Information:

You work for the prestigious investment bank Goldbanana Cakes (GC) who has been recently commissioned by a number of clients to investigate a number of potential investment opportunities. The lead partner has asked you to prepare a preliminary report with a detailed summary of your evaluations and recommendations in relation to one of these investment opportunities.

AAA Financial Corp (AAA) believes that the current share price of Facebook is overvalued and has commissioned GB to perform a proper valuation of the company. Your lead partner has provided you with the most recent historical accounting information (10k report) and stock return of Facebook as well as the market return. Your task is to look at the company's historical performance and forecast its future performance and provide a valuation using the discounted cash flow method. You are required to make some forecast of sales growth over the next four years, and then a forecast of free cash flow growth in perpetuity.

The lead partner has advised you to make the following assumptions to aid in your calculations:

The ratio of variable costs to sales, working capital to sales, and capital expenditure to sales are the same as year 0 (2016);

The Debt-to-Equity (D/E) ratio is the same as year 0 (2016) and will remain constant;

Fixed costs and depreciation from year 1 (2017) onwards are the same as the average over the last 4 years;

Cost of debt is 7.5%, the risk free rate is 3% and expected effective tax rate is 26%.

You will need to make your own assumptions about the sales growth rate from years 1-4, as well as the growth rate of free cash flow after year 4. You can make additional assumptions as necessary (provided that they are not inconsistent with those of your lead partner). The lead partner has asked you to provide a thorough justification for your choice of growth rates and your assumptions based on your own independent research.

(link for 10k report:

https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001326801&type=10-k&dateb=&owner=exclude&count=40)

Q1: Find the present value of the years 1-4 cash flow as well as the terminal value in order to calculate the value fo Facebook

Link to excel spreadsheet on google docs: https://drive.google.com/file/d/0BzfwwFlPWBEFTUhZNndZM0s1VFE/view?usp=sharing

SHOW ALL WORKING FOR A THUMBS UP