Instructions:

Your  group  should  answer  the  assignment  questions  in  a  written  report. Assignment questions are listed on Pages 2–5 of this document.

The report must not exceed ten (10) A4 type-written pages excluding the table of contents, list of references, figures, and tables. Figures and tables may be included after the list of references.

Use  1.5  line  spacing,  12  font  size,  “Times  New  Roman”,  “Normal”  margins, justified paragraphs and page numbering at the bottom right-hand side.

You can use any referencing style provided that it is consistent throughout the report.

The cover page must show the names of all group members followed by their student IDs. The surnames of group members should be in alphabetical order.

Name your report in the following format: FINM2415_GroupNo. GroupNo. is your group number on the Group Assignment Sign-Up Sheet. For example, if your group number is 40, then name your report: FINM2415_Group40.

Submitting your report:

Your report file can be in word or pdf format.

Each  group  please   submit  ONLY  ONE  report.  Any  group  member  (group representative) can submit on behalf of the group.

Submit on Blackboard > Assessment > Assignment Folder > Submit Your Report Here. If your group representative has submitted the wrong document, please ask him/her to resubmit (before the stipulated due date and time). Do NOT ask any other group member to resubmit, as we will not know which is the correct version.

Note that your  assignment will be  cross-checked using  Turnitin  for  potential plagiarism.

Penalties     for    Late     Submission     will     follow     the    university     policy (https://policies.uq.edu.au/document/view-current.php?id=184#major8).

Aside from the group report, Peer Assessment is also compulsory and forms an integral part of this assignment. Please refer to Page 4 of this document for further details.

FINM2415 – CORPORATE FINANCE - GROUP ASSIGNMENT QUESTIONS

You are part of a team of financial analysts tasked with analyzing Amgen Inc. using your knowledge of corporate finance learned from this course. Amgen Inc. is an American multinational specialty biotechnology company listed on NASDAQ (NASDAQ: AMGN). You are required to perform analysis for the following two questions:

Question 1

1.1.Calculate annual leverage ratios (debt/total assets and debt/equity) for Amgen for each financial year in the five most recent financial years (i.e., 2020-2024).

1.2.Select two comparable companies from the same industry as Amgen (GICS code 35201010 – BIOTECHNOLOGY) and with total assets most similar to that ofAmgen Inc. in the financial year 2024 (their total assets can be higher or lower than that of Amgen but  should  be  close).  Calculate  annual  leverage  ratios  (debt/total  assets, debt/equity) for each of these two companies.

1.3.Compare debt/total assets and debt/equity ratios of Amgen with the ratios of each of these two companies and comment on any differences.

1.4.Using your knowledge on capital structure theories, discuss the capital structure policy of Amgen in the five most recent financial years selected.

Instructions

Step 1: Downloading data

Go to the University of Queensland’s library website and search the business database: Osiris [Bureau van Dijk]. Once in, enter the search term “Amgen Inc.” in “Companies” tab, then on the right panel with the plus sign icon (+), look for the item “Financial data → Global detailedformat” and then click on the Export icon near the top row of page to download all balance sheet and income statement data of Amgen. Save your data to your hard drive.

Step 2: Calculations

Use the following formulas to calculate your ratios

Debt = Current portion of long-term debt + Current loans & overdraft + Other short-term debt + Total long-term interest-bearing debt

Equity = Total shareholders’ equity Step 3: Find comparable firms

Click again on the “Companies” tab. Under “Search Strategy” at the bottom of the page, uncheck the box to remove the earlier search of Amgen.

Look for the “Industry” tab and click on “Global Industry Classification Standard”. Then find the same GICS code as your company, check the box, and click OK. The search results will show all companies in the industry. Click on the “ View list of results”, then click on the last column labeled “Add” and click on the “Financial Data → Global detailed format → Industrial Companies → Assets”. Select Total Assets and click OK, then select “Last avail. Year”, click OK, and then OK. After this process you will see a list of firms in the same industry as your selected firm and their total assets. Select two comparable companies whose total assets are close to that of your selected companies.

Step 4: Calculations for comparable firms

Repeat Step 1 and Step 2 for your comparable companies.

Instructions: The tax rate can be calculated as Income taxes/Earnings before tax

2.5. Estimate free cash flows for Amgen for each of the five financial years from 2020 to 2024. Estimate the yearly growth rate of free cash flows and the average of the yearly growth rates of free cash flows for the entire period. Comment on your estimate.

2.6. Assume that, in the future, Amgen’s free cash flows will grow at the average growth rate estimated in Part 2.5 above and Amgen will maintain its debt-to-equity ratio and cost of capital estimated in Part 2.4 above for 31 December 2024. Estimate firm value for Amgen at 31 December 2024. Comment on your estimate.

2.7. Estimate free cash flows to equity for Amgen for each of the financial years from 2020 to 2024. Estimate the yearly growth rate of free cash flows to equity and the average of yearly growth rates of free cash flow to equity for the entire period. Comment on your estimate.

2.8. Assume that free cash flows to equity of Amgen will grow at the average rate estimated in Part 2.7 above and Amgen will maintain its cost of equity estimated in Part 2.4 above for 31 December 2024. Estimate the Amgen’s equity value at 31 December 2024. Comment on your estimate.