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Research Paper (Basic Finance)

In: Business and Management

Submitted By supfrsh
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Table of Contents

1. Introduction & Methodology
Tasked to determine if Treats Inc. is correctly priced, the team first determines the intrinsic value using the Corporate Valuation Model and compares it with the current price. Next, financial ratios of Treats are compared across its peer groups to determine its relative performance in the industry. Lastly, a Sensitivity Analysis is conducted to understand the impact of deviations of assumptions made in the model.
2. Assumptions
On top of the given assumptions found in Appendix 1, we assume (1) Depreciation expense each year is calculated by straight-line method with reference to previous year’s Fixed Asset book cost. (2) Treats Inc. is a company engaged in business retailing of food, general merchandise and it operates a series of hypermarkets and supermarkets around the world. (3) The return of the MSCI ACWI is taken as the market benchmark return.
3. Deriving the Intrinsic Value per Share (i) Using SLOPE function in EXCEL, β=0.55943882

(ii) WACC=rD*1-TC*DV+rE*EV rE=rf+βrM-rf=0.072466329 WACC=0.06632138

(iii) CFFA=OCF-NCS-ΔNOWC Year | 2014 | 2015 | 2016 | 2017 | 2018 | CFFA ($, In 000s) | 1,099,500 | 1,052,438 | 996,743 | 931,457 | 855,517 |

(iv) Terminal value represents value of firm at the point that growth becomes constant.

(v) Discounting Treats’ CFFA and TV by WACC,
PV of Treats’ future operating cash flows=$16,392,965,000

(vi) Total Firm Value=PV of Treats’ future operating cash flows+Cash =$17,192,965,000 (vii) MV of Equity=MV of Firm-MV of Debt
MV of Debt=Firm Debt Ratio*Total Assets =$2,578,945,000
MV of Equity=$14,614,020,000

(viii) Treats'Equity price per share=MV of EquityTotal Number of Shares Outstanding=$182.68
4. Fundamental Analysis

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