Capital Asset Pricing Model Of Wotif.com Holdings Limited

“The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the relationship between risk and return where more than one investment is held. It also enables us to identify optimal and efficient portfolios.”

The purpose of this report is to evaluate the stock price of Wal-Mart Stores Inc. (which ticker symbol in NYSE is WMT) by fundamental analysis. According to this analysis, I recommend that Wal-Mart is worth to invest in the long term because of the potential growth of market shares and revenue. Besides, based on P/E method and Gordon model, WMT price is undervalued; therefore, if investors buy the stock, they will get benefit not only in capital gain but also in dividend cash inflow.

After that, we analyses the company’s financial performance through analyses the recent three years’ annual report from 2013 to 2015. Based the previous steps, we could conduct the evaluation of the company through many comprehensive indexes like WACC and two-stage discounted free cash flow model, we get the stock price by both FCFF and FCFE are $8.06 and $7.44 respectively , compare to the current price of 20 May 2016 is $10.36, and the price is overvalued.

In Wesfarmers, the forecasting next five year chart shows that sales revenue in 2011 will be 8% and it will keep the growth rate at 4% from 2013 to 2015. Because the assets turnover is rarely changed, the report estimate the rate as 1.69, which is the same record as the Wesfarmers 2010 annual report. The profit margin is change largely these years. So the report takes 7.5%, which is the average rate of five year accounting numbers. This report will use the forecasting numbers above, so it can analysis the future performance of Wesfarmers and estimate value per share of common stock for shareholders by following four valuation methods.

An equity investment is a number of shares owned by a corporation that are purchased by investors who are then entitled to shares of the firm’s assets in the case of liquidation. These shares are then bought and sold among stockholders. Before buying any shares, the stockholders and investors value the stock to determine if it is worth buying. There are different methods stockholders and investors use to value a stock price. The common ones are the discounted cash flow model and the dividend discount model. The purpose of the discounted model is to determine the value of the firm and its stock. It uses future cash flow projections discounted back to the present values to estimate the potential for the investment. (Discounted Cash Flow (DCF), n.d.) Another valuation method is the dividend discount model. This method uses predicted dividends and discounting them back to the present value to obtain a value price. Both models were used to evaluate each company’s stock price to help us determine which one is the best option to purchase.

Wal-Mart was founded by Sam Walton and is one of the world’s largest retail stores operating in all 50 states as well as internationally in several countries. The retailer giant employs 2.1 million people who serve roughly 200 million customers per week. Sabrina Gupta is an investment advisor of a brokerage firm and is studying stocks and valuation of Wal-Mart Stores, Inc. Gupta is attempting to assess the valuation of Wal-Mart stocks to determine if she should urge her new and existing clients to add the stocks to their portfolios. Several valuation techniques were applied including perpetual dividend growth model, dividends and a terminal value, the three-stage approach, price/earnings approach, and capital asset pricing model.

It is determined that the company worth is $856,518 with a share price of $351.03 per value as per the discounting dividend cash flow valuation approach..In appraising the anticipated premerger performance of the company, the weighted average cost of capital is computed; the worth of the WACC for FVC is 9.2% as depicted in

We estimated the cost of equity using both the capital-asset-pricing model (CAPM) and the dividend growth model (DGM). Two separate WACCs were calculated on separate sheets simply for comparison reasons. We choose to take the WACC using the cost of equity derived from the CAPM method however, since it is known to be the superior method.

In the school, the three Rs were "readin ', 'ritin ', and ‘rithmetic." In the financial world, the three Rs, risk, reward, and relationship, stand for a fundamental principle of investing. Risk is directly related; in other words, a larger reward can only be obtained by increasing the exposure to risk. If you undertake a more risky investment, you will be entitled to a higher rate of reward.

In our DCF model we have calculated a value of $49 per share , suggesting the company is significantly undervalued. The weighted average cost of capital in our model is 5.58%. We have assumed a

Capital Asset Pricing Model(CAPM) is introduced by Sharpe, Lintner, and Mossin and this model is derived by Markowitz mean-variance model theory. CAPM is applied to investment decision problems. CAPM is also about the understanding of an assets return and also the diversify of risk.

The capital asset pricing model (CAPM) was proposed by Sharpe (1964) –Lintner (1965) whom had relied on the Markowitz mean–variance-efficiency model, in the mean – variance –efficiency model investors are supposed to be risk-averse during one time period and they only care about the expected returns and the variance of returns (risk). These investors choose only efficient portfolios with minimum variance, given expected return, and maximum expected return, and variance. The Expected returns and variance plot a parabola, and points above its global minimum identify a mean–Variance - efficient frontier of risky assets.

2. Risk, in the context of capital budgeting, is the possibility that actual returns from a project will differ from expected returns. It is often measured by the standard deviation of returns or the coefficient of variation of

Every investment is characterised by return and risk. The concept of risk is intuitively understood by investors. In general, it refers to the possibility of incurring a loss in a financial transaction. But risk involves much more than that. The word ‘risk’ has a definite financial meaning. The possibility of variation of the actual return from the expected return is termed risk.

In their research study, Souder & Myles (2010) identify that risk is chiefly fundamental to investing. Böhringer & Löschel (2008) further add that there is no discussion of returns or performance that is deemed meaningful in the absence of at least some mention of the involved risk. However, the trouble for investors, who have just entered into the marketplace, involves the process of figuring where risk really lies, as well as what the difference between the various levels of risks. Relating to the manner, in which risk is fundamental to investments, a significant number of new