Firm Valuation Project Wal-mart (WMT) The purpose of this report is to find the intrinsic value of a company. We choose Wal-Mart Stores for our analysis. FCF calculation First, we retrieved the financial statements of the company for the last five years (2005-2010) from www. sec. gov website. Based on this information, we calculated the Average annual growth rate for Wal-mart to be 9. 27% and the Compound annual growth rate to be 9. 26%. Then we found the projected sales for 2010 to be $433,289 and based on this number, we forecasted the implied growth rate and the pro forma ratios for the company.
The finance. yahoo. com website was used throughout this report as well. We found the Dividend growth rate to be 15. 95%. The Tax rate-34% was calculated by dividing the company’s income tax expense ($7,145) by EBT ($20,898) for 2009. We forecasted the financial statements for Wal-mart for 2010 using ratios and their past years financial statements. After all of that was done we were able to calculate the FCF for 2010 to be $5,298. WACC calculation To estimate beta we pulled the historical prices of S and Wal-mart from finance. yahoo. com for the last 5 years.
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We calculated the monthly returns for the market and Wal-mart and using the slope function we found beta to be 0. 25. In order to solve cost of debt we found the yield of maturity of a 30-year bond of Wal-mart to be 5. 022%. The risk free rate was found using the 5-year Treasury bond index value of 2. 16% quoted on finance. yahoo. com as of May 7th, 2010. We estimated the market risk premium to be 5. 5% given that the historical market risk premium has been between 5% and 6%. To calculate the cost of common equity, we used the Capital Asset Pricing Model.
We multiplied the beta of 0. 25 by market risk premium, and then added this amount to the risk free rate of 2. 16%. We calculated the weight of debt to be 14% and the weight of equity to be 86%. For the weight of debt we divided the Long Term Debt forecasted for 2010 by Wal-mart’s Market cap of 196. 97B quoted on finance. yahoo. com. For the weight of equity we divided the equity (Market Cap) by the sum of the Long Term Debt and the Market Cap. Wal-mart does not have any outstanding preferred stock, or paid preferred dividend.
The company does not finance through preferred stocks. We found the cost of common equity to be 3. 535% and Wal-mart’s estimated WACC to be 3. 51%. Growth Rate calculation We found historical data for the last 5 years for earnings per share (EPS) and dividends per share (DPS) from finance. yahoo. com. Using the Rate function we calculated the growth rate from point-to-point to be 11. 8%. Intrinsic Value Of The Company V= FCF / WACC-g = $5,298/ (3. 51% – 11. 8%) = $5,298/(-8. 29%)= $ -639. 08. millions