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business finance project

Valuation Project

Fall 2021 – FIN 4220/6220

Due: November 16, 2021

Overview

The purpose of this project is for you to demonstrate critical thinking skills through the analysis of a publicly
traded company and the valuation of its common stock. This project contains two parts, a written report
and a valuation model. Each project must be completed on your own. Your subject company may be Tesla
(TSLA), Netflix (NFLX), or Costco (COST).

Written Report 70%

Each written report must contain the following sections. Section descriptions contain guidance for what
you should include but are not all inclusive. You may include additional information as appropriate. Each
section will be given the weight indicated. Section word counts are suggested minimums; the only hard and
fast word count requirement is the 5,000 word requirement described in “Other Requirements”.

1. Business Description (5%, 400 words)

Explain key facts about the company including its history, geographic footprint, major recent
news, and any other material facts or events.

2. Industry Overview and Competitive Positioning (15%, 850 words)

Discuss the firm’s industry. Identify the firm’s closest peers. Identify the firm’s competitive
position using Porter’s Five Forces analysis, SWOT analysis, or an alternative methodology.

3. Financial Analysis (15%, 750 words)

Examine the balance sheet, income statement, and statement of cashflows to understand the
overall financial health of the firm. Use financial ratio analysis to quantify profitability, liquidity,
debt management, and other key financial metrics. Analyze the firm’s capital structure. Calculate
the firm’s historical free cash flows. Identify recent capital raising or returning events. Compare
metrics across time and against the firm’s industry and peers.

4. Investment Risks (10%, 1000 words)

Discuss in detail the risks that an investor must consider if they were to purchase the company’s
stock. Consider the firm’s exposure to market, idiosyncratic, financial, operational, credit, liquid-
ity, regulatory, legal, tax, political, and other risks.

5. Corporate Governance (5%, 500 words)

Review the key players in the firm, including the CEO, CFO, COO, board of directors, or any
other important personnel. Do not simply recite the resumes of these individuals. Analyze the
quality of the firm’s corporate governance.

6. Valuation (15%, 1000 words)

Report the conclusions from your valuation model. You must give a detailed description of the
assumptions you made and why you made those assumptions. Discuss which technique(s) you
employed that are most appropriate for your firm. Arrive at a valuation for the firm and issue
guidance on the current value of the firm and a one year from now price target. Discuss your price
targets. Make a quantitative argument for why the stock is a buy, sell, or hold.

7. Investment Summary (5%, 500 words)

Concisely summarize your overall conclusions from the previous sections. Make a qualitative
argument for why the stock is a buy, sell, or hold.

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Valuation Model 30%

Develop a valuation model for the firm using the sections described below. Use a single Excel workbook for
your results. Your model should include any data you used in your decision making process. The assumptions
you use in this model must be explained in your written report.

1. Cost of Capital (5%)

Estimate the firm’s cost of equity, cost of debt, and cost of preferred shares. Estimate the firm’s
weighted average cost of capital (WACC).

2. Dividend Discount Model (7%)

Value the firm using the dividend discount model with non-constant growth.

3. Relative Valuation (3%)

Value the firm using financial multiples, also known as relative valuation. Your reference multiples
should be pulled from the industry and peers you identified in the written portion of this project.

4. Discounted Cash Flow Analysis (10%)

Use the firm’s free cash flows to arrive at a value using the corporate valuation model with non-
constant growth .

5. Price Targets (5%)

Combine the results from the dividend discount model with non-constant growth, relative valua-
tion, and corporate valuation model with non-constant growth to produce a current value and a
one year ahead price target for the firm.

Other Requirements

1. The written report must contain at least 5000 words
(10% deduction per 100 words below 5000)

2. The written report must be turned in as a PDF
(5% reduction if any other format is used)

3. The valuation model must be in Excel format or another pre-approved format
(10% deduction if in an unapproved format)

4. The valuation model must follow best practices for spreadsheets
(15% deduction if lacking)

5. The written report and valuation model must be well-formatted
(5% deduction for poor formatting)

6. The written report must include a title page with key information, including word count.
(5% deduction if lacking)

7. All external sources of data and references must be cited in a consistent format
(15% deduction for failure to cite)

8. Each deliverable must contain at least two sections from the report
(10% deduction for each missing section)

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