This project will allow you to apply the concepts and tools covered in the class. In this report, you will present an estimate of your company’s cost of capital, and the intrinsic value of the firm and its stock. This report involves:
1.Select a company with the following characteristics:
a. it should not be a brokerage house or finance related firm.
b. only select firms which have their Beta listed in finance.yahoo.com, and have long term debt (non-convertible debt) in their capital structure.
c. it should have its stock and bond prices quoted in finance.yahoo.com.
d. its Free Cash Flow (FCF) in 2015 is positive.
2.Presenting the following by estimating (do not forget to answer the questions listed under c below):
a.The firm’s WACC
b.The intrinsic value of the firm and the common stock.
c.Write a paragraph on each of the following issues:
– what can the firm do to lower their cost of capital
– if you had any money to invest in this firm now, why would you or not invest in this firm based on where you see this firm.
3.Keeping in mind the following presentation style:
State in clear and simple terms how you came up with all estimates. Identify all the assumptions and models used to derive the estimates. As far as it is relevant to the presentation of the estimates, explain the workings of these models. Keep the report clear and concise.
In order to present these estimates, you will need to calculate:
a.The firm’s cost of equity using: CAPM or Discounted Cash Flow (DCF) models
b.The firm’s cost of long term debt and preferred stock
c. Cost of capital of the firm (WACC)
d.The FCF of the firm in year 2015 and the expected future FCFs using growth assumptions.
e. The intrinsic value of the firm and its common stock
Important notes:
1. You can form groups of up to 3 people. You will form your own groups using the “Groups” function under “Users and Groups” category in Blackboard.
2.A firm may be analyzed by only one group. You should select a firm and inform me of your selection as soon as possible. If two groups are interested in the same firm, the group giving me their selection first will have priority.
3. You can easily find the data needed for this report by using online resources such as finance.yahoo.com, morningstar.com, marketwatch.com, bloomberg.com etc.
4.Your grade on the report will be based on the completeness and accuracy of your estimates (40%) and the explanation of your work and assumptions (60%).
