Finance

Please value the following company under three different scenarios. The capital structure and WACC is the same under each scenario.

No Growth: This scenario is a typical ‘no growth’ scenario where there are some modest growth assumptions for the forecast period but long term expectations are that competition will eliminate excess profits resulting in a scenario where WACC = ROIC and growth for year 6 and beyond is expected to be 0%.

Growth: This scenario is a ‘growth’ scenario where there is robust revenue growth for the next five years expected and then year 6 and beyond is expected to have continued growth and will be able to maintain the competitive edge resulting in ROIC > WACC.

Harvesting: This scenario is characterized by declining revenue and reduced levels of NOPAT reinvestment. Residual value has a negative growth rate.

Dividend Discount Model 

1. Stock X's expected dividend in one year of $3.00 and the dividend is expected to grow at a constant rate of 6%. The required return is 10%. Using the DDM what is the estimate of the current stock price?

2. Stock Y issued a dividend of $2.00 today which is expected to grow at 4% for the next 5 years and then grow at a constant rate of 2% after that. The required return is 10%. Using DDM what is the estimate of the current stock price?

Research and Analysis

Develop and estimate of WACC for Boeing (BO) using the latest financial statements and market information.

Select Market Prices and Other Information

10 Year Treasury Bond Rate2.75

Current Default Risk Premium (over 10 Year Treasury

Bonds). Liquity Premium is zero.3.25

Equity Beta 1.20

Equity Market Risk Premium5.00

Current Stock Price55.00

Tax Rate40.00

Shares Outstanding25,000,000

Debt Outstanding (assume book value = market value)425,000,000

Cash and Marketable Securities5,000,000.00

GROWTH STRATEGY

Year123456

Forecast information

Last Year's Revenue $3,000,000,000 ($3 Billion)

Revenue Growth rate assumptions 3%3%3%2%2%2%

Operating Margin (including depreciation expense)12%12%12%11%11%10%

% of NOPAT invested in incremental Working Capital 3%3%3%2%2%

% of NOPAT invested in incremental Fixed Capital7%7%7%6%6%

Tax Rate40%40%40%40%40%40%

Residual Period (also known as continuing value period)

ROIC 20%

Growth Rate 2%

NO GROWTH STRATEGY

Year123456

Forecast information

Last Year's Revenue $3,000,000,000 ($3 Billion)

Revenue Growth rate assumptions 2%2%1%1%1%1%

Operating Margin (including depreciation expense)12%11%11%11%10%10%

% of NOPAT invested in incremental Working Capital 2%2%2%1%1%

% of NOPAT invested in incremental Fixed Capital5%5%5%4%4%

Tax Rate40%40%40%40%40%40%

Residual Period (also known as continuing value period)

ROIC = WACC

Growth Rate 0%

Harvesting or Negative Growth Strategy

Year123456

Forecast information

Last Year's Revenue $3,000,000,000 ($3 Billion)

Revenue Growth rate assumptions 2%2%1%1%1%1%

Operating Margin (including depreciation expense)12%11%11%11%10%10%

% of NOPAT invested in incremental Working Capital 2%2%2%1%1%

% of NOPAT invested in incremental Fixed Capital5%5%5%4%4%

Tax Rate40%40%40%40%40%40%

Residual Period (also known as continuing value period)

ROIC = WACC

Growth Rate -2%

FORECAST PERIOD ASSUMPTIONS

FORECAST PERIOD ASSUMPTIONS

FORECAST PERIOD ASSUMPTIONS