The company that I would like to use is Apple (APPL).
The purpose of this project is to give students the opportunity to apply many of the concepts and tools that we are learning in Corporate Finance. Students will use real0world data from various financial websites to analyze and assess the current financial performance and decisions for a firm of their choice. The project will consist of the following components.
1. Brief history of the firm?
2. Analysis of Financial Statements: Using financial statements from Morningstar, Yahoofinance, Value line, etc., analyze the financial performance and changes of the firm over a ten year (or longer) time period using an end-point analysis framework we have learned in class. Identify the major changes in the firm’s financial performance over this time period. Include in this analysis an analysis of: common-size statements, ratios, the DuPont model, asset utilization, etc. Describe and discuss the financial strategy of the firm during this time period. Be especially attuned to the risk inherent in the firm’s capital structure and asset structure.
3. Working Capital Management: Using the same financial statements from question 2, describe, discuss, and analyze the firm’s working capital policy and changes to this policy over the 10-year time period. How would you characterize the firm’s capital? Calculate the firm’s cash conversion cycle over this time period and explain/ analyze the changes you observe.
4. Required Rate of Return: Using the information in Chapters 2 and 3, determine the required rate of return for your firm’s equity using the CAPM> Describe and explain how you determined your estimate of the required rate of return. Include in this discussion and justification for the sources and values of inputs used for this model. Explain the meaning of this required rate of return.
5. Bond Ratings, YTM, and Cost of Debt: Using information from the firm’ website, annual report, or the website “investing in bonds’ http://www.investinginbonds.com/ determine the: average: rating of your firm’s bonds and the current YTM on a composite of these bonds.
6. Preferred Stock: if the firm has preferred stock, determine the required rate of return on preferred stock-I. e., the cost of preferred stock.
7. Weighted Average Cost of Capital (WACC): Based on the values you estimated from your responses to questions 4,5, and 6, estimate the firm’s cost of capital-i.e., WACC. In order to do this, determine the market value of the firm’s equity, debt, and preferred stock and the weights of each component in its capital structure. Explain the meaning of your result.
8. Stock Valuation: Using the tools developed in Chapter 5, determine the current price of the stock. If the firm pays dividends, use the Constant Growth Model to estimate the stock’s current price. You will need to determine the growth rate for the firm. Use two measures of growth: an analysts’ estimate for growth (from Yahoofinance.com) and your own estimate of growth (g=retention ratio x ROE). Compare the stock prices that you calculate to the actual market price of the stock. Describe/discuss your result.
9. Firm Valuation: Using the framework from Chapter 11, use the FCF approach to value this firm. (NOTE: You can determine the FCF estimates fro the nest several years yourself or use FCF estimates provided by various websites. Ex Morningstar). Compute the horizon value of the firm by determining an appropriate constant growth rate for the firm. Use the WACC that you determined in part 7 as your discount rate.
a. Determine the Value of Operations for the firm. Record and explain the steps in your process to determine this.
b. What is the total value of the firm- i.e. Value of operations + value of non-operating assets? What is the Per Share Value of the firm?
c. Construct a figure similar to Figure 11-5, showing the various ways to view the value of the firm and the derivation of the firm’s intrinsic market value added (MVA).
d. How does the value that you determined using the FCF approach compare to the stock value you determinined using the Constant Growth Model?
e. Discuss any reasons why these values are similar or different.
10. Summarize your findings
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