You are a newly hired financial Analyst for Cougs Financial Group, which provides full financial reports on mid to large-cap U.S. companies. Your most recent job is to select one U.S. company to analyze and write a detailed analyst report. The firm you select must be a US firm with equity price data available for at least the past three years (i.e. from 2016 to 2018) or longer on Yahoo.com (or other source). It must have a current market capitalization between 20 billion to 30 billion. Finally, the company you select must be a dividend paying company and have both equity and debt (i.e. bond) in their capital structure. The objective of the report is to provide Cougs Financials Groups' clients (investors as well as corporate clients) information to facilitate their investment and corporate decisions (e.g. project, acquisition, financing decisions)

Additional Requirements

In conducting the analysis and preparing your analyst report, you may use any sources you find helpful: textbook, public documents, data from various websites, and etc. However, the work you submit must be your own in the sense that it represents your or your teams own synthesis and analysis of information gathered from multiple sources and is written in your own words. Be sure to carefully document all your sources, calculations, and assumptions. Copying from available analyst's report (such as beta, cost of capital, etc), instead of performing your own estimations will result in a zero on the question or the project

QUESTIONS

1. Provide a clear, concise description of your firm, its competitive position (e.g. within the industry) and long-term prospects of the firm and the industry.

2. Using the past N years of data (ending at 2018) to estimate your own beta and alpha on the company based on a regression analysis. Document data sources used.

a. Decide on how long a time period (from which year to which year) that you will use to perform your estimation, and explain why? Compute the average firm return and average market return over the period you picked.

b. Provide your beta and alpha estimates, as well as the statistical significance (e.g. t ratio, p-value). Comment briefly.

c. Plot the security market line for this company. Clearly show alpha and beta on the diagram. Is the company correctly priced, overpriced or underpriced?

d. Some of Cougs Financial Group's clients are large conglomerates that are looking for target firms to acquire. Based on your estimation and analysis, do you recommend acquiring this company you are analyzing? Why or why not.

3. Find the cost of equity, the cost of debt, and the WACC of the firm. Show your computational steps clearly and document data sources used and any assumptions you make.

a. In estimating the cost of equity, use both DGM and CAPM approaches. Do you get the same number?

b. Which estimate (from DGM or CAPM) do you trust the most and will use in your WACC computation? Why? Explain briefly. What is the WACC?

4. Describe the firm's current capital structure (D/E).

a. Can you justify the firm's current capital structure using one of the capital structure theories we have learned?

b. If the firm is not at an optimal (or proper) capital structure right now, comment on the negative consequence of keeping its current capital structure, and what the firm should do to move toward a more proper capital structure.