Assignment 4 â?? valuation using perpetuity based and capitalization methodsSelect a company that (1

Assignment 4 â?? valuation using perpetuity based and capitalization methodsSelect a company that (1

Assignment 4 – valuation using perpetuity based and capitalization methodsSelect a company that (1) is not one of the three principal/largest companies in its industry, and (2) for which financial information for the company and the industry is available for the current year and for three prior years.Using the most recent financial statements for the company together with other current information, calculate the value of the company using the methods described below.Perpetuity based valuation method1a. Determine the cash flow for the company for the most recent year. (Use the sum of operating cash flow and investment cash flow from the cash flow statement.)b. Estimate a growth rate for the company. (Use any appropriate method, such as average sales growth rate, average earnings growth rate, or average growth rate in cash flow). Specify how you determine the growth rate used.c. Estimate the required return for the company using the capital asset pricing model. Specify your assumptions about the risk free and the expected market return.d. Use the growing perpetuity formula to estimate the value of the company.Valuation estimated by capitalizing an operating variable2a. Select an appropriate operating variable from which to estimate a capitalization rate, e.g., price earnings rate, price to sales ratio, price to cash flow ratio.b. Find the current value of that capitalization rate for the industry (if you calculate this value, use data from at least two companies other than the company that you selected.)c. Using the industry capitalization rate and the appropriate variable for the company (e.g, if the cap rate used is the price earnings ratio, use the selected company’s earnings), calculate the value of the selected company.3a. Find the capitalization rate that you use in question 2, using historical data for the selected company for two years before the most recent financial statements. (That is, if you are using the price to sales ratio and the most recent financial statements are 12/31/2015, find the selected company’s sales per share for 2013 and 2014, and the stock price on 12/31/2014 and 12/31 2015.)b. Using the company’s historical capitalization rate and the appropriate variable for the company, calculate the value of the selected company.Valuation estimated by capitalizing an asset4a. Select an appropriate asset variable from which to estimate a capitalization rate, e.g., price to total current assets, price to fixed assets, price to total assets).b. Find the current value of that capitalization rate for the industry (if you calculate this value, use data from at least two companies other than the company that you selected.)c. Using the industry capitalization rate and the appropriate variable for the company (e.g, if the cap rate used is the price to total assets, use the selected company’s total assets), calculate the value of the selected company.5a. Find the capitalization rate that you use in question 4, using historical data for the selected company for two years before the most recent financial statements. (That is, if you are using the price to total asset ratio and the most recent financial statements are 12/31/2015, find the selected company’s total asset per share for 2013 and 2014, and the stock price on 12/31/2014 and 12/31 2015.)b. Using the company’s historical capitalization rate and the appropriate variable for the company, calculate the value of the selected company.Valuation estimated using a non-financial asset6a. Find the price to employee ratio for the industry. (That is, use the most recent annual reports for two companies in the industry other than the selected company to find the number of employees and the number of shares outstanding. Find the current stock price for those two companies. Dividend the price per share by the employees per share.)b. Using the price to employee ratio for the industry and the number of employees for the selected company, calculate the value of the selected company.7. Find the market capitalization of the selected company. (Stock price * number of shares outstanding.)8. Contrast the results from 1-6 above with the value of the firm based on current market capitalization plus book value of outstanding debt.

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