Exxon Mobil – Final Project

| January 26, 2015

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FIN 6515 Project
The primary goal of the project is to find the target share price (determine the appropriate value of the stock) of a selected company. Secondary objectives are to determine future solvency and to perform technical analysis on the company stock. The project should be submitted as a 15 to 20 page term paper (plus tables, figures, and appendices) with appropriate bibliography. All data used must be submitted in the appendices. It should be original, typed and professionally written. The paper should briefly discuss the profile of the company and its product lines (limited to 2 pages), industry trends, relevant economic trends, how both of these trends will affect the company, and the financial statements. It should explain the methodology used for valuation, the assumptions made, show the calculations, discuss the results, and state the conclusions, and present all raw data and financial statements. Printed copy of the report must be submitted. This is a group project. Each team should have 5 students.
The following are the specific requirements of the project.
Select a non-financial U.S. company that is publicly traded for at least 3 years. Get thoroughly familiar with the company, its structure, product lines, strategic plans, and in particular the financial statements. Submit the name of team members and the company selected by the end of the first class.
Use the CAPM model to determine whether the stock is under or over performing. You must use at least 50 weekly or monthly observations on both stock and market returns to estimate the stock=s systematic risk (beta) from the market model (regression of stock return on the market return). Use the S&P 500 index as proxy for the market return and the yield on 6 month T-bill as the proxy for the risk free rate. Both the stock and market return should be adjusted for dividends. Provide all the raw data and calculations including spreadsheets.
Next determine the appropriate weighted average cost of capital for the firm. For cost of equity capital you can use the E(R) from the CAPM model. But in this case use Rm-Rf = 6%. For cost of debt, find out the coupon rate on various debt issues, the yield if possible, and then get the weighted average of the cost of various debt.
Next perform valuation of the firm and the stock. First use one or more of the dividend growth, or the earnings, or free cash flow model of valuation. You are required to forecast the future expected earnings, or cash flows, or dividends, accounting for future growth. Construct at least 3 year pro forma income and/or cash flow statements and forecast growth rate thereafter. Then estimate the value of equity. Next estimate the target price per share or the range of target price. Determine if the stock is under or overvalued and justify your investment recommendations. Perform sensitivity analysis to see how target price (or range) changes with the inputs such as future growth rate, interest rate etc.
Use at least two other valuation models to estimate the target stock price. Perform sensitivity analysis.
Use at least two technical indicators to determine if the stock will move up or down.
Estimate the Z-score of the firm used to predict bankruptcy. Using the score and relevant ratios discuss the financial health of the company.
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