Each student will submit a written report of a company (or bank) of the student’s choosing. In the project, you’ll need to assess the selected company’s corporate management system from the following four sections:
· Part 1 Cost of Capital and Valuation
· Part 2 Capital Budgeting and cash flow budgeting
· Part 3 Capital Structure and dividend policy
· Part 4 Risk Management
Enjoy the this project! This project covers 20% of your final grade, with chance of extra credit!
Instructions
The project covers material throughout the semester. Your final grade is based on Analysis Report. Report format can be analysis, calculations, graphs, figures, statistical summaries, or any other supporting documents you think helpful to address the questions. The paper should be no more than 20 pages, using 1 inch margins and 12-point font. The paper is due to be turned in at the beginning of Unit 11.
Project Due at the end of Unit 11
Data Resources:
Last three years balance sheet, income statement, and statement cash flow of the public firm.
· One website to collect the data is Yahoo Finance
· I will send to you more information about the financial data if needed
Blacklisted Companies
You cannot choose any of the following firms:
· Alcoa
· Apple (AAPL)
· Fedex
· General Mills
· Heinz
· Home Depot
· J. Crew
· Jacobs Engineering Group
· Kelloggs X
· Kohl's
· Kroger x
· Target
· Tyson Food
· Walgreens – X
· Wal-Mart
· Whirlpool Corporation
· Whole Foods – WFMI
· Yum Brand
Guidelines
1. Provide short background information on your company. This could include the following, and should not exceed 1-2 paragraphs (you can copy/modify this info from various public sources):
2. Describe your company’s stock performance during the past years (say, 3 years). You may simply show stock returns compared to returns on broad market and/or industry indices (just copy a graph from some public finance website, such as MSN Money, Yahoo Finance, BigCharts, etc.).
· a description of its products, customer base, major suppliers;
· major recent corporate events (M&A, spinoff, dividend issuance, repurchase, new stock/bond issuance, change of executives, new product release, expansion of new multinational market, law suit, credit rating changes, etc)
· recent events from the company’s major competitors and industry trend
3. Conduct a discounted cash flow valuation of your company. You have to forecast ALL the components of FCF (So, your analysis must result in producing of a spreadsheet similar to the spreadsheets discussed in the class.)
· Present a matrix showing the sensitivity of your estimate to changes in assumptions about valuation parameters (pick TWO such parameters)? What are the key “value drivers” for your company?
4. Make a thorough analysis of the company’s capital structure. What was the market reaction to the announcement of a new stock issue? What was the market reaction to the announcement of a new bond issue? Do you think it’s at optimal capital structure? Why or why not?
5. What’s the company’s dividend and repurchase policy for the last three years? What do you expect the company’s dividend and repurchase policy as you would expect for the next three years?
6. Why risk management strategy does the company use? What types of interest risk and exchange risk (if any) the company is facing? Specifically, what are the financial derivatives being used by the firm to manage risk?
7. If the company is involved with international management, make an analysis on how is the current status of the company’s multinational financial management? Explain the rationale behind interest rate parity and purchasing power parity.
8. Based on your analysis, is there a way in which the company could increase its value?
· Explain. Evaluate your company against a carefully selected list of its comparables and/or regression analysis.
· Choose a multiple that you think is the most appropriate for comparing the firms in your group/sector.
9. Based on your valuation results (using both discounted cash flows and relative valuation methodologies), what “should” the stock price of your company be? How do you explain the difference between your estimated stock price and its actual stock price?
10. Make a final recommendation – would you buy or sell? Explain.
Some tips:
1. You should select a firm that you personally find exciting. However, even more importantly, your company should be relatively easy to estimate. High growth, high tech companies deriving considerable proportions of their values through intangible future prospects may give you headache. The same probably goes for multi-divisional conglomerates.
2. Do not pick any companies with dual-stock classes (e.g. Tyson Foods). Your analysis would be extremely difficult.
3. You may use Internet data sources, but you need to cite them! When you come across an interesting number/statistic that supports your line of reasoning – use it. But do yourself (and me) a favor – do not copy (let alone cut-and-paste) any completed valuations! Remember, the project has to be your own work.
4. I suggest you start working on the projects ASAP. I will also appreciate if you keep me informed about your progress, problems, etc.
5. Most importantly – if you don’t know something, ask! If you have any problems, let me know! Have fun!!!
Submission
When submitting files, you must include your name and the name of the assignment in the file name.Your report must be electronically submitted in the WORD & EXCEL format to the submission folder.
· You don’t need to submit the hardcopy.
Extra Credit
Your Extra Credit should be submitted with your paper in the submission folder. Chances are you will have up to 10 points extra credit if you can analyze with Monte Carlo Simulations or other financial models such as Binomial Trees of Option Valuation.
Good luck!
