Assignment: Corporate Finance
Information
This assignment is designed to assess learning outcomes:
1. Demonstrate a critical understanding and evaluation of the forefront of corporate finance theories and empirical evidence;
2. Evaluate alternative financing methods and distribution policies;
3. Critically evaluate alternative investment appraisals techniques; and decide appropriate actions accordingly;
4. Make sound financing, investment and asset valuation decisions with reference to the implications of the efficiency of capital markets.
COURSEWORK QUESTION
According to asset pricing theory, non-diversified investors should require, all other factors being equal, a higher expected return on their investments than diversified investors. Furthermore, a five-factor model by Fama-French (2016) that adds profitability and investment factors to the three-factor model of Fama-French suggests a shared story for several average return anomalies. Recent research argues that ex ante (implied) cost of equity derived from earnings forecasts is based on strong criticisms that have been forwarded against realised returns.
Discuss finance theory and recent developed models in Asset Pricing. Critically provide an argument on the implications of Fama-French models and why and how can Implied Cost of Equity approach explain the variations in the expected stock returns.
References
Fama, E.F. and French, K.R., 2016. Dissecting anomalies with a five-factor model. The Review of Financial Studies, 29(1), pp.69-103.
This assignment requires you to
1. How Capital Asset Pricing Model (CAPM) is considered as an introduction to the fundamental concepts of portfolio theory and asset pricing.
2. How the CAPM's empirical problems may reflect theoretical failings, the result of many simplifying assumptions.
3. What drives expected stock returns? To capture these return patterns, various multifactor models have been suggested by Fama and French.
4. How ex ante cost of equity implied in analyst' earnings forecasts and stock prices allows us to overcome the limitations associated with using traditional Asset Pricing Models.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.