TERM PROJECT DESCRIPTION WHAT IS THIS PROJECT? THIS PROJECT PROVIDES AN OPPORTUNITY TO GET SOME HANDS-ON EXPERIENCE APPLYING CORPORATE FINANCE THEORY AND MODELS TO REAL FIRMS. IN THE PROCESS PARTICIPANTS WILL GET A CHANCE TO VALUE A PUBLICLY TRADED COMPANY OF YOUR OWN CHOICE. FORMAT FOR REPORT I. Company overview (nature of business industry structure and main competitors). – no more than 1 page II. Company Risk profile. – 1 page III. Historical company performance. Provide a detailed ratio analysis for the last five years including a comparative analysis with its industry. – Mostly excel work with discussion in the paper of about 2 pages IV. Company Valuation using both DCF (using WACC and FCFF) and relative valuation methods (multiples method). Your DCF analysis must include detailed financial forecasts and all ASSUMPTIONS must be CLEARLY stated. Your discussion of valuation estimation methods must include the following at a minimum: a. Identification and discussion of key value drivers for the company ie. What value drivers were used in your forecasts and projections and growth rate? b. Sensitivity analysis of the key value drivers and how changes in them would affect your projections/forecasts. c. Explanations of differences (if any) in values between the various valuation methods used including a triangulation of the estimates. d. Estimation of value per share for the company based on your analysis and must also report the market price per share for the company as at the close of trading on Friday November 23 2012. e. WOULD YOU INVEST IN THIS FIRM? SUPPORT YOUR DECISION WITH DATA FROM YOUR ANALYSIS IN PARTS I-V. ALL CALCULATIONS AND ASSUMPTIONS NEED TO BE STATED IN EXCEL SPREAD SHEETS AND RELEVANT EXHIBITS NEED TO BE INCLUDED IN THE PAPER. THE Body of the PAPER (4-5 pages) SHOULD SIMPLY BE A DISCUSSION OF THE RESULTS/PROJECTIONS AS WELL AS THE UNDERLYING ASSUMPTIONS MADE AND THE EXPLANATIONS AS TO WHY THOSE ASSUMPTIONS WERE MADE. THE ACTUAL FORECASTS AND ANALYSIS SHOULD BE DONE IN EXCEL. In doing this please do not hard code any numbers. It should be clear to readers where the numbers are coming from. V. Firm Valuation using options based model – black scholes (finding the variance of the stock prices variance of the bonds and correlation of both over the relevant time period. VI. Conclusion – highlighting the results from the different valuation methods and any significant differences in the results derived. – 1 page YOUR REPORT SHOULD BE NO LONGER THAN TEN TYPE WRITTEN DOUBLE SPACED PAGES (EXCLUDING EXHIBITS) SUMMARIZING YOUR KEY FINDINGS. IN ALL CASES EACH EXHIBIT YOU ATTACH MUST BE SPECIFICALLY LINKED AND PROPERLY REFERENCED IN THE BODY OF YOUR REPORT. YOU MUST INCLUDE A COVER PAGE FOLLOWED BY A HALF-PAGE EXECUTIVE SUMMARY. The excel format for forecast should be as follows: · Inputs · Analysis · Results · Sensitivity Steps in DCF · -determine the type of valuation (whole firm valuation or equity) · -determine the analysis period ( usually period of abnormal growth before terminal year of stable growth) · -determine the appropriate discount rate (wheater wacc or cost of equity) · -estimate the cash flows over the analysis period · -determine the terminal value at the end of the analysis period value= present value of FCF pv terminal value cash flow NOTE: · WACC should be used if we determine the company has a stable capital structure. Otherwise if the capital structure is changing then we use APV (Equity) · ROIC is a better measure of a company’s performance · Cost of debt should be calculated as a weighted cost of debt using the long-term debt information on the 10k report. · In projecting your income statement forecast some line items might need special attention. PLEASE DO NOT HESITATE TO ASK ME SPECIFIC QUESTIONS IF YOU HAVE ANY!!!
