Guidelines for the report You should submit a report of no more than four pages length as follows: One cover page, two pages write-up (text and formulas) and one page with exhibits

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Guidelines for the report

You should submit a report of no more than four pages length as follows: One cover page, two pages write-up (text and formulas) and one page with exhibits.

1. 1. Formats

In general, make sure your report is in an appealing format so that a reader doesn’t shy away from reading just because of being overwhelmed by looking at it. Good formats: 1) font size of 12 points, 2) margins on either side (left, right, top, bottom) of at least 2.5cm, 3) line spacing of at least one, and 4) either some space between the paragraphs or indents of at least 1cm at the beginning of each paragraph (or both).

1. 2. Structure

Start with a short executive summary (max 100 words). Think carefully about what your main findings are and explain them briefly. Continue with your main analysis: 1) Short introduction (optional). 2) As the inquiry is structured specifically to receive answers on the questions raised, you should use the same structure in the report. Use separate sections for each question and the same numbering. However, give each section a meaningful title so the reader knows what to expect in that section (not just “Question 1,” “Question 2,” etc.). Importantly, keep in mind that you are writing a report and, therefore, the sections should not come as unconnected, lose pieces but as one coherent document. Important note: If you use 2 material other than the lecture slides, the problem sets, or the case material you must provide a reference directly in the write-up where it belongs (maybe as a footnote).

1. 3. Writing: Readability, clarity, and comprehensiveness

Readability. Make sure your write-up has a good reading flow. The reader should not stumble on sentences that are too long or too complicated. In academic writing, it is often helpful to get to the heart of the matter quickly and directly but, importantly, without losing the reader along the way. Also, don’t make a reader curious about findings without providing them. Rather than mentioning results that you discuss later, describe the main result with a brief explanation at the beginning and postpone the other results to later.

Clarity. Try to formulate precisely and concisely. This is hard work! It means that you will rewrite and restructure your sentences (and perhaps even your thoughts) several (if not many!) times. Ask yourself: Can I restructure this paragraph to make it shorter, clearer, and easier to read without losing information? If so, do it. (Sometimes you have to try before you know). Never pad your write-up with unnecessary information or lengthy discussions. Stick to the point and show clearly and unambiguously how you reached your result or conclusion.

Comprehensiveness and correctness.

Spend sufficient time studying and understand[1]ing the underlying issue (the case). Your methodological approach, computations, and interpretation of the results must be correct. Explain what formulas you use and, if necessary, why (assumptions may need to be discussed). Explain your results and, if necessary, state your intuition. If you take a choice, explain why you decided the way you did, if relevant.

1.5 Exhibits

Exhibits should have own, self-explanatory captions. Often a reader looks at the exhibits first before reading the report itself. All exhibits must be referenced in the main text (no exhibits without reference). In graphs, always provide axes titles and descriptions of the underlying data and the plotted data series.

3 Case 2: Ferti Racers

Ferti’s management and its still relatively small corporate finance department found your recent report on the divisions’ risks and returns extremely useful. Ferti has therefore decided to contact you on a different matter. Ferti’s ambitious engineers have discovered that their eco-fertilizer technology can be used not only to make synthetic fuels, but also to produce a type of rubber that is both more elastic and at the same time more resilient. Due to their strong focus on the synthetic fuels division over the re[1]cent years, Ferti’s management has postponed investments to develop the field further. However, the management has now decided to embark on this new line of business and to launch a first large project. Ferti has agreed with a shoe manufacturer to develop a series of more stretchy and yet more robust shoe soles for a running shoe. Internally, employees refer to the project as “the Ferti Racers.” Ferti’s internal corporate finance team has already prepared the relevant income statement figures to derive the cash flow projections, but would like your consultancy firm to look more closely into the project’s debt financing.

Inquiry: Project leverage

We are currently in the process of investing in one of our brand new products – more elastic yet more durable shoe soles (“Racers project”). Revenue and EBITDA projections as well as other useful input to derive the free cash flows are provided in the enclosed Excel file. The launch of the project is scheduled for Q4/2023 and the income statement projections start in 2024. The same spreadsheet also contains asset betas of companies operating in comparable lines of businesses with similar risks as well as Ferti’s asset beta. Please explain and justify carefully if you use information outside of our scope (information not contained in the attached Excel file). In particular, we are planning to finance 70% of the total NOK 1.7 billion investment with internally accumulated excess cash from the fertilizer division and 30% by an is[1]sue of new debt. Our request mainly concerns the debt policy. In particular, we are interested in understanding the details of the handling of Racers’ debt over time and the implications for the associated tax savings and its values. Our request entails the following steps. 1. What is Racers’ value if we were to finance the NOK 1.7 billion entirely with in[1]ternally accumulated cash (cross-financed via the other divisions)? For cash flows after the projection period we are assuming a growth rate of zero (in the Gordon[1]growth model). What is your view on assuming g = 0? 2. How does Racers’ value change if instead 30% of the total NOK 1.7 billion is fi[1]nanced via a debt issue and the amount of debt is kept fixed over time? Our 4 assumption is that this debt is not entirely risk free but has a debt beta of max[1]imally 0.10. With respect to the impact of the debt’s risk on the value of the tax shields, how relevant is the risk of the debt under this debt policy? 3. How do the values in the previous question change if instead we follow a debt policy with a leverage ratio of 30% over time (including at t = 0)? We think this does not change the riskiness of the debt compared to the debt policy in the previous question. 4. In case the different debt policies in questions 2 and 3 have an impact on values, where are these value differences coming from? Is it worthwhile to run a sensitivity analysis