Project Company Analysis Instructions This project will serve as your for the semester. As such, it will be due during your classs In this project, you will analyze a real company using the tools and theories we have developed over the course of the semester. The purpose of this project is to allow you to apply what we have learned to real-world data. To start off, pick an

1. What is your company, and what is its ticker symbol?

The company I have chosen in Target Corporation and the ticker symbol is TGT

1. What industry is your company in? What are two or three of its biggest competitors?

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1. Briefly describe what the company does.

1. Compare your companys stock performance to the performance of the overall stock market (i.e. S&P 500).

1. Did your company under-perform or over-perform the overall stock market? Why do you think this happened?

Section 2: Your Companys Future

1. Look for recent news stories about your company. What are some major projects or initiatives your company is considering? Why do you think your company is considering these projects?

1. Do you think these potential investments would make sense for your company? Why or why not? (Note: For this question, you dont need to do any calculations. You just need to discuss the project(s) from a business perspective.)

1. How do you think the overall stock market will perform over the next year? Be sure to provide evidence to support your answer.

1. How do you think your company will perform compared to the overall stock market over the next year? Be sure to provide evidence to support your answer.

Section 3: Your Companys Capital Structure

1. Find the amount of long-term debt for your company based upon its latest 10Q filing.
2. Find the book value of equity based on the companys latest 10Q filing.
3. Find the current market value (i.e. market capitalization) of your company.
4. Why might the book value and market value of equity differ?
5. What is the weight of debt and equity in your companys capital structure?

Section 4: Your Companys Debt Profile

1. What is your companys long-term credit rating?
2. What does the companys credit rating tell you about the companys risk of default?
3. How many different bonds does the company currently have outstanding?
4. Pick 3 bonds. What is the maturity date of each bond?
5. Do any of the companys bonds have any special features (e.g. call provisions, sinking fund requirements, conversions, etc.)?
6. What is the current yield-to-maturity for the most recently issued bond?

Section 5: Your Companys Dividend History

1. What is your companys current annual dividend? (Note: Most companies pay dividends quarterly. You will need to add up the prior four dividends to get the annual amount.)
2. Determine the annual dividend for the past five years.
3. Is there a pattern to the dividends? Are the dividends constant, growing, or uneven?
4. What has been the average dividend growth rate over the last five years.
5. Find the companys current stock price.
6. Using the information above, calculate the cost of equity using the dividend discount model (DDM).

Section 6: Systematic Risk and Your Company

1. Estimate your companys beta. (Note: You can download the historical stock return and market return from Yahoo!Finance)
2. Find the current risk-free rate. How did you estimate the risk-free rate?
3. Assume the market risk premium is 5.6%. Using the information above, calculate the cost of equity using the capital asset pricing model (CAPM).

Section 7: Calculating Your Companys Weighted Average Cost of Capital

1. Compare the cost of equity that you found using the DDM and the CAPM. Why might you get two different estimates using the two different models?
2. Do you believe the DDM or the CAPM provides a better estimate of the cost of equity for your company? Why?
3. Based on your companys most recent 10Q filing, what is its tax rate?
4. What is the WACC for your company?

Section 8: Capital Budgeting

Suppose your company is considering two projects (Project A & Project B)

Project A: This project is the introduction of a new product. It will require an upfront investment of 10 million dollars. At the end of year 1, the project will generate 2.5 million dollars in FCFs. At the end of year 2, the project will generate 2.6 million dollars in FCFs. At the end of year 3, the project will generate 2.7 million dollars in FCFs. At the end of year 4, the project will generate 2.8 million dollars in FCFs. At the end of year 5, the project will generate 3.0 million dollars in FCFs. The project will generate no more FCFs after year 5.

Project B: This is an expansion of the companys main office. This project will require an upfront investment of 4.5 million dollars. In year 1, the expansion will generate 0.5 million dollars in. After the first year, FCFs will grow by 2% each year forever.

1. Calculate the IRR of each project.
2. Calculate the NPV of each project
3. Calculate the Payback Period of each project.
4. Suppose the two projects are independent. Which (if any) should the company accept? Why?
5. Suppose instead the two projects are mutually exclusive, and the company can only accept one project. Which project should the company accept why?