THE FOLLOWING PAGE SHOULD BE BASED ON UP TO DATE INFO ON $MSFT OR MICROSOFT

SHOW WORK!

Instructions

In this project, you will analyze a real company using the tools and theories wehavedeveloped overthecourseofthesemester. Thepurposeofthisproject istoallowyouto apply what we have learned to real-world data.

Tostartoff,pickanS&P500companythathaspaid a dividend inthe lastyear¹.Foryourchosen company, proceed to answer the questions below. The questions are a mix of qualitative and quantitativequestions. Forquestionsrequiringcalculations,besuretoshowyourwork.Ifyoudo not show your work, you will not get full credit. Please let me know if you have any questions.

Section 1:GettingtoKnowYour Company

1. Whatisyourcompany,andwhatisitstickersymbol?
2. Whatindustryisyourcompanyin? Whataretwoorthreeofitsbiggestcompetitors?
3. Brieflydescribewhat thecompanydoes.
4. Compareyourcompany'sstockperformancetotheperformanceoftheoverallstock market (i.e. S&P 500).
5. Didyourcompanyunder-performorover-performtheoverallstockmarket?Whydoyou think this happened?

Section2:YourCompany's Future

1. Look for recent news stories about your company. What are some major projects or initiativesyourcompanyisconsidering?Whydoyouthinkyourcompanyisconsidering these projects?
2. Doyouthinkthesepotentialinvestmentswouldmakesenseforyourcompany?Whyor whynot? (Note:Forthisquestion,youdon'tneed to doanycalculations.Youjustneed to discuss the project(s) from a business perspective.)
3. Howdoyouthinktheoverallstock marketwillperformoverthenextyear? Besureto provide evidence to support your answer.
4. Howdoyouthinkyourcompanywillperform comparedtotheoverallstockmarketover the next year? Be sure to provide evidence to support your answer.

Section3:YourCompany'sCapitalStructure

1. Findtheamountoflong-termdebtforyourcompanybaseduponits latest10Q filing.

¹Whilesomeofthelargestcompanies (e.g.Amazon,Tesla,BerkshireHathaway) ontheS&P500don'tpaya dividend, over 80% do pay regular dividends. Further, it will be much easier to analyze dividend payers.

1. Findthebookvalueofequity basedonthecompany'slatest10Q filing.
2. Findthecurrentmarketvalue(i.e.marketcapitalization)ofyourcompany.
3. Whymightthebookvalueandmarketvalueofequitydiffer?
4. Whatistheweightofdebtandequityinyourcompany'scapitalstructure?

Section4:YourCompany'sDebtProfile

1. Whatisyourcompany'slong-termcreditrating?
2. Whatdoesthecompany'screditratingtellyouaboutthecompany'sriskof default?
3. Howmanydifferentbondsdoesthecompanycurrentlyhaveoutstanding?
4. Pick3bonds.Whatisthematuritydateofeachbond?
5. Doanyofthecompany'sbondshaveanyspecialfeatures(e.g.callprovisions,sinking fund requirements, conversions, etc.)?
6. Whatisthecurrentyield-to-maturityforthemostrecentlyissuedbond?

Section 5:YourCompany'sDividendHistory

1. Whatisyourcompany'scurrentannualdividend? (Note:Mostcompaniespaydividends quarterly. You will need to add up the prior four dividends to get the annual amount.)
2. Determinetheannualdividendforthepastfiveyears.
3. Isthereapatterntothedividends?Arethedividendsconstant,growing,oruneven?
4. Whathas beentheaveragedividendgrowth rateoverthelastfive years.
5. Findthecompany'scurrentstock price.
6. Usingtheinformationabove,calculatethecostofequity usingthedividenddiscount model (DDM).

Section 6:SystematicRisk and Your Company

1. Estimateyourcompany'sbeta.(Note:Youcandownloadthehistoricalstockreturnand market return from Yahoo!Finance)
2. Findthecurrentrisk-freerate.How didyouestimatetherisk-free rate?
3. Assumethemarketriskpremiumis5.6%.Usingtheinformationabove, calculatethecost of equity using the capital asset pricing model (CAPM).

Section7:CalculatingYourCompany'sWeightedAverageCostof Capital

1. Comparethecostofequitythatyoufoundusingthe DDMandtheCAPM.Whymight you get two different estimates using the two different models?
2. DoyoubelievetheDDMortheCAPMprovidesabetter estimateof thecostofequityfor your company? Why?
3. Basedonyourcompany's mostrecent10Qfiling,whatisitstaxrate?
4. Whatis theWACCforyour company?

Section8:CapitalBudgeting

Supposeyourcompanyis consideringtwoprojects (ProjectA&ProjectB)

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. Atthe end of year 2, theprojectwillgenerate2.6 million dollars inFCFs.Attheendofyear3,theprojectwillgenerate2.7milliondollarsin FCFs.Atthe 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.

ProjectB:Thisisanexpansionofthecompany'smainoffice.Thisprojectwillrequirean 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 theIRRofeach project.
2. Calculate theNPVofeach project
3. Calculate thePaybackPeriodofeach project.
4. Supposethetwoprojectsareindependent.Which(ifany)shouldthecompanyaccept? Why?
5. Supposeinsteadthetwoprojectsaremutuallyexclusive,andthecompanycanonly accept one project. Which project should the company accept why?