FINAL EXAMINATION - Preparation Guide
Security Analysis – Q2 2023
Exam Forma
➢ The exam will appear in the Assessments Folder on vUWS, just like the midterm test.
o Wednesday the 14th of June.
o Open at 9.30am.
o Submission required by 11.50am.
o You do not need to be on Zoom.
➢ You will simply open the exam question sheet, and also download an Excel spreadsheet.
➢ Submit your answers in a Word document through the Turnitin link (just like the midterm
test), and also submit your completed Excel spreadsheet through the link provided.
o If you have any problems, you can also just email your answers to Heath.
➢ Work on your own.
➢ The exam will have four main parts, and be graded out of a total of 50 marks XXXXXXXXXX
+20 = 50)
Exam Content
Examinable content will be topics 5 to 9.
The content is drawn from Lecture slides and discussion, and also the practical exercises (Excel
tutorial work).
• The full Discounted Cash Flow balance sheet (Topic 5).
• The Cost of Capital in a Discounted Cash Flow Model (Topic 6).
• Valuation – Equity versus Business Value (Topic 7).
• Valuation using Ratios/Multiples (Topic 8).
• DCF Valuation and the Ethics of Advising (Topic 9).
Exam Questions
Part A: Discounted Cash Flow Models
• Questions: the specific questions will focus on the completion of DCF Balance Sheet, and
discussion of the ratios constructed from company financial reports.
• Preparation: review the spreadsheet in Topic 5, and also think about how your group has
estimated the various percentages and ratios that guide your analysis (e.g., forecasted
growth rates, operating capital, etc).
(10 marks in total)
Part B: Risk Adjusted Cost of Capital
• Questions: you will need to use an Excel file (which will be provided) to run a regression to
estimate an Adjusted Beta, and then discuss this value of Beta with reference to the cost of
capital used to discount forecasted cash flows.
• Preparation: repeat the tutorial exercise in Topic 7 and think about how the value of Beta
effects the cost of capital.
• Review WACC (Topic 7) and consider the importance of risk in assessing the cost of capital.
(10 marks in total)
Part C: Valuation Ratios/Multiples
• Questions: the specific questions will be about the three ratios discussed in Topic 8.
• Preparation: review lecture notes and class discussion (Lecture Topic 8), and you can also
make your own practice examples for fun (or the ratios for your group work).
(10 Marks Total)
Section D: Discussion Questions
• Questions: the specific questions will be two discussion questions. The first is on the CFA
Code of Ethics (Section 5) and the use of Discounted Cash Flow models. The second is a
practical question (simple case study) focussing on making recommendations and using
Sensitivity Analysis and Scenario Analysis.
• Preparation: review lecture notes and discussion in Lecture Topic 9. Also, use the question
elow to practice. Think about how to use Sensitivity and Scenario analysis. Write up some
practice answers about the use of these techniques. You can even refer to Monte Carlo
Simulations if you would like to.
(20 Marks Total)
Section D – Simple Practice Question
Maria is a financial analyst assigned to report on firms operating in the manufacturing
industry. She is cu
ently researching and analysing a firm that manufactures petrol powered
cars. The last 5 years the company has benefited from an increase in the demand for cars of
about 5% each year, and has returned a large profit. If this increase in demand for petrol cars
continues, this company will continue to generate profits. On the other hand, Maria is
concerned that if the demand for electric powered vehicles increases, this company will suffer
a significant loss as environmentally conscious consumers switch to electric cars (away from
petrol fuelled vehicles).
Discuss the problem that Maria faces. Recommend a course of action that Maria can use to
ensure her analysis is reasonable and accounts for different contingencies (possible
outcomes). Explain how this should be presented to the potential investors.