Pro Forma Valuation

For this project you need to value Owens Corning using the provided audited financial statements (statement of cash flows, balance sheet, income statement). You need to build two models for your valuation, a statement of cash flow model and a pro forma model. I have discussed the construction of both of these models in the videos posted on the class google drive.

For the statement of cash flow model you simply need to project out the next five years of free cashflow. For the pro forma model you need to construct five years of pro forma financials (income statement and balance sheet) using the prior five years of financials as a basis for your assumptions. You are free to use the cash account, equity account, or the debt account as the plug for your pro forma model. You should ensure that the values for the plug are reasonable (cash, equity, and debt should all remain positive). After you have modeled the pro forma financials you should calculate the pro forma free cash flows and value the firm using the discounted cash flows approach to valuation.

To complete your valuation you also need to calculate your firms weighted average cost of capital to discount the free cash flows from both models. Use CAPM for the cost of equity. You should estimate your firms Beta using 5 years of monthly return data. You can find current 10 year US treasury rates on the FINRA data website shown in the videos. For the market risk premium you can just use 6%. For the cost of debt you should find the yield to maturity on OCs bonds using the FINRA website.

Your final output should include the value of the entire firm (Debt and Equity), the value of the equity of the firm, and the value of one share (Equity / Number of Shares Outstanding) from both models. You should also include a two way data table sensitivity analysis. The two parameters in the data table should be the cost of equity and the cost of debt. The interior of the data table should be the price per share.