INSTRUCTIONS:

1. You may complete this assignment in a group of 2 or choose to complete it on your own. Grades are not impacted regardless of whether you complete the project alone or in pairs.

2. Complete the model.
a. All values highlighted in Yellow can/should be adjusted (do not assume any value currently in Yellow is correct. They Are Not!)

3. Answer the Project Questions

4. Submit both the Excel Model AND Questions on Blackboard

5. You may submit ONE copy of all materials for the team

6. Please complete the project as if you are examining the company on July 8, 2015, the time at which the IPO was filed.

PLEASE ANSWER THE FOLLOWING BASED ON YOUR DCF ANALYSIS

1. How did you determine the "Current EBIT" value used?

2. In setting the company's "Marginal Tax Rate", what factors did you consider?

3. How did you determine the "Current Cost of Borrowing"?

4. How did you determine the "Stable Growth Inputs"? If you used a comparable(s), explain why it is a good parallel for SULLY'S.

5. What did you use as the "Long-Term Government Bond Rate"? Why did you choose this rate?

6. Please provide a brief explanation supporting the rates you used for the "Expected Growth Rates" in years 1 through 10. Include why you chose to have the growth rate increase, decrease or remain stable over the 10 year period.

7. If SULLY'S announces they have set the IPO price at $20 per share, given your valuation model, do you believe this is a good trade? Why or Why not?

PLEASE ANSWER THE FOLLOWING BASED ON YOUR MULTIPLES ANALYSIS

8. Which multiple do you believe provides the best estimate of SULLY'S value? Why do you believe this multiple provides a more accurate assessment of SULLY'S value than the other multiples?

9. Assume the PEG ratio, out of the five multiples, provides the highest share price. Where can you derive much of SULLY'S value stems from compared to other companies? (Hint: compare the inputs for P/E, PEG and P/Sales, which of SULLY'S input is higher than average)

10. Which valuation method, Discount Cash Flows or Multiples, do you believe provides a more accurate value of SULLY'S? Why?

For questions 10 through 12, assume the model indicates SULLY'S stock is worth $28 (do not assume this is the price you should try to get in your model). Additionally, assume SULLY'S has smart finance students who have also determined the price of the stock should be $28.

11. Why might the company issue shares for $20 at the IPO? Consider quantitative and qualitative rationales.

12. What would you expect SULLY's stock price to do when it commences trading on the first day after its IPO?

13a.If after the first day of public trading SULLY'S stock is selling at $26 per share, what would you advise shareholders to do?

13b.Would your advice change if the stock was trading at $30 after the first day? If so, what would your advice be?

14. Why might someone use the valuation method you identified as less accurate in question 13?

Sully's includes the following statements on all their dog food packages:

All SULLY'S dog and cat foods start with real chicken, lamb or fish and contain plenty of whole grains, fresh-cut vegetables and fruit. SULLY'S will provide your companion with the wholesome nutrition veterinarians and breeders recommend.

Lastly, and of equal importance, SULLY'S dog and cat foods contain no chicken or poultry by-product meals, and no artificial preservatives, colors or flavors. And SULLY'S dog and cat foods contain no corn, wheat or soy, which have all been known to trigger allergies in some pets.

A news article, released two weeks before the scheduled IPO date, included the following statements

Nestle Purina has sued SULLY'S. The lawsuit contends that SULLY'S has engaged in false advertising. Nestle contends that testing has revealed the presence of poultry by-products in some of SULLY'S best-selling pet foods.

In SULLY'S answer, filed with the court, SULLY'S admits there is by-product meal in a "substantial" and "material" portion of their pet food. However, SULLY'S contends that prior the claims, and a resulting internal investigation, they were unaware the by-product was being used by an affiliate.

15. What impact do you believe these statements might have on the company?

16. Propose how you might be able to include the anticipated impacts in the DCF Valuation?

Attachment:- ipo-project-valuation-models.xls