Lab Exercise

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The company I pick from S&P 500 is Google Inc., which is a multinational corporation specializing in internet-related service and products. Google has been estimated to be a rapidly growing global technology leader focused on improving the way people connect with information, and its trading stock price is remained really high and still on the rise. The expected sales are given by Capital IQ from year 2014 to year 2018, and their values are listed below in the table. By calculating the average growth rate of sales over next five years, which is 12.8%, and have it compared with the one from the previous three years, which is 25.8%, it can be concluded that the projected sales value given by Capital IQ are reasonable. The average…show more content…
With the cost of equity capital and effective cost of debt capital, we can calculated WACC using formula E*re/V+D*rd/V, which is 98.36%*9.254%+1.64*2.776%=9.15% (Appendix D). After getting long run growth rate and WACC, we can find the terminal value: Vn=40365*(1+2%)9.15%-2%=550,766 Then, the present value of free cash flows can be calculated based on the discount rate (Appendix B). According to Appendix E, the market value of equity is $484,185 million and the stock price is $1,183.04, while its intrinsic value of stock is $1,440.81. I choose the mean of TEV/EBITDA and the median of TEV/Revenue as multiples to estimate Google’s stock price (Appendix F). By applying the mean value of TEV/EBITDA to find enterprise value, we can get a corresponding intrinsic value per share of $1,248.06. By applying the median value of TEV/Revenue, we get the corresponding intrinsic value per share of $1,231.04 (Appendix F). Both of the value calculated by using multiples are a little bit lower than the one from Part 1. Many completed variable involved in two different ways of obtaining the stock price, which will in turn cause differences in result for sure. I believe the way which using DCF method to get the total enterprise value and then to find the corresponding stock price give the best estimate of Google’s stock price. By reaching that, I first use the average EBITDA/Sales ratio from the past three years as a constant ratio to project the future five year’s
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