Calculate the intrinsic value of the firm and stock price using the FF valuation model.

Part One

Select a U.S. S&P 500 Company required to submit either 8-K, 10-Q, or 10-K U.S. Securities and Exchange Commission (SEC) reports. Before proceeding to Part Two, submit your firm selection to your instructor and obtain approval; completing this assignment without instructor approval will result in zero points for this assignment.

Part Two

Upon approval of your selected firm, use the most recent financial reports of the chosen firm to calculate the intrinsic value of the stock. For this assignment, you will use two valuation methods to derive the firm’s intrinsic value; an equity valuation model (specified below) and the free cash flow (FF). The following guidelines apply:

  1. Go to https://www.treasury.gov and obtain the most recent 10-year Treasury yield rate as the risk-free rate;
  2. Go to either Yahoo Finance or Google Finance to obtain the selected firm’s current beta (β or beta coefficient);
  3. Assume the expected market return is 10%;
  4. Use the capital asset pricing model (CAMP) to calculate the required rate of return for equity financing purposes;
  5. Make a realistic assumption about the g growth rate (g) and apply either a) the dividend growth model or b) non constant dividend growth model equity valuation methods to calculate the intrinsic value of the firm. (Note: If using the non constant growth model you must show a minimum of 5 years of future cash flows or future dividends);
  6. Calculate the intrinsic value of the firm and stock price using the FF valuation model. If the SEC filing provides the Weighted Average Cost of Capital (WACK), use the given WACK to value the firm and its intrinsic stock price. If the WACK is not provided, you must calculate the WACK finding necessary information to do so.
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