DCF VALUATION ON A BANK

Discounted Cash Flow Valuation:

The purpose of this note is to carefully explain the general expectations and requirements for the Discounted Cash Flow Model Valuation Assignment that is to be prepared for. The information and materials presented here are intended to make sure that you clearly understand the general expectations and that there are no misunderstandings about what is to be done and what is expected.

Please review this material so that you are familiar with the specific requirements that are be followed in the preparation and submission of the Assignment.

1. Using the facilities of ValuePro (http://www.valuepro.net) for the company that you have selected to study conduct a discounted cash flow valuation.

2. The analysis should explain each variable used in the analysis, why you accepted the given input, or how and why you changed a variable.

3. The analysis should also examine the relevant cash flows, compare the final valuation to the stock’s current price and explain any differences. (Note: Remember to adjust the equity risk premium to between 5% and 6%; also, adjust the growth rate to an appropriate long-term growth rate.)

INCLUDE IN THE PRESENTATION AN ANALYSIS OF ALL ASSUMPTIONS IN THE FORMAT THAT APPEARS BELOW.

Required Outline & Other Information about the Assignments –

1. Work Hard to Avoid Personal Pronouns – The excessive use of personal pronouns is discouraged in business and analytical writing. It is recommended that personal pronouns are avoided altogether, if possible. Please make sure that personal pronouns (e.g., I, we, my, our, etc.) are avoided in paper. It will take some work, but it can be done easily by rearranging the wording of sentences.

2. Companies Are Not “They,” “Their,” or “Them” – This is a reminder that a company is not a “they,” “their,” or “them.” A company is very much an “it.” So, to reference a company, use “it,” the name of the company, or “the company,” or “the organization,” or “the firm,” etc.

3. Outline for Paper –Students must use the required outline for this assignment. The closer that the paper conforms to the required outline, the better! The outline is presented in the next section.

4. Evaluation Rubric – An evaluation rubric is available for the Assignments. It will be used to evaluate the Assignments. The rubric shows the important components that must be included in the papers. It is a good idea to take a look at the rubric and make sure that each Assignment addresses the requirements. A copy is posted with each Assignment in the online classroom.

5. Subheadings – Each section of the paper must begin with a sub-heading. Please use the sub-headings included in the required outline (presented in the next section).

Here is the Required Outline (It must be used for each Assignment) -

The five class Assignments are intended to be constructive learning experiences. They are designed to show students how to prepare analytical reports in finance using critical thinking, research, and writing skills. The following outline is to be used for each Assignment; these titles are the required subheadings for the sections of the written report :

1. Cover Page - Include a cover page containing the title of the Assignment, the student’s name, the professor’s name, the course title, and the date.

2. Introduction – The Introduction must include:

(a) A review of the Assignment purpose, research methods and the principal information sources, and other information related to the completion of the analysis.

(b) The introduction should also include an overview of the sections of the paper that follow. (1/2 to 1 page)

3. Analysis Section – The body of the report is to address the assigned topics and questions. It is essential that students include appropriate in-text reference citations in APA format:

4. Summary / Conclusion – The summary or conclusion should review the major observations, conclusions and recommendations developed in the analysis. No new material should be introduced in this section. (1/2 to 1 page)

6. References – Provide list of references in APA format.

Table 1

Assumptions for ValuePro.net Valuation

Company Name - McCormick & Co. (MKC)

	ValuePro.net Assumptions	Your Assumptions	Explain the Reasoning for Your Assumptions
Excess Return Period (Years) (10 years is appropriate)	10
Revenues ($ mil) (From Income Statement)	4060.5
Growth Rate (%) (Estimated Annual Growth Rate in Earnings in Future)	10
Net Operating Profit Margin (%) (EBIT from Income Statement)	26.573
Tax Rate (%) (From Income Statement: Taxes / Earnings Before Taxes)	23.50
Stock Price ($) (Current Price per Share)	94.04
Shares of Stock Outstanding (mil.) (Be careful with decimal)	132
10 Yr. Treasury Bond Yield (%)	2.00
Bond Spread to Treasury (%) (1.5 is appropriate)
Preferred Stock Yield (%)	0
Depreciation Rate (%) (Percentage of Revenue; Calculate)	2.56
Investment Rate (%) (Percentage of Revenue for Capital Expenditures - Calculate)	2.75
Working Capital (%) (Percentage of Revenue – WC is Current Assets; Calculate)	17.57
Short Term Assets ($ mil.) (Current Assets from Balance Sheet)	1217.5
Short-Term Liabilities ($ mil.) (Current Liabilities from Balance Sheet)	1250.5
Equity Risk Premium % (Should be between 5% and 6%)	3
Company Beta for Stock (Number) (Look up Beta)	.63
Value (Book) of Debt Outstanding ($ mil.) (L-T + S-T Debt from Balance Sheet)	774.4
Value Preferred Stock Outstanding ($ mil)	0
Company WACC (%) (Look up or Calculate)	6.75