave the rest to our professional paper writers in less than 2 minutes.
step 1
Upload assignment instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
s
Get personalized services with MyCoursebay
One writer for all your papers
You can select one writer for all your papers. This option enhances the consistency in the quality of your assignments. Select your preferred writer from the list of writers who have handledf your previous assignments
Same paper from different writers
Are you ordering the same assignment for a friend? You can get the same paper from different writers. The goal is to produce 100% unique and original papers
Copy of sources used
Our homework writers will provide you with copies of sources used on your request. Just add the option when plaing your order
What our partners say about us
We appreciate every review and are always looking for ways to grow. See what other students think about our do my paper service.
ENG 099
Excellent Paper. The only 100 in the class.
Customer 452775, July 19th, 2022
History
thank you so much for the help, I really appreciate that.
Customer 452725, February 13th, 2022
Nursing
A-1 service every single time!!!
Customer 452453, July 27th, 2021
Human Resources Management (HRM)
Thank you
Customer 452531, May 19th, 2021
Accounting
Thanks for your support
Customer 452701, February 3rd, 2022
Social Work and Human Services
Perfect. Thank you.
Customer 452469, July 10th, 2021
Other
Amazing work
Customer 452909, September 4th, 2024
Strategic Management
Thanks for the help, really appreciate it
Customer 452821, September 8th, 2022
Human Resources Management (HRM)
Excellent Thank you.
Customer 452813, January 11th, 2025
Eng 099
I recveived a B on this paper but I'm not sure why.
Customer 452775, June 18th, 2022
Philosophy
The paper is great. Will definitely use again.
Customer 452773, May 24th, 2022
Nursing
Thank you!
Customer 452707, April 3rd, 2022
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat

Good News ! We now help with PROCTORED EXAM. Chat with a support agent for more information