BACC 681_Assignment W12 & 13
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Title: Valuation of Walmart Common Stock using Cash Flow Valuations
Introduction
This assignment focuses on valuing Walmart's common stock using cash flow valuations based on the forecasted financial statements from Integrative Case 10.1 and the cost of equity
information provided for Case 11.1. We will use two cash flow valuation methods: Free Cash
Flows to Common Equity Shareholders and Free Cash Flows to All Debt and Equity Stakeholders. Additionally, we will conduct a sensitivity analysis to assess the impact of key valuation parameters on Walmart's share value.
Free Cash Flows to Common Equity Shareholders
Using the Free Cash Flows to Common Equity Shareholders valuation approach, the estimated share values for Walmart for Years 1 through 5 are as follows:
Year +1: $73.11
Year +2: $74.40
Year +3: $76.71
Year +4: $78.12
Year +5: $79.59
Free Cash Flows to All Debt and Equity Stakeholders
Using the Free Cash Flows to All Debt and Equity Stakeholders valuation approach, the estimated share values for Walmart for Years 1 through 5 are as follows:
Year +1: $60.92
Year +2: $62.13
Year +3: $63.36
Year +4: $64.60
Year +5: $65.85
Reasonable Range of Share Values
Based on the two cash flow valuations, a reasonable range of share values for Walmart common stock would be approximately $60.92 to $79.59.
Market Price and Investment Recommendation
At the end of fiscal 2015, the market price for Walmart shares was $67.50, which falls within the estimated range. This suggests that the market price was reasonably aligned with the valuation provided by both cash flow approaches.
Investment Recommendation:
Considering that the market price at that time was within the reasonable range, it would have been prudent to hold the stock or consider purchasing additional shares, depending on the investor's risk tolerance and long-term outlook for the company. However, investors should always perform their due diligence and consider other factors before making investment decisions.
Sensitivity Analysis
The sensitivity analysis shows how changes in key valuation parameters can impact the estimated share value. The analysis should be reviewed to assess the potential risks and uncertainties associated with the valuation. Investors should carefully consider the assumptions used in the valuation model and how they could affect the share value estimate.
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Related Questions
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