FINM7403 Portfolio Management
Business School, The University of Queensland
Project Task Document
Project Title: Valuation of Stocks in High-Emission Industries
Summer Semester
January- February 2024
Submission Due: 22 January 2024 at 17:00 [Brisbane Time, AEST]
This project has a total mark of 25. It contributes 25% to your final grade.
This project is to be completed and submitted individually. Students must complete tasks in
Parts A and B of this task sheet. A guide for students then follows the project tasks. Lastly, a
grading rubric for the project is presented at the end of this document. [7 pages in total]
Part A. As an equity security analyst, your current task is to estimate the fair value of an
Australian stock in operation as of January 2024.
Stock selection criteria: 1. The stock must be a constituent of the ASX200 index; 2.
the firm should operate in high carbon emission industries, such as companies of fossil
fuel, mining, steel, aluminum, cement, fertilizer manufacturing, or in the
transportation sector.
[Note: You can select one stock that meets the criteria, except for Qantas and BHP.]
Approach: You have decided to use a Free Cash Flow to the Firm (FCFF) model and a
Multiples-based approach, and then assign a different weight for each model result to
determine the stock s intrinsic value.
Source of data: Capital IQ and additional resources, including the respective
company s website.
For the FCFF approach, you agree with the annual consensus forecasts (e.g., earnings, free
cash flows) for the chosen stock over the next three (or four) fiscal years in Capital IQ.
Beyond this time, you will derive estimates of long-term growth rates. Use the Capital
Asset Pricing Model to estimate the equity cost of capital. Assume a risk-free rate of
4.38% and a market risk premium of 5.99%.
For the Multiples-based approach, you will select a multiple for your stock and its
comparable stocks (at least two) and justify your choices of multiples as well as
comparables.
Requirement: In your written report to the fund manager, you are expected to incorporate the
following:
1. Describe the valuation process for each method so one can replicate the analysis.
2. Justify your primary considerations for valuation.
3. Report your valuation results and provide an investment recommendation (buy, sell,
or hold) based on your analysis.
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Part B. Several days after handing in the report in Part A, your fund manager requests that
you revise the FCFF stock valuation by considering his predicted early introduction of a
carbon tax on Scope 1 emissions (priced by per ton of greenhouse gas). The revision involves
several key considerations for your FCFF valuation, including a. projections of sales revenue
and operating costs, b. capital expenditures (including Research and development expenses),
c. taxation, and d. cost of capital.
Requirements: Based on the firm s environmental performance disclosures, write a response
to discuss the above aspects and potential directional impacts on your stock valuation
recommendation and support your analysis with evidence and relevant references.
Guide for students
Capital IQ access: Students could register with your UQ email address to access
Capital IQ (e.g., s1234567@student.uq.edu.au, replacing 1234567 with your student
ID). Important: Avoid postponing this task to the last minute, as account registration
approvals for online access may require a day or two.
Write and cite: Read the information contained in this link. Write, cite, and submit -
Library - University of Queensland (uq.edu.au). APA, Chicago, or Harvard
referencing style is acceptable.
Word limit: 1500 words (Parts A and B). The word count excludes footnotes, tables,
figures, references, and appendixes.
Appendix: Include your main tables within the main body of the report. If you wish to
attach Excel files to show your work, please copy and paste them into the WORD
document s Appendix.
Formatting: Include a title page in your submission file. Your project title page must
indicate the project name (e.g., FINM7403 Project) with your name and student ID
number.
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Your documents should be typed in Times New Roman font, size 12. The project
should be 1.5 lines spaced. Type the course code and your student number on each
page of your submission file using the Header. Insert the page number in the Footer.
Submit for grading:
Ensure that the entire document, Appendix included, is successfully converted into a
single PDF file before submission.
SAVE YOUR TITLE PAGE, PARTS A AND B (with Appendix if any) AS ONE
PDF FILE before clicking on the relevant link to upload your project to the portal of
Assessment ? Assessment task 2: Project ? FINM7403 Project Submission for
Grading on Blackboard. Although the project can be submitted up to five times to
the portal, only the last submission before the due date will be graded. If you are not
familiar with the submission process, please visit this link before submission.
Other instructions: Teaching staff will not answer any questions regarding the project,
as this gives students an unfair advantage over others. However, you may post any
questions to the Discussion Board on Blackboard; such questions will be answered if
appropriate.