Instructions: Please read the following mini?case, and download the spreadsheet file included in the posting. Please use the information provided in the spreadsheet to answer the following questions
as completely as possible. For each question, it is important that you clearly highlight and explain key
methodologies, computations, and results within the scope of your answers. Please highlight important
assumptions you are making within your analysis. Finally, if you utilize any information from outside the
case, please provide a clear citation of your source. Please also see “note from my professor” down below so you know what is expected to get a good grade for this project! I WANT AN A+ work please J
Here are the Questions for this Project:
1) Note that the forecasted balance sheet is already balanced. Please “back out” an estimate of the
additional financing needed (AFN) forecast for Company X. Use the balance sheet forecast to
discuss how the AFN is allocated across different balancing figures in the forecast.
2) Estimate the value of Company X’s equity (per share) given the financial statement forecast and
other relevant case information. Provide Dr. Eafil a complete discussion of how you arrive at the
3) What additional information would you need to assess whether you can use this valuation to
make a recommendation as to whether to proceed with the acquisition of Company X’s stock?
*PROJECT PAPER SUBMISSION: 1400 words OF TEXT, DOUBLE?SPACED, NO LIMIT ON EXHIBITS. PLEASE INCLUDE EXHIBITS AS WELL FOR THIS PROJECT OKAY!
Mini – Case for this Project
You are serving as an intern for EE Corporation, a holding company with diverse subsidiaries ranging
from a seafood operation to space exploration. You were hired by the company’s founder, Dr. Eafil,
because of your seemingly strong foundations in financial analysis of corporate financial statements and
company valuation. Based on your interview, you gather that Dr. Eafil has a very basic knowledge of
fundamentals of finance. However, he made it clear that he does not like financial jargon used by his
interns. As Dr. Eafil explained, “If you must use financial jargon, you better follow with a quick
explanation! Otherwise, I might make you explain to my minions who are not as patient and
understanding as I am.”
On your first day, Dr. Eafil gives your first assignment. He is considering buying a large retail?oriented
company with a very strong brand reputation. He simply calls the target, “Company X.” Dr. Eafil explains
that he is quite excited about the possibility of being able to reach so many consumers worldwide if he
were to own “Company X.” He mentions that “Company X” is asking $65 per share. He gives you the
information shown in Tables 1, 2, and 3.
Table 1 shows historic financial statement and ratio information for EE Corporation.
Table 2 shows historic financial statement information and a set of financial ratios for “Company X.”
Table 3 shows a forecasted income statement and balance sheet for “Company X” that was prepared by
the last finance intern at EE Corporation.
When you ask whether you might be able to contact the prior
intern, Dr. Eafil mentions an “unfortunate accident” that occurred prior to the intern being able to do
anything further with the forecast. Upon discussions with some of EE’s employees, you learn that quite a
few “unfortunate accidents” have befallen finance interns in the past. They all have noticed that interns
who do not make Dr. Eafil unhappy seem to avoid these “accidents.”
You compiled the following notes regarding EE Corporation’s and Company X’s costs of capital based on
various conversations with Dr. Eafil and some others on his staff.
• Dr. Eafil more or less understands the concepts surrounding cost of capital estimation such as
WACC and CAPM. As mentioned before, he doesn’t like jargon so you need to try to explain
these estimations in clear language.
• U.S. Treasury rates are very close to zero percent for short maturities. Rates are approximately
1?3/4 percent for 10?year Treasuries, 2?1/2 percent for 20?year Treasuries, and 3 percent for 30?
• EE Corporation is privately owned, but is widely diversified. The company’s holdings seem very
much to be a mirror of the broader economy.
• You found “beta” estimates for Company X’s stock from several published sources. These values
range from 0.68 to 1.22.
• The “unlevered beta” for Company X’s industry is reported as equal to 1.15 through a reputable
• Dr. Eafil has VERY strong opinions about the stock market, and is forecasting 8% annual returns
on the overall stock market. He understands that there will be many fluctuations, but believes
that 8% is the “right” annually compounded rate to think about for any long?run valuations.