Managerial Finance: What historical financial information helped you make your decision – ratios, growth rates, margins, projections, competition?

 

Investment Research Assignment

 

Imagine that you have $100,000 to invest.  You are going to invest it all in one investment for the next 5 years, at least, at which point you will reevaluate both your investment and personal situations.

 

You will invest it all in one of the following investments – these are your only 2 options:

  1. A bank account earning 1% per year.
  2. Common stock of __________. (Pick your own US listed stock)

 

You will be performing the analysis from the perspective of an investor who is 25 years from retirement and the investor’s income is greater than living expenses. The investor has a liquid net worth of $1,000,000 of which 40% is invested in the S&P 500 index, 40% in a medium-duration, high quality bond fund and 20% in a savings account earning 1% interest per year. You are to determine if the investor should take $100,000 from the savings account and purchase $100,000 of this company’s common stock.

 

Where are you going to invest your $100,000?  Why?

 

Your recommendation should comprehensively but succinctly provide sufficient information for the investor to approve your recommendation by being able to address the investor’s reasonable questions including the following:

 

  • What is the problem? What are you trying to figure out?
  • What historical financial information helped you make your decision – ratios, growth rates, margins, projections, competition?
  • What role does risk play and how do you account for it in your analysis?
  • What industry information helped you make your decision – such as competition, overall markets, and state of the economy?
  • What are you assuming about the future?
  • What are the critical factors that led you to choose the option you chose?

Please limit your response to 3 pages, typed, double-spaced, plus no more than 2 pages of exhibits.  This is both a math and a story assignment: your math has to support your story and your story has to support your math.  3 pages of text plus 2 pages of exhibits is not a lot to cover this assignment; you need to be concise, relevant, and convincing in those 5 pages.

 

There is no right answer.  But there are right approaches, wrong answers and wrong approaches.  You will be graded on the quality of your approach, the accuracy of your analysis, and how convincing your argument is.

 

.  No submissions accepted after 5:45PM on the deadline date.

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