FINANCE ASSIGNMENT.

Select a company that (1) is not one of the three principal/largest companies in its industry, and (2) for which financial information for the company and the industry is available for the current year and for three prior years.

Using current data for the company together with information for the company’s most recent fiscal year, calculate “horizon value” forecasts for the company using current data as described below.  [I.e., calculate the horizon value as if the current data were in fact forecast results for some future period and you wanted to determine the value of the firm in that future period.]

The horizon value forecasts must be determined as follows:

1. One forecast must use the perpetual growth method (usingearnings, not dividends, as the “cash flow” variable). 

2. One forecast must be obtained by capitalizing some operating variable (e.g., net income, operating income, sales, cash flow, and etc.) using a price to operating variable ratio developed from the company’s own data for three previous years.

3. One forecast must be obtained by capitalizing some operating variable (e.g., net income, operating income, sales, or cash flow) using a price to operating variable ratio for the industry for the current year. (If it is necessary to calculate your own industry ratio, use at least three companies other than the one for which you are estimating horizon value.)

4. One forecast must be obtained by capitalizing some financial asset (e.g., total assets, fixed assets, inventory, and etc.) using a price to asset ratio developed from the company’s own data for three previous years.

5. One forecast must be obtained by capitalizing some financial asset (e.g., total assets, fixed assets, inventory, and etc.) using a price to asset ratio for the industry for the current year. (If it is necessary to calculate your own industry ratio, use at least three companies other than the one for which you are estimating horizon value.)

6. One forecast must be obtained by capitalizing some non-financial asset category (e.g., total capacity, number of locations, total square footage, number of employees, and etc.) using a price to asset ratio developed from the company’s data for the prior three years or from industry data for the current year. (If it is necessary to calculate your own industry ratio, use at least three companies other than the one for which you are estimating horizon value.)

7. Contrast the results from 1-6 above with the value of the firm based on current market capitalization plus book value ofoutstanding debt.