Group Project: Apple, Inc. Valuation Entrepreneurial Finance
This Valuation Project involves application of the Free Cash Flow (FCF) Method of Valuation, as the primary valuation model, to Apple, Inc., http://finance.yahoo.com/q?s=AAPL&ql=1 , as outlined in what follows. This project is your Group Project-1 (GP-1). Do your best if you are shooting for an A or a B in this course; especially when Valuation lies at the heart of this class and this project is a great opportunity for you to learn the topic at deeper levels.
A. The Project. This project has six parts as follows; and all calculations must be done in and Excel file where I can trace all your computations and formulas.
1. Using financial data and information from Yahoo Finance (YF) ONLY, calculate the intrinsic value (price) of Apple, Inc. (AAPL) as of Friday, 10/21/16. This date is set so that you use the latest data that is avail be to you at the above closing date. For this part, use the Free Cash Flow (FCF) Method of Valuation. If you must use data that is not available on Yahoo Finance, you must be very sure that such data does not exist on YF and then reference your non-YF source in your report.
Important Notes on your Calculations:
a. You MUST calculate the related FCFs using the FCF formula taught in class.
b. Use Apple's sales figure on September 1, 2016 as your "Initial Sale" (sales at the beginning of year 1) and project your data sets 10 years into future; just like the example you see in Exhibit 1 in the FCF method file under Course Documents on Bb.
c. Base all your needed assumptions on the related financial data that you can find on Apple at its URL given in above.
d. If you have any questions, use the judgment of your team for all matters and questions.
e. List all the key assumptions- like Sales Growth Rate, Profit Margin, etc - that you used in arriving at the company's intrinsic value as stated in item 1 above.
2. Compare the price that you calculated in above with the closing market price for AAPL on 10/21/16 and tell me if Apple is Overvalued, Undervalued, or priced correctly. You must explain your answer and make a good case for your response, one way or another.
3. Now, re-calculate the company's intrinsic value as stated in item 1 above using a Growth Rate in Sales that is 5% higher than what you listed in item 1-e in above .
4. In addition to the FCF method as discussed and used in above, also find the intrinsic price of Apple using the following methods;
a. Multiples Method (P/E ratio method); and
b. Fundamental Method.
5. How do your values as calculated in item 4 differ from the value that you calculated using the FCF method in item 1? Explain your responses.
6. What are the main challenges and difficulties in finding a value using the FCF method of valuation for a startup that has little historical data? What do you do to value a startup using the FCF method of valuation? Explain in needed details. (As far as grading is concerned, this question is very important as well so given it some thoughts.)
B. Preparing your Responses - AS A GROUP AND NOT AS INDIVIDUALS - for Submission.
a. Write up your responses to the above six (6) questions in the form of an Executive Summary in a Word file that is no more than three pages long, typed, and double-spaced; and contains full names of all Group Members who did their share of work;
b. Review your Excel file to make sure it contains responses to all the related questions as asked in above (full names of all Group Members who did their share of work must also be entered on top of the first sheet);