Project
Perform a financial analysis of the firm you work for, or if you are unemployed or not in the labor market, for a firm listed in the S&P 500. Make certain that the firm has accessible public financial statements. Topics for discussion will include:
1. Use financial ratios to determine the firm's liquidity, asset management, debt management, profitability and market value. Analyze the ratios of the firm over a three-year horizon and compare them with that of the industry.
2. If your company uses long-term debt, what is its bond rating? How does this rating relate to the performance of your firm's debt management in problem 1above?
3. Calculate the firm's current free cash flows and, using the firm's ROE, compute the firm's sustainable growth rate and use it to calculate the free cash flows of the firm for the next five years.
4. Determine the firm's WACC. Use the beta coefficient provided by Yahoo in https://finance.yahoo.com/ or FINRA, or another reputable source listed below. Remember to only use market values.
5. What is the firm's terminal (horizon) value in five years? Describe how you obtained this value.
6. What is the value of your firm? How sensitive is your conclusion to the estimated terminal (horizon) value?
7. What is the intrinsic value per share of the firm? (Hint: subtract the outstanding value of all outstanding debts from the value obtained in problem 7 above. Divide this number by the outstanding number of common shares).
8. What is your firm's EVA in the last year of operation? Discuss your findings.
9. What is your firm's MVA in the last year of operation? Discuss your findings.
10. What is the firm's dividend policy? Describe in detail.
11.Using the Gordon Dividend Model, calculate the intrinsic value of the firm's common share.
12. How does this compare with price per share using the free cash flow model used in problem 7?
13. Discuss the firm's financial leverage and capital structure policy. How does the firm's leverage relate to its bond rating?
14. What are the unlevered beta coefficient and the unlevered cost of equity of the firm? (Hint: use equations found in IFM)
15. Recall that the value of a levered firm is equal to the value of an unlevered firm plus the tax shield. What is the firm's tax shield? (Hint: Use equation from IFM)
16. Your firm is considering two projects (in millions).
|
Expected Net Cash
|
|
Year
|
P r o j Fe cl ot w
|
Project B
|
|
0
|
-$37A5
|
-$575
|
|
1
|
-300
|
190
|
|
2
|
-200
|
190
|
|
3
|
-100
|
190
|
|
4
|
600
|
190
|
|
5
|
600
|
190
|
|
6
|
926
|
190
|
|
7
|
-200
|
0
|
1. Using the cost of capital of your firm, which project should be selected?
2. Construct NPV profiles for Projects A and B.
3. What is each project's IRR? Sources
Below are some suggested reference sources for your project:
• Your company's annual report
• Security Exchange Commission
• www.financialweb.com
• www.reuters.com
• https://finance.yahoo.com/
• FINRA.org