Project #39459 - corporate finance

6. (30) We will do a quick overview of the financial situation at two firms:   Walmart  (WMT) and Twitter (TWTR).  First, look up the relevant info below, then answer the questions at the bottom of the page.   You only need to turn in the answers to parts a, b, c, d, e.  

 

From Edgar   (official SEC site) Look up the most recent annual report (called a 10-K form)

https://www.sec.gov/edgar/searchedgar/companysearch.html

 

From the Balance Sheet, find:

# shares of common stock outstanding at the end of the most recent year, and its total book value

# shares preferred stock outstanding at the end of the most recent year, if any, and its total book value (in one case, this changed dramatically from the year before, what happened?   Look at the notes to consolidated financial statements to see)

Book value of long-term debt, if any.  If the firm has a significant amount of bonds, also look up

           in the notes to the financial statements, a list of the various bonds with their coupon rates and maturities.  What is the highest and lowest rate mentioned, and the longest maturity mentioned?  Use the midpoint of these two rates as a quick estimate of Rd.   (If we had more time, we would find the weighted average interest rate for these bonds, however there is too much to do in a short time!)

 

           From the Income statement (sometimes called Statement of Operations)

                       Total sales, Total EBIT, and Total EPS (use diluted if there is a choice) in the last 2 years

EPS and Div per share, if any

Average tax rate in most recent year   (taxes/EBT)

 

From Yahoo finance:  current market price of the shares

           firm's beta estimate, if any 

also click on the stock's chart, select Max for the time period, select events and add dividends and splits. 

 

Now answer the following for each firm;

6, cont'd.

a.  What is the DOL, DFL and DTL based on the last 2 years of reported income?  Comparing the last 2 years' income statements, what attractive or worrisome aspects do you see, from the perspective of an investor? (A sentence or two is enough…example, "sales declined by 1%, but costs declined faster, thus net income rose by 6%")

 

b.  What is the approximate capital structure of the firm  (we, wps, wd)?  Calculate using market value of common stock, and the book value of bonds and preferred shares.  Has this had any dramatic changes from the prior year (verbal answer only)?  What range of interest rates were being paid on the long run bonds, if applicable?  Also, what is the average tax rate (T) paid for the most recent year (if applicable)?

 

c.  Has this firm been paying dividends?  If yes, use the chart to sum up the 4 most recent quarterly dividends paid…this is known as the trailing annual dividend.  (We called this "D0" in class)    Has the dividend been growing over the past 5 years?  If so, at what average rate?    (short cut method:  look at most recent quarterly dividend, and compare to quarterly dividend from 5 years before, (21 periods back)   then  Dnew/Dold =  (1 + g)^5, solve for g.  Then, find expected D1 = D0 (1 + g), and  expected dividend yield this year, which is D1/current price.  Then use the current dividend yield plus the growth rate, to estimate Re, investors' required rate of return on equity.

 

d.  What is the firm's estimated beta? (If not shown, why not?)  If beta is available, estimate the firm's required cost of equity capital, Re, using the CAPM method.  Assume Rmbar is 8%, and Rf = 1%. 

 

e.  Suppose you were asked by your boss to analyze one of these firms' financial situations, including estimating their WACC.  Which firm would you rather do, and why?  

Subject Business
Due By (Pacific Time) 09/08/2014 11:00 am
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