Question $3$

Technology companies earn billions by capitalizing on their platforms and growing user

databases. For example, Apple derives more than half of its revenue from iPhone sales

while Microsoft generates almost a third of its total revenue from Azure cloud services. Meta

$($formerly Facebook$)$ and Alphabet $($Google$),$ however, follow a different approach by making

most of their money by selling their audience's attention. Not only that, the growing demand

for Al$,$ applications and hardwares have also made technology companies achieve

significant profitability. The societal changes triggered by COVID$-19$ also drove demand for

their products and services. Therefore, you want to investigate the performance of $5$ US

technology companies, which are $($their stock symbols $($NASDAQ$)$ in parentheses$)$:

Microsoft Corporation $($MSFT$)$

Apple Inc. $($AAPL$)$

NVIDIA Corporation $($NVDA$)$

Alphabet Inc. $($GOOGL$)$

Meta Platforms, Inc. $($META$)$

By using Yahoo Finance website $($

finance.yahoo.com$)$:

Risk and Return

Obtain monthly historical data $($prices$)$ for the $5$ companies by entering the start date as $30$

April $2019$ and end date as $30$ April $2024.$ Download the data and use only the date and

adjusted close $($prices$)$ from the data.

Convert the data $($prices$)$ to monthly returns. Compute the running average and standard

deviations for the monthly returns for each stock. Compute the running average for returns

and standard deviations across stocks for each month $($equally weighted portfolio of these $5$

stocks$).$

Using these statistics, create a plot with standard deviations on the horizontal axis and

average return on the vertical axis. Explain the returns and standard deviations $($volatility$)$

over time and between single stock and portfolio.

Cost of Capital

Obtain financial statements $($income statement and balance sheet$)$ for the past three years

$(2020-2023)$ for every company $($click Financials$).$

Determine the cost of debt for every company $($interest expense$/$total debt$)$ for every year.

Determine the cost of common stock equity by using CAPM $($use NASDAQ $100(^$NDX$)$

current return as expected market return and the interest rate on a three$-$month U$.$S$.$

Treasury bill $($T$-$bill$)$ as risk$-$free rate$).$

Determine the proportion of long$-$term debt $($long$-$term debt$/$total capitalization$).$

Determine the proportion of common stock equity $($common stock equity$/$total

capitalization$).$

Explain and compare the cost of debt, the cost of common stock equity, the proportion of

long$-$term debt and the proportion of common stock equity between the companies.

Capital Budgeting

Obtain cash flow statement for every company $($click Financials$).$

Determine which company is the most profitable if it was bought in early $2020$ for $$1$

billion, based only on free cash flows. Use the cost of debt that you have calculated before

as your required return $($NPV$).$

Calculate IRR based on the information in the previous question.

As a conclusion, explain which company you would invest $($only one company$)$ based on

your findings in all previous questions.help