Intrinsic Value Estimation Start your valuation analysis with the estimation of expected return using CAPM You need 3 inputs to calculate the CAPM: Equity investment and portfolio management, Assignment, NYU

Intrinsic Value Estimation Start your valuation analysis with the estimation of expected return using CAPM You need 3 inputs to calculate the CAPM expected return 1. An Estimate of the company’s Beta Use the daily closing price data for the company and the market index to calculate daily holding period yields for the most recent five years.

Using this data, you can estimate raw beta by using regression analysis in Excel. Attach details of your work as an Appendix. Adjust the Raw Beta using the formula: Adjusted Beta = (0.67) x Raw Beta + 0.33 2. The Risk-Free Rate of Return Use the 10-year Singapore Government bond yield as a proxy for the RFR. 3.

The Market Return Please use an estimate of the market return The CAPM required return should be used as the discount rate in your valuation models Estimate the intrinsic value of the company’s shares using the dividend discount model (DDM) You must use a 3-Stage DDM.

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Follow the methodology discussed in the Equity Valuation slides Justify the number of years used for each of your growth periods determine the growth rate for Period 1 using the Retention Ratio and ROE formula Estimate the growth rate for Period 2 using your discussion in the company’s/industry’s current issue section (Linked to Opportunities under SWOT analysis) estimate the terminal (Period 3) growth rate using a proxy that represents the long-term growth rate and calculate the terminal value calculate the present value of each future dividend and the terminal value, then add them to calculate the intrinsic value of the company provide justification and reasoning if you use a different growth rate than the one calculated for Period 1 provide justification and reasoning for your growth rate assumptions for growth in Period 2 and Period 3 Estimate the intrinsic value of the company’s shares using the Free Cash Flow to Equity (FCFE) model FCFE shouldn’t be negative (0 is the max) you must use a 3-stage FCFE model to calculate the intrinsic value of the stock source the components for FCFE from the company’s financial statements using Workspace calculate the FCFE per share over the past six years.

The average growth in FCFE per share will be the growth rate for Period 1 [Formula – FCFE = Net Income + (Depreciation Expense – Capital Expenditures) -in Working Capital – Principal Debt Repayments + New Debt Issues] estimate the growth of FCFE for Period 2 using your macro and microanalysis estimate the terminal (Period 3) growth rate using a proxy that represents the long-term growth rate and calculate the terminal value calculate the present value of each future year’s FCFE to calculate the present value, then add them to calculate the intrinsic value of the company provide justification and reasoning if you use a different growth rate than the one calculated for Period 1 provide justification and reasoning for your growth rate assumptions for growth in Period 2 and Period 3 Apply Relative Valuation techniques to ascertain the valuation of the firm compare multiples such as Price-to-Book, Price-to-Earnings and Price-to-Cash Flow or Price-to-Sales for the company and its peers determine the relative valuation of the firm using these multiples (do not attempt to calculate the share price) analyse and comment on the relative valuation of the firm in comparison to its peers is it overvalued or undervalued using this methodology?

Using relevant charts, evaluate the company’s share price performance over the last five years compare the relative performance of the company to the S&P/ASX 200 Index (USE STI Index instead) compare the relative performance of the company to its peer group comment on these charts, referencing reasons for any significant changes you have identified common-based charts from Workspace give the best view of these relationships Perform a technical analysis of share price movements over the last five years use 50-day vs 200-day moving average lines and volume analysis to identify Buy/Sell/Hold signals show and comment on these analyses with reference to charts sourced from Workspace use volume analysis to confirm your price signals draw support and resistance lines to indicate price trends and channels Evaluate your findings Why do the intrinsic values you have calculated differ from the current/recent share price?

How does this difference inform your investment recommendation? What is your investment decision based on your evaluation? Is your recommendation to Buy, Sell or Hold shares in this company? Is it different from the signal obtained from the technical analysis? Why? Does your qualitative analysis agree with your quantitative analysis? If not, why not? Important points regarding Valuation Models Explain any assumptions you have made in implementing your models. Where appropriate, explain how you arrived at the variables you are using.

For example, it is not enough to say you are assuming a 2% growth rate. You will be expected to provide justification for your 2% growth rate. It’s not enough to simply describe the financial ratios.

You must find reasons why they are changing, especially if there are significant changes year to year. This will require in-depth research. You must use Refinitiv Workspace and IBISWorld as major data sources. These can be supplemented with data from the company’s annual reports and other sources you have found.

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