BUS401 Principles of Finance Research
Ashford University
BUS401 Week 3 Assignment Dividend Analysis and
Preliminary Valuation
COMPANY: WALMART
Section 3: Dividend Analysis and Preliminary
Valuation [WLOs: 1, 4] [CLOs: 1, 2, 4]
In the Section 3: Dividend Analysis and
Preliminary Valuation assignment, you will compute the of the company's stock
value based on historical dividend data for your company and a market-based
equity rate of return. In this analysis, you will use the constant growth
formula to compute two estimates of the stock price, a high-end value and a
low-end value. Analysts frequently assess the stock value using a range of
values, based on reasonable assumptions for a high-end and a low-end range.
Once you have calculated two stock values, you
will compare the company's calculated values compared to the current market
price of the stock. This comparison will help you determine if the stock is currently
under-valued or over-valued, and will help you determine your recommendation of
buy, hold, or sell. Analysts prepare value estimates based on historical data
for the company as well as an understanding of expected future equity rates of
return. It is important to understand that the constant growth formula provides
an estimate of value, and analysts, like all humans, can be both right and
wrong. The inputs used in the formula will greatly impact the value conclusion.
Prepare:
Prior to beginning work on this assignment,
·
Complete both learning
activities for this week.
·
Review Chapters 4 and
5 of the textbook.
·
Review the Week 3 Model Assignment (Links to an external site.).
·
Watch the following
video:
Write:
In your paper, address the following five
parts in a Word document:
Part 1: Dividend Analysis (two to three
paragraphs):
·
Create a table that
illustrates the annual dividends per share paid by your selected company over
the past 10 years. If the company has not paid dividends for 10 years, include
as many years as available.
o
Calculate the growth
in annual dividends per share each year and include this annual
growth rate in your table.
§
To find the dividends
your company has paid in the past 10 years, review the BUS401 |Picking a Company
that Pays Dividends (Links to an external site.) video from Week 1.
o
Calculate the average
dividend growth rate over the following periods:
§
the most
recent 10 years,
§
the most recent 5
years, and
§
the most recent 3
years.
o
Summarize the
trend in the dividend growth rates.
§
Have the dividend
growth rates increased or decreased? By how much? Has the increase or
decrease been steady or varied from year to year?
o
Determine two distinct
estimates of the future dividend growth rate for this
company: a high-end growth rate and a low-end growth rate. You
are to choose these growth rates based on what is reasonable from the data you
have on the company's dividend growth in prior years, as presented in your
table. The two future dividend growth rates can be any of
following:
§
the most recent year
growth rate;
§
the
average growth rate over the 10-year period;
§
the average growth
rate over the most recent 5 years;
§
the average growth
rate of the most recent 3 years; or
§
a growth rate you
select that is reasonable, given the 10-year, 5-year, and 3-year averages, as
well as the recent year growth rates.
§
NOTE: Both dividend
growth rates must be lower than the required rate of return used in the
constant growth formula. See Part 2 below for the required rate of return to
use in the constant growth formula.
§
Justify the determined
the high-end dividend growth rate and low-end dividend growth rates for your
company. In your justification, provide a least two financial facts from your
Week 1 and Week 2 assignments to support your determination.
Part 2: Preliminary Valuation: (two to three paragraphs)
·
Calculate the stock
price for your selected company using the constant growth formula and the
low-end dividend growth rate you determined in Part 1. Show
all calculations for this estimated stock price using the low-end
dividend growth rate.
o
For the required
rate of return (r), use the following assumptions:
§
For a large
capitalization company (greater than $10.0 billion in market
capitalization) use 10.0%.
§
For a mid-cap
company (between $2.0 billion and $10.0 billion in market
capitalization) use 12.0%.
§
For a small-cap
company (less than $2.0 billion in market
capitalization) use 15.0%.
o
Show your
calculations.
·
In a similar manner,
calculate another estimate of the stock price for your selected company using
the constant growth formula and the high-end dividend growth rate.
o
Use the same
assumptions for the required rate of return (r) that you used for the
low-end stock price, other than using the high-end dividend growth rate.
o
Show your
calculations.
·
Compare each of
the two stock prices you just calculated to the current stock
price per share of the company.
o
State whether each
constant growth stock price (low-end and high-end) is above or below the
current price.
o
State whether each
constant growth stock price (low-end and high-end) indicates if the stock price
is currently under-valued or over-valued in the market.
·
Determine your
concluded stock value, based on the two calculations using the constant growth
formula.
·
Justify your
conclusion of value for your stock, using either the high-end stock price or
the low-end stock price from the constant growth formula. Include least two
financial facts from your Week 1 and Week 2 analyses.
The Section 3: Dividend Analysis and
Preliminary Valuation paper
·
Must be three to four
double-spaced pages in length including any tables or calculations (but not
including title and references pages) and formatted according to APA Style (Links to an external site.) as outlined in the Writing
Center's APA Formatting for Microsoft Word (Links to
an external site.) resource).
·
Must include a
separate title page with the following:
o
Title of paper in bold
font
§
Space should be
between title and the rest of the information on the title page.
o
Student's name
o
Name of institution
(The University of Arizona Global Campus)
o
Course name and number
o
Instructor's name
o
Due date
·
Must utilize academic
voice. See the Academic Voice (Links to an external site.) resource for additional guidance.
·
Must include a
separate references page that is formatted according to APA Style as outlined
in the Writing Center. See the APA: Formatting Your
References List (Links to an external site.) resource in the Writing Center for
specifications.
·
Must cite where the
financial statement information comes from (i.e., Mergent)
o
For help citing the
information from Mergent, see the BUS401: Principles of Finance Research Guide.
Note: Since this is Section 3 of the Week 5
final project, there is no need for an introduction paragraph.
COMPANY : WALMART
BUS401 Week 5 Mini Equity Research Report
Mini Equity Research Report
Company: Nike Inc.
Many investment banks employ analysts to write
equity research reports on public companies to advise their clients
on their stock investments. In many cases, an initial equity
research report is 20 to 50 pages long! For this class, you will focus on
only three of the many important sections typically included in
an equity research report. Thankfully, your Mini Equity Research
Report will be much shorter than those published by investment banks!
In Week 1, you chose a publicly traded company
to use throughout this class for the Mini Equity Research Report. In the first
section of the Mini Equity Research Report, you evaluate
the historical financial performance of the company (Week 1). In
the second section of the Mini Equity Research Report, you evaluate the
company's performance using common financial ratios, and you compare the company
to the competitor's performance with the same financial ratios (Week
2). Finally, in Sections 3 and 4 of the report, you develop a value for
the company's stock and compare your value to the current market price of
the stock (Weeks 3 and 4). Based on the analysis you present in
these four sections, you will develop your
recommendation to buy, hold, or sell the stock of this company.
It is very rare for one company to have only
positive facts. Most companies have some good facts and some weak facts. In
Sections 1 and 2 of the Mini Equity Research Report, you will analyze a variety
of financial data for your selected company. As the equity
analyst, it is your responsibility to combine the positive and
negative facts into one recommendation (buy, hold, or sell). It is important to
consider the importance of each fact and acknowledge that there is no perfect
answer. Your recommendation should be based on the strength of the positive
facts while recognizing the risks from the negative facts.
This week, you will write the introduction
(including your stock recommendation) and the conclusion of the Mini Equity
Research Report. In addition, you will revise the four sections from the first
four weeks of class and combine them into this Mini Equity Research Report.
Finally, you will submit your final Appendices A, B, C, and D with the Mini
Equity Research Report.
Prepare:
Prior to beginning work on this final project,
·
Complete the Week 5 –
Learning Activity: Understanding Cost of Capital.
·
Review the feedback
you have received on your assignments throughout this course.
·
Locate and revise (if
necessary) all of your assignments from Weeks 1 through 4.
Write:
In your Mini Equity Research Report,
·
Write an introduction.
In your introduction, include the following:
o
State the name of the
company and a brief description of what it does.
o
State the current
market price per share and total market capitalization of the company.
o
State two key
historical financial performance facts about your company (you can ascertain
this information from your Week 1 – Assignment 3, Section 1: Financial
Statement Analysis).
§
Categorize the overall
financial performance as strong, neutral, or weak.
§
Justify your
assessment based on the key facts.
o
Summarize (briefly)
the ratio performance of the company.
§
Categorize the overall
ratio performance as strong, neutral, or weak.
§
Justify your
assessment based on the key facts.
o
Determine the
valuation conclusion based on the constant growth formula in Week 4, using the
required rate of return derived from the CAPM.
o
Determine your
recommendation of buy, hold, or sell the stock of your chosen company.
·
Include your revised
Week 1 – Assignment 3, Section 1: Financial Statement Analysis.
·
Include your revised
Week 2 – Assignment 3, Section 2: Financial Ratio Analysis.
·
Include your revised
Week 3 – Assignment, Section 3: Dividend Analysis and Preliminary Valuation,
Part 1: Dividend Analysis only
·
Include your revised
Week 4 – Assignment, Section 4: Valuation Conclusion.
·
Write a conclusion. In
your conclusion, include the following:
o
Summarize the analysis
that was completed for the Mini Equity Research Report.
o
State your
recommendation of buy, hold, or sell the stock of your chosen company.
o
Summarize the key
facts supporting your recommendation, including your concluded stock price.
·
Include Appendices A,
B, C and D.
Submission Format:
You need submit a total of five documents to
Waypoint:
·
Mini Equity Research
Report
·
Appendix A
·
Appendix B
·
Appendix C
·
Appendix D
The Mini Equity Research Report,
·
Must be eight to ten
double-spaced pages in length including any tables or calculations (but not
including title and reference pages) and formatted according to APA Style (Links to an external site.) as outlined in the Writing
Center's APA Formatting for Microsoft Word (Links to
an external site.)
·
Must include a
separate title page with the following:
o
Title of project in
bold font
§
Space should be
between title and the rest of the information on the title page.
o
Student's name
o
Name of institution
(The University of Arizona Global Campus)
o
Course name and number
o
Instructor's name
o
Due date
·
Must utilize academic
voice. See the Academic Voice (Links to an external site.) resource for additional guidance.
·
Must include an
introduction and conclusion paragraph. Your introduction paragraph needs to end
with a clear thesis statement that indicates the purpose of your paper.
o
For assistance on
writing Introductions & Conclusions (Links
to an external site.) as well as Writing a Thesis Statement (Links to an
external site.),
refer to the Writing Center resources.
·
Must document any
information used from sources in APA Style as outlined in the Writing
Center's APA: Citing Within Your Paper (Links to an
external site.)
·
Must include a
separate reference page that is formatted according to APA Style as outlined in
the Writing Center. See the APA: Formatting Your
References List (Links to an external site.) resource in the Writing Center for
specifications. For help citing the information from Mergent, see the BUS401: Principles of Finance Research Guide.
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