Spreadsheets: Please note that most(if not all) of what you have to do will be easier if you go to Damodaron?s website, click on spreadsheets and input your values into the given spreadsheets. If you want to see valuations go to his Equity investments and markets class and click company valuation.For information to input, click updated data.Project Outline: I. Corporate Governance Analysis Information to include: public or private company, power of incumbent management relative to the Board of Directors. Power of incumbent management relative to the Board should be reflected in the compensation package approved by the Board. Provide details of compensation. Discuss manager ...view middle of the document...
III. Risk and Return Consider whether the industry has entered a mature growth phase, and make sure to consider whether your answer changes when internationally opportunities are recognized. What has happened to the stock prices and earnings of the companies over the past five years? Provide the industry averages for beta. A top down estimate of beta is to run a regression. A high standard error in the beta estimates implies that the bottom up approach is better.To estimate a bottom up beta, separate the firms into their respective business divisions. The overall unlevered betas for the companies are calculated as a weighted average of the business betas using the betas of comparables. For each company, you could have a chart, with the following columns: Business, estimated value, comparable firms, unlevered beta, divisional wt, weight times beta. The last row entry is for the overall company, where the divisional weights add up to 100.00%, and the weighted average of the betas will the firm?s unlevered beta.Moving toward Levered Betas: Calculate the market value of equity and the market value of debt, provide the formulas that you use to get these values. The results(for all the companies) should be shown in a table. Plot the debt equity ratios in a chart.If your company has substantial operating leases on its books, you may want to discount the value of the operating leases at the company?s present cost of debt and add the present value of the company?s lease liability to its market value of debt.Give the formula for the levered beta. Calculate each company?s levered beta, and provide summary of beta estimates.Determine the cost of equity, give the risk-free rate and market risk premium, and compare the cost of equity for each company to the industry average.To figure out the cost of debt for the companies, find their current ratings. If the company is not rated, use its interest coverage ratio to determine a synthetic bond rating and a corresponding spread. Use the ten year bond rate and add the respective spreads for each company to this rate. Whether the statutory tax rate is right for your company depends on international considerations, if there are significant tax issues in other countries, add to the statutory rate. Also, for some companies the amount of employee exercised options has reduced the effective tax rate to 0.IV. Capital Structure Choices Current financing mix Compare the different financing arrangements and their maturities across the various business sectors of for each company.Type of financing, dollar amount interest rate on books, maturity Under type of financing include unsecured notes, capital leases, secured loans, unsecured loans, sinking fund debentures, commercial paper, long term notes, construction loan, etc.The total debt balances may vary among companies, do they all have a similar composition to provide financing? Find the cost of capital as a function of the debt ratio for each company.The optimal cost...
