Write a recommendation report for a potential client on your chosen company (either A or B). The report shall be structured in 5 Sections (preceded by a short executive summary) to address the following questions of your client:
1. What are the competitive forces behind the industry’s structure and firm’s corporate strategy? How does industry competition affect the margins of the industry and the company?
2. How does the company’s profitability, liquidity and solvency compare relatively to its industry peers (select between 3 and 5 industry peers)?
3. What is the position of the firm in the industry life cycle? Please highlight potential investment risks the company could face in the future.
4. Quantify the level of earnings management by calculating the firm’s total accruals (TA), non-discretionary accruals (NDA) and discretionary accruals (DA), and draw some conclusions on your findings.
5. Estimate accurately the discount rates (i.e., cost of equity, cost of debt, and WACC) using either the historical or the implied risk premium approach (Suggestion: Do not consider operating leases in Assignment 1).
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