Capital Asset Pricing Model CAPM SWOT Analysis of Texas Instruments
FINAL PROJECT (5 Points) Provide your recommendation in regards to the investment in stock “X”. You can choose any stock with positive earnings (at least 3 years) and that regularly pays dividends. On a first-come-first-served basis, at any point throughout the semester, a group can claim the stock that they choose for their project. The group must announce their selection on the Final Project Discussion Forum. Once a stock has been selected, it cannot be chosen by no other group. Once you conclude your analysis, if you find that the stock is overvalued, you will not recommend the investment. Conversely, if you find that the stock is undervalued, you will provide a positive recommendation. You should base your analysis on the two methods you are most acquainted with (DDM, PE). You may as well prepare a Discounted Cash Flow Model Valuation (Chapter 11) using the template provided on the Excel File (DCF Tab) (Doing so would be rewarded this with one (1) additional bonus point).
- You should include a qualitative analysis where you detail the reasons supporting your chosen “super-normal growth rate”. You should also justify your chosen time-horizon of this “supernormal growth” stage of the business cycle of the firm (how long the firm will grow at this super normal rate before using the long term growth rate)
- The qualitative analysis must be at least 2 pages (single-spaced and typed), you should comment on all of the parameters in the Excel sheet “Assumptions”.
- Your valuation calculations should be also included after these 2-page qualitative analysis.
- Please include a brief SWOT Analysis.
- For calculation of Beta, your historical observation period will be 2014 – 2016 both these years included (3-Year Period). Use monthly prices and hence monthly returns.
- Find the Expected Return according to the Capital Asset Pricing Model.
- What is your stock’s average return for the last 3 years? Is this average return higher or lower than the Expected Return obtained from CAPM?
- Compare your valuations against the market price. Is the market price overvalued or undervalued? What is your recommendation? Assumptions and Remarks:
- * You must show your calculations for Beta. Remember to use 36 months. You can vary this timeframe providing the reasons to do so.
- * Assume a Long-Term Growth rate of 3% and a Risk-Free rate of 2%. Assume MRP is 5%.
- * When calculating your firm’s WACC (if you opt to complete the Discounted Cash Flow Model), you do not need to calculate the cost of debt. You can find it online and cite your source.
- * Please indicate your sources for all data used in your valuation.
- * You may find data for Quarterly Dividends. However, use the total yearly Dividends when estimating the stock value using DDM (Dividend Discount Model).
- * Consider returns of S&P500 as return of the market.
- * You should choose a stock that has paid dividends at least for the past three years. In addition, the stock must have positive earnings (profits) for the last three years at least.