The applied project on FedEX is a two-page single space memorandum plus appendices that values a publically traded stock using two methods. The student is responsible to choose a stock (FedEx) to value; collect relevant data; research relevant information regarding underlying data and perform the necessary analysis to determine if the current market price is above or below a computed intrinsic price. The initial selection of the firm will impact the overall assignment. I would suggest the firm you choose to be in good financial health, pay a dividend and have easilty excessible data. I would prefer that you analyze a firm that interests you as an investor. A source of information that could be used (there are many sources of financial information) would be finance.yahoo.com.
1. What firm are you choosing (discus the firm's essential attributes that would interest an investor)?
2. What was the stock's price range during the last year? What is the stocks current stock price?
3. What is firm's current dividend? What is its dividend yield? (Is there any recent news or announcements related to dividends)
4. Discuss briefly the concept of corporate governance within your chosen firm (recommended source is the firm's ‘investor website').
5. What growth rate do you expect over the upcoming year? What do you base that growth rate on? (This information would be available at yahoo finance under analyst estimates or other investment related research site).
6. What is the estimated beta of the firm? Where did you get the estimated beta? (This information would be available at yahoo finance or other investment related research site).
7. Calculate the firm's required rate of return based on their beta. Be clear what all of your assumptions are. You should use the CAPM to compute the required rate of return. (You will need to research the risk free rate of return by searching for the current one year treasury rates of return. You will also need to assume an expected market return. You can search for expected stock market returns in 2014. You can also use historical estimates of the market risk premium by taking the difference between the historical average return on the market and the average Treasury Bill. This information is available online (the current t-bill rate is available at the US Treasury website; the expected market return is available at yahoo finance website under analysts' expectations and other investment research sites).
8. Estimate the free cash flows available for the firm for the next 3 years then assume the cash flows will grow at an appropriate assumed rate of growth. Explain where you attained your numbers. (This information would be available at yahoo finance or other investment related research site. The Yahoo site will give you the current free cash flow. You would then use the growth rate to estimate cash flows in future years).
9. What is the value of the firm based on the Free cash flow model (i.e. if you are valuing the firm based on its total cash flows available to equity holders)? What is the value of the firm on a per share basis? (Attain share information at the Yahoo website or other investment related website).
10. What is the value of the firm based on the constant dividend growth model? You will need to estimate future dividends to shareholders based on the overall growth rate of dividends. (If the firm you are researching does not have any dividends then assume dividends are equal to the current earnings per share or assume some future dividend and growth rate).
11. Would you recommend that an investor buys or sells the firm based on its current price, why?
12. What do professionals recommend (i.e. are there buy or sell recommendations on the stock). (This information would be available at yahoo finance or other investment related research site).
13. Are there other factors related to the stock that you believe an investor should consider? (Discuss the uncertainties associated with the firms industry or operations)?