Hello,

I need help with the attached assignment for Corporate Finance. I need this by 10:00 p.m. tonight.

http://finance.yahoo.com/q/is?s=HRL+Income+Statement&annual

For this last course project assignment you will explore the company-level valuation. Using the same company that you have analyzed throughout the course, prepare a paper that discusses the following items. 1. Discounted Cash Flow Valuation: a. Estimate the cost of capital for your company. (In Module 05 you already estimated the cost of equity. To estimate the cost of capital, you need to include an estimate of the cost of debt and calculate the weighted average cost of capital for your company.) b. Estimate the free cash flows to the firm for the future. One way to do this is simply use the current trailing twelve months cash flows as a proxy for the future cash flows. c. Calculate the present value of all future cash flows. (You can simply calculate the cash flows in perpetuity with a modest constant growth rate.) 2. Relative Valuation: a. Conduct a relative valuation of your company using one of the metrics discussed in the course readings. b. For your comparable firms you should choose 2 or 3 firms that are considered competitors or in a related industry to your firm. 3. Comparison to Listed Valuation: a. From Yahoo! Finance identify and indicate the Market Capitalization and Enterprise Valuation. b. Discuss how your valuations from above compare in relation to these amounts from Yahoo! Finance. Assuming there are differences, what might explain such differences? Paper Mechanics should be as follows: 1. There is no minimum page length requirement for this paper. 2. The paper should be in APA format (i.e. cover page, double-spaced, 12 pt font, reference section at end, etc.). 3. The paper should include at least 1 source, such as the annual report, Yahoo! Finance or Google Finance, the company's web site, etc. 4. The paper should be divided into the sections indicated above (label each section clearly). Introduction Hormel Foods Corporation is one of the leading American food processing company that is based in Austin, Minnesota in the United States. The company was founded in 1891 by George Hormel which later changed its name to Hormel Foods in 1993 and ever since, the company has recorded various successes in the food processing industry up to now. It has over forty stores located in different parts of the United States and across North America. Its main products include Deli Meat, pantry, ethnic foods and spam among others. Its average revenues as posted in its 2016 financial reports were $9.52 million making the company one of the biggest players in the food processing industry in the United States. This paper will look at the company-level valuation using various valuation methods discussed in this module. Discounted Cash Flow Valuation This section will focus on the valuation of the company through the estimation of its cost of capital and free cash flows for the future. To begin with the company's cost of capital, its capital structure from the company's balance sheet for the financial year 2016 can be estimated as shown below. The company's total capital was $4,968,941,000 which included debt and equity financing. The company's debt was about $250 million which comprised of the company's debt financing. The company also had common stock valued at $270 million. Lastly, the company had retained earnings of about $4,448,006 in its capita structure. Using the general formula used to calculate the cost of capital WACC, the cost of debt would be determined based on the interest expense which was given as 7.5% per annum. The company's cost of equity given by CAPM approach on other hand would be determined as follows. Returns = Risk free rate + Beta (Expected market return - Risk free rate) = 1.5%+0.33(1.96%-1.5%) = 1.65% Lastly, the cost of retained earnings would be calculated as shown below; using the discounted cash flow method, the formula for calculating the cost of retained earnings would be as shown below; Cost of retained earnings = Next year's dividend/Price of stock + Firm's constant growth rate Therefore, the constant of retained earnings for the case of Holmes foods would be; =(0.20/33.95)+4.5% 5.08% The actual WACC of the company using the discounted cash flow method would therefore be determined as shown below; Weighted average cost of capital = weighted cost of debt*(1-corporate tax) + weighted cost of common stock + weighted cost of retained earnings = (7.5%*250,000,000/4,968,941,000)*(1-35%) +(1.65%*270,000,000/4,968,941,000)+(5.08%*4,448,006,000 /4,968,941,000) = (7.5%*5.03%)*(1-35%)+(1.65%*5.43%)*(5.08%*89.51%) = 0.27% Estimating the future cash flows into the company based in its annual growth of about 3%, the future cash flows in the next 12 months would be estimated as follows. The company's actual change in cash and cash equivalent in 2016 was given as $67,904,000. Its future cash flows would therefore be given as $69,941,120 (103%*67,904,000). Given a discount rate of about 7.5%, the present value of the company's future cash flows would be given as $65,061,506[($69,904,000/(1+7.5%)^1]. Relative Valuation The company's closest competitors in terms of capital valuation and revenue generation include BRF S.A and Industrias Bachoco, S.A. de C.V. a comparison in the relative valuation of the three companies can be based on market capitalization and net worth of assets of the three companies. To begin with market capitalization, BRF S.A has the second largest market cap of $1,208,346,000 followed by Hormel foods with $17,956,596,000 and lastly, Industrias Bachoco with the smallest market cap of $202,406,000. Secondly, in terms of asset base of the three companies, BRF S.A is the largest with a capital net worth of about $13,194,700,000 followed by Industrias Bachoco with $1,307,204,000 and lastly, Hormel with $1,053,196,000. Comparisons to Listed valuation The companies' market capitalization is as demonstrated below; BRF S.A has the second largest market cap of $1,208,346,000 followed by Hormel foods with $17,956,596,000 and lastly, Industrias Bachoco with the smallest market cap of $202,406,000. Enterprise valuation of the three companies on other hand would be determined by the formula; market value of common stock + market value of preferred equity + market value of debt + minority interest - cash and investments. The enterprise value for Hormel would therefore be; $109,192,000 (270,935,000+0+250,000,000+3,400,000-415,143,000). BRF S.A on other hand would have equity valuation of $49,892,820,000 (47,167,120+0+4,829,100+116,6002,220,000). Lastly, Industrias Bachoco would have an equity valuation of $2,601,245,030 (3,265,931.03+0+46,133+2,615-713,434). Based on equity valuation, BFR S.A has the highest value of equity followed by Industrias Bachoco and lastly Hormel Foods. The differences in the valuation based on market cap and equity valuation can be attributed to the varying performance of the company's stock in the stock market. Hormel Foods for instance has the second largest market cap because of high stock performance but apparently, the company has the lowest equity value. References Introduction Hormel Foods Corporation is one of the leading American food processing company that is based in Austin, Minnesota in the United States. The company was founded in 1891 by George Hormel which later changed its name to Hormel Foods in 1993 and ever since, the company has recorded various successes in the food processing industry up to now. It has over forty stores located in different parts of the United States and across North America. Its main products include Deli Meat, pantry, ethnic foods and spam among others. Its average revenues as posted in its 2016 financial reports were $9.52 million making the company one of the biggest players in the food processing industry in the United States. This paper will look at the company-level valuation using various valuation methods discussed in this module. Discounted Cash Flow Valuation This section will focus on the valuation of the company through the estimation of its cost of capital and free cash flows for the future. To begin with the company's cost of capital, its capital structure from the company's balance sheet for the financial year 2016 can be estimated as shown below. The company's total capital was $4,968,941,000 which included debt and equity financing. The company's debt was about $250 million which comprised of the company's debt financing. The company also had common stock valued at $270 million. Lastly, the company had retained earnings of about $4,448,006 in its capita structure. Using the general formula used to calculate the cost of capital WACC, the cost of debt would be determined based on the interest expense which was given as 7.5% per annum. The company's cost of equity given by CAPM approach on other hand would be determined as follows. Returns = Risk free rate + Beta (Expected market return - Risk free rate) = 1.5%+0.33(1.96%-1.5%) = 1.65% Lastly, the cost of retained earnings would be calculated as shown below; using the discounted cash flow method, the formula for calculating the cost of retained earnings would be as shown below; Cost of retained earnings = Next year's dividend/Price of stock + Firm's constant growth rate Therefore, the constant of retained earnings for the case of Holmes foods would be; =(0.20/33.95)+4.5% 5.08% The actual WACC of the company using the discounted cash flow method would therefore be determined as shown below; Weighted average cost of capital = weighted cost of debt*(1-corporate tax) + weighted cost of common stock + weighted cost of retained earnings = (7.5%*250,000,000/4,968,941,000)*(1-35%) +(1.65%*270,000,000/4,968,941,000)+(5.08%*4,448,006,000 /4,968,941,000) = (7.5%*5.03%)*(1-35%)+(1.65%*5.43%)*(5.08%*89.51%) = 0.27% Estimating the future cash flows into the company based in its annual growth of about 3%, the future cash flows in the next 12 months would be estimated as follows. The company's actual change in cash and cash equivalent in 2016 was given as $67,904,000. Its future cash flows would therefore be given as $69,941,120 (103%*67,904,000). Given a discount rate of about 7.5%, the present value of the company's future cash flows would be given as $65,061,506[($69,904,000/(1+7.5%)^1]. Relative Valuation The company's closest competitors in terms of capital valuation and revenue generation include BRF S.A and Industrias Bachoco, S.A. de C.V. a comparison in the relative valuation of the three companies can be based on market capitalization and net worth of assets of the three companies. To begin with market capitalization, BRF S.A has the second largest market cap of $1,208,346,000 followed by Hormel foods with $17,956,596,000 and lastly, Industrias Bachoco with the smallest market cap of $202,406,000. Secondly, in terms of asset base of the three companies, BRF S.A is the largest with a capital net worth of about $13,194,700,000 followed by Industrias Bachoco with $1,307,204,000 and lastly, Hormel with $1,053,196,000. Comparisons to Listed valuation The companies' market capitalization is as demonstrated below; BRF S.A has the second largest market cap of $1,208,346,000 followed by Hormel foods with $17,956,596,000 and lastly, Industrias Bachoco with the smallest market cap of $202,406,000. Enterprise valuation of the three companies on other hand would be determined by the formula; market value of common stock + market value of preferred equity + market value of debt + minority interest - cash and investments. The enterprise value for Hormel would therefore be; $109,192,000 (270,935,000+0+250,000,000+3,400,000-415,143,000). BRF S.A on other hand would have equity valuation of $49,892,820,000 (47,167,120+0+4,829,100+116,6002,220,000). Lastly, Industrias Bachoco would have an equity valuation of $2,601,245,030 (3,265,931.03+0+46,133+2,615-713,434). Based on equity valuation, BFR S.A has the highest value of equity followed by Industrias Bachoco and lastly Hormel Foods. The differences in the valuation based on market cap and equity valuation can be attributed to the varying performance of the company's stock in the stock market. Hormel Foods for instance has the second largest market cap because of high stock performance but apparently, the company has the lowest equity value. References