Assignment: Application – Stock Valuation
As a manager, it is important to understand how decisions can be analyzed in terms of alternative courses of action and their likely impact on a firm's value. Thus, it is necessary to know how stock prices can be estimated before attempting to measure how a particular decision might affect a firm's market value.
To prepare for this Assignment, choose a publicly-traded company, and then estimate your company's common stock price, using one of the valuation models presented in the assigned readings or outside readings. (If you want to analyze a dividend paying company, you can find a robust list at http://www.dividenddetective.com/big_dividend_list.htm.)
In addition, here is a template you will find to be useful for the assignment. It matches the examples given in the textbook on stock valuation models in Chapter 9: Stock Models (Excel workbook)
Defend your choice of model, and explain why it is appropriate to use for your company's stock. Be sure to explain how you arrived at any assumptions regarding values used in the model. Determine whether your company appears to be correctly valued, overvalued, or undervalued based on your company's stock current price and model result. Check Yahoo Finance for current stock prices. Finally, explain why your company's stock appears to be over-, under-, or correctly valued.
Please reference information from the following chapter
Brigham, E. F. , & Houston, J. F. (2016). Fundamentals of financial management (14th ed.). Boston, MA: Cengage Learning. Chapter 9, "Stocks and Their Valuation" (pp. 303-326)
IMPORTANT – Assignment will be graded based on fulfilling the below rubric –
1. The author uses MS Excel or calculator. Formulas and calculations are correct.
2. Author defends choice of model as to why it is appropriate to use for the chosen stock and explains how he or she determined any assumptions on the values used in the model, including why the assumptions were required. Model chosen is compared with other potential models that could have been used in the analysis. Assumptions used for model inputs are evidenced-based through cited research and/or use of estimation techniques based on historical data.
3. The author assesses whether the chosen company appears to be correctly valued, overvalued or undervalued based on the company’s stock current price and model result and discusses the implications of his or her conclusion. The author correctly determines the current price of the stock and cites the source of the price data.
4. The author provides reasons as to why the company’s stock appears to be over-, under-, or correctly valued. Reasons cited provide rationales that are evidenced-based and beyond personal opinion. Both the model’s estimation inaccuracies/weaknesses and the stock’s current price are assessed in the reasons given.
I am aiming for an A+, therefore, original work is mandatory.