conduct a valuation analysis for a large company that you will choose and provide a fair share price estimate. You will use the Adjusted Cash Flow from Assets (ACFFA) and Weighted Average Cost of Capital (WACC) approaches in your analysis, both of which are discussed in Chapter 14. I will post an Excel template, which includes a simplified definition of calculating the adjusted cash flow from assets. You will forecast sales by using the Excel software to estimate your ACFFA. Specifically, you project will included the following steps.
1) Introduction (2-3 pages): Provide a background about your company. Discuss major economic factors that seem to be important for their business
2) Financial Analysis (2- 3 pages): This is the empirical part of your project. The following are the steps:
a) Forecast ACFFA for the next 3 years. The first step is to forecast Sales, calculate the average growth rate of sales in the past 3 years, and then use this average to forecast next 3 years’ sales.
In the second step, forecast ACFFA for the next 3 years by using the simplified approach that is formulated on the Excel sheet that will be posted on the course Canvas page. Your key ratios are (EBIT/Sales; NFA/Sales, NWC/Sales) and also use their averages of the last 3 years in your forecasts of ACFFA.
b) Calculate the WACC for your company. Use the YTM to find their cost of debt and use the CAPM approach to estimate their cost of equity. Clearly mention your assumptions in the CAPM calculation for the variables in the SML formula. Check if you company has any preferred stock, if yes, then be sure to include it in the WACC.
c) Terminal Value. Estimate the terminal value for your firm by using the constant growth perpetuity formula. Discuss your assumption for constant long term growth.
d) Firm Value. Calculate the total enterprise value as the present value of cash flows in parts b and c by discounting at the WACC rate.
e) Value of Equity. Subtract value of company’s long term debt from your estimated firm value above, which gives you the total value of equity or market capitalization.
f) Share Price Estimate. Divide total value of equity by total number of shares outstanding, which gives you the fair stock price. This concludes the empirical part of your project.
Place your cash flow forecasts, terminal value, WACC, assumptions and fair values estimates in a table/s within your Word document for easy exposition, but also turn in your Excel file.
g) Findings and Conclusions (2-3 pages) Summarize your analysis above, discuss your assumptions, compare your estimate to the current m