Scenario
In this project, you will step into the role of a financial analyst tasked with conducting a comprehensive financial analysis for a potential corporate investment opportunity. Your goal is to create a detailed financial analysis report that will guide the investment decision-making process for the corporation you select from the Final Project Student Spreadsheet, which is linked in the What to Submit section.
You have been hired by a prominent financial consulting firm known for its expertise in providing data-driven insights to corporations seeking to make informed investment decisions. Your firm has a reputation for delivering accurate financial analyses that aid companies in identifying profitable investment opportunities.
Prompt
Calculate stock and bond valuations for Johnson & Johnson. Use the results to support your explanations of shareholder value and increasing capital. Assess the company’s dividend policies and bond issuance policies in your explanations. Complete your calculations on the Stock and Bond Valuation tab of the Final Project Student Spreadsheet.
Specifically, the following critical elements must be addressed:
Stock Valuation
Based on the figures provided from the financial information you prepared for your selected company, calculate each of the following in Part I of the spreadsheet tab: Stock and Bond Valuation:
Fill in the yellow highlighted cells with the matching data prepared for your selected company.
Identify the new dividend yields if the company increased its dividend per share by $1.75.
Identify the dividend yield if the firm doubled its outstanding shares using a stock split. Note that other numbers will be affected by a stock split such as new stock price, actual dividends paid, and number of outstanding shares. Stockholders’ equity will not change.
Calculate the rate of return on investment based on the data you calculated in Question 1.
What effect would each of the calculations you performed have on shareholder value? In other words, suppose the company’s goal is to maximize shareholder value. How will each of the situations support or inhibit that goal? Justify your reasoning through research, references, and citations using proper APA style.
To what extent do you feel the company’s dividend policies support or hinder its strategies? For example, if the company is attempting to grow, is it retaining and reinvesting its earnings rather than distributing them to investors through dividends? Support your claims through research, references, and citations using proper APA style.
Bond Issuance
Johnson & Johnson issues a new bond. Assume that Johnson & Johnson issued a new 10-year bond for $300,000 on October 1, 2023. The bond will mature on October 1, 2033. The future value of this bond is $300,000. The bond was issued at the latest market rate of 5.0% fixed for 10 years, with interest payments paid semiannually. What is the present value of this bond using the four scenarios in Part II of the spreadsheet tab: Stock and Bond Valuation?
Calculate the present value of the bond at issuance.
Calculate the new present value of the bond if overall rates in the market increase by 2%.
Calculate the new present value of the bond if overall rates in the market decrease by 2%.
Calculate the present value of the bond if overall rates in the market remain the same as at issuance.
How would each of the calculations you performed affect the company’s decision to raise capital in this way? In other words, for each situation, would bond valuation be a viable option for increasing capital? Justify your reasoning through research, references, and citations using proper APA style.
Assess how bond issuance policies support or hinder company strategies. For example, if the company is attempting to fund operating expenses, refinance old debt, or change its capital structure, is it issuing sufficient bonds to achieve these goals? Support your claims through research, references, and citations using proper APA style.
What to Submit
Your paper must be submitted as a 3- to 4-page Microsoft Word document, not including your calculations, which should be completed in the Final Project Student Spreadsheet. Use double spacing, 12-point Times New Roman font, and one-inch margins. Cite sources according to APA style. Your supporting research should be as up to date as possible. Any news stories, press releases, or additional sources must be dated within the last 60 days. Company data should be no more than one year old. Using older data may result in being asked to resubmit your work.
