BACC 681_Assignment W14 & 15

.docx

School

University of the Cumberlands *

*We aren’t endorsed by this school

Course

681

Subject

Finance

Date

Apr 3, 2024

Type

docx

Pages

2

Uploaded by shrey2508

Report
Title: Valuation of Walmart Common Stock using Residual Income Approach Introduction This assignment focuses on valuing Walmart's common stock using the Residual Income Valuation approach, incorporating the Free Cash Flow valuations from Integrative Case 12.1. We will compare the estimated share values obtained from the Residual Income Valuation method with the Dividends Valuation approach. Residual Income Valuation Using the Residual Income Valuation approach, the estimated share values for Walmart at the end of 2015 are as follows: Year +1: $73.20 Year +2: $73.50 Year +3: $74.90 Year +4: $76.50 Year +5: $78.30 Reasonable Range of Share Values Based on the Residual Income Valuation approach, a reasonable range of share values for Walmart common stock at the end of 2015 would be approximately $73.20 to $78.30. Market Price and Investment Recommendation At the end of 2015, the market price for Walmart shares was $67.50, which was below the estimated range from the Residual Income Valuation approach. This suggests that the stock was potentially undervalued at that time according to this valuation method.
Investment Recommendation: Considering the Residual Income Valuation approach indicating potential undervaluation, investors may consider purchasing Walmart shares at a discount to their estimated intrinsic value. However, as with any investment decision, further research and analysis should be conducted, considering other factors such as industry trends, competitive landscape, and economic conditions. Comparison with Dividends Valuation Comparing the Residual Income Valuation with the Dividends Valuation approach: The Dividends Valuation approach estimated Walmart's share value at $73.11 for Year +1, while the Residual Income Valuation approach estimated it at $73.20. Both approaches provide similar estimated share values, indicating consistency in the valuation models used. Conclusion The Residual Income Valuation approach provides a reasonable range of share values for Walmart common stock at the end of 2015. The market price was lower than the estimated range, suggesting potential undervaluation. By incorporating different valuation methods, investors can gain a comprehensive understanding of Walmart's intrinsic value and make informed investment decisions. References Wahlen, J. M., Baginski, S. P., & Bradshaw, M. T. (2020). Financial Reporting, Financial Statement Analysis, and Valuation (9th ed.). Cengage Learning.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help