The intrinsic value of the firm and the common stock

  1. Select a company with the following characteristics:

a. it should not be a brokerage house or finance related firm.

b.  only select firms which have their Beta listed in,  and have long term debt (non-convertible debt) in their capital  structure.

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c. it should have its stock and bond prices quoted in

d. its Free Cash Flow (FCF) in 2017 is positive.

  1. Presenting the following by estimating (do not forget to answer the questions listed under c below):
  2. The firm’s WACC
  3. The intrinsic value of the firm and the common stock.
  4. Write a paragraph on each of the following issues:

– what can the firm do to lower their cost of capital

– if you had any money to invest in this firm now, why would you or not invest in this firm based on where you see this firm.

  1. Keeping in mind the following presentation style:

State  in clear and simple terms how you came up with all estimates.  Identify  all the assumptions and models used to derive the estimates. As far as  it is relevant to the presentation of the estimates, explain the  workings of these models.  Keep the report clear and concise.

In order to present these estimates, you will need to calculate:

  1. The firm’s cost of equity using: CAPM or Discounted Cash Flow (DCF) models
  2. The firm’s cost of long term debt and preferred stock
  3.  Cost of capital of the firm (WACC)
  4. The FCF of the firm in year 2016 and the expected future FCFs using growth assumptions.
  5.  The intrinsic value of the firm and its common stock

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