The
applied project on FedEX
is a two-page single space
memorandum plus appendices that values a publically traded stock using
two methods. The student is responsible
to choose a stock (FedEx)
to value; collect relevant data; research relevant information regarding
underlying data and perform the necessary analysis to determine if the current
market price is above or below a computed intrinsic price. The initial selection of the firm will impact
the overall assignment. I would suggest
the firm you choose to be in good financial health, pay a dividend and have
easilty excessible data. I would
prefer that you analyze a firm that interests you as an investor. A source of information that could be used
(there are many sources of financial information) would be finance.yahoo.com.
Below
are steps that you can take in completing the assignment. Note the project deliverable is a 1-2 page
single space memorandum that summarizes the following steps. DO NOT COPY AND PASTE YOUR ANSWERS TO THESE
AS THE DELIVERABLE.
The
answers to these questions should be seamlessly written within the 1-2 page
memorandum. The computations will be completed in
EXCEL. Clearly
indicate where you find any supporting information by copying the URL or other
appropriate citation into your document.
You will also turn in your analysis by submitting both the word document
and the spread sheet you used for your computations. Below represent basic questions and the
breadth of the concept should be expanded as appropriate.
- What
firm are you choosing (discus the firm’s essential attributes that would
interest an investor)?
- What
was the stock’s price range during the last year? What is the stocks current stock price?
- What
is firm’s current dividend? What is
its dividend yield? (Is there any
recent news or announcements related to dividends)
- Discuss
briefly the concept of corporate governance within your chosen firm
(recommended source is the firm’s ‘investor website’).
- What
growth rate do you expect over the upcoming year? What do you base that growth rate on? (This information would be available at
yahoo finance under analyst estimates or other investment related research
site).
- What
is the estimated beta of the firm?
Where did you get the estimated beta? (This information would be available at
yahoo finance or other investment related research site).
- Calculate
the firm’s required rate of return based on their beta. Be clear what all of your assumptions
are. You should use the CAPM to
compute the required rate of return.
(You will need to research the risk free rate of return by
searching for the current one year treasury rates of return. You will also need to assume an expected
market return. You can search for
expected stock market returns in 2014.
You can also use historical estimates of the market risk premium by
taking the difference between the historical average return on the market
and the average Treasury Bill. This
information is available online (the current t-bill rate is available at
the US Treasury website; the expected market return is available at yahoo
finance website under analysts’ expectations and other investment research
sites).
- Estimate
the free cash flows available for the firm for the next 3 years then
assume the cash flows will grow at an appropriate assumed rate of
growth. Explain where you attained
your numbers. (This information
would be available at yahoo finance or other investment related research
site. The Yahoo site will give you
the current free cash flow. You
would then use the growth rate to estimate cash flows in future years).
- What
is the value of the firm based on the Free cash flow model (i.e. if you
are valuing the firm based on its total cash flows available to equity
holders)? What is the value of the
firm on a per share basis? (Attain
share information at the Yahoo website or other investment related
website).
- What
is the value of the firm based on the constant dividend growth model? You will need to estimate future
dividends to shareholders based on the overall growth rate of dividends. (If the firm you are researching does
not have any dividends then assume dividends are equal to the current
earnings per share or assume some future dividend and growth rate).
- Would
you recommend that an investor buys or sells the firm based on its current
price, why?
- What
do professionals recommend (i.e. are there buy or sell recommendations on
the stock). (This information would
be available at yahoo finance or other investment related research
site).
- Are
there other factors related to the stock that you believe an investor
should consider? (Discuss the
uncertainties associated with the firms industry or operations)?
