Finance Project

Valuation Project:

i. Select a company that pays a dividend from the list on the next page.

ii. E-mail me your selection. Please specify class and group number. Companies are accepted on a first come first serve.

iii. If there is a firm you are interested in evaluating and it pays a regular dividend, please let me know

iv. Get your information from FactSet and the Company Financial Statements

Your paper should have a cover page

1. INDUSTRY PRODUCT and SERVICES : Define the Industry, product and/or services

2. INDUSTRY PARTICIPANTS

· Three largest competitors

· buyers

· suppliers

· substitutes

3. REQUIRED RETURN ON EQUITY:

Calculate the projected required return, K for the calendar year. Use the 10 year

treasury rate as the RF rate. Historically, market risk premiums have ranged between4.5-5.5% but you may choose a higher premium to reflect the economic environment in the next few years. You must defend your choice!

4. GDP vs. REVENUE GROWTH

For the past 5 years, what has been the relationship between GDP growth and the firm’s revenue growth? Compare percent change in GDP and percent change in revenues. You can find GDP data at the bureau of Economic Analysis www.bea.gov

5. PROJECTED SUSTAINABLE GROWTH RATE

Calculate the growth in earnings for each of the following methods over the past 5 years by:

· Looking at the change in earnings from year to year

· Applying the equation g =ROE x b (ROE = E1 / BV0)

· Calculating the implied growth rate in the DDM Model. (Implied growth- Reverse DDM.) Assume the stock was correctly priced on December 31, 2014 in accordance with the CAPM

· Calculate the average for each method. Is the average relevant? Why?

· Is the firm at a sustainable growth rate?

· Which growth rate do you believe may be the sustainable growth rate? You may choose a different rate, explain.

6. COMPANTY and EQUITY VALUATION

· Applying DCF model, calculate the value of equity per share

.

· Project revenue and earnings growth rate for the next 5 years

· Use the growth rate you selected in (5) for the sustainable growth rate

· Assume the firm will begin growing at a sustainable rate 5 years from today

· Use Book Value of debt

· Is the stock correctly priced? Explain

Sources: If you DO NOT foot note you will lose 15 points

· Please footnote each source using numbers and attach a bibliography or a webliography. Do not just include a general web site. Be page specific, site title of article the author and date were applicable.

· Forgetting to source will cost you 15 points. It’s considered plagiarism not to source

Other requirements:

· Paper is due at beginning of class on Wednesday December 2. If paper is submitted later in the day you will lose 10 points. For every day the paper is late you will lose 15 points. Remember, the paper is worth 100 points. I will make NO exceptions!

· Length of the paper is not relevant to your grade. You are graded on Substance.