Project_Instructions.docx - FIN 6350 \u2013Project Instructions General Instructions For your project you will work individually or in groups of up to five

Project_Instructions.docx - FIN 6350 u2013Project...

This preview shows page 1 out of 4 pages.

You've reached the end of your free preview.

Want to read all 4 pages?

Unformatted text preview: FIN 6350 –Project Instructions General Instructions For your project, you will work individually or in groups of up to five students performing financial analysis of Netflix, Inc. The analysis will focus on five topics listed below. The topics correspond to the topics covered in class; please use your lecture notes and the corresponding textbook chapters as resources for your work. Tentative deadlines for preparing the analysis on each of the topics are posted below. They may be adjusted as the class progresses, so please check with eLearning for the latest updates. Timely completion of the work is essential for successful participation in in-class discussions. The final report on the project is due Wednesday, May 8th. Your final report may be submitted as a single file or two files, one containing spreadsheets with tables and calculations and another one with the text description and analysis. Due Dates For Each Topic 1. 2. 3. 4. 5. Financial Forecasting - February 6th Valuation – February 13th Options – March 13th Firm Financing and Capital structure – April 10st Leasing/ Working Capital/Risk Management – April 24th (whatever you can do by that point) 1. Financial Forecasting Prepare Pro Forma Income Statements and Balance Sheets for the following several years (standard is three to five; but you can do more or less if you believe it is more appropriate in your case) o o o o List of your drivers Explain which items do and do not vary with sales in your analysis Justify your sales growth assumptions Make terminal year forecasts Calculate External Financing Needed Compare assumed growth to Sustainable and Internal Growth Rates Evaluate and discuss several financial ratios o o o 2. Valuation Start with Free Cash Flow Forecasts Estimate firm value either by discounting free cash flows with WACC or by discounting them with the unlevered cost of capital and adding side effects of financing separately (APV method) Note: you can estimate the unlevered cost of capital as follows (we will elaborate on this later in the semester): a. Find the actual cost of equity RE b. Calculate unlevered cost of capital R E=RU + where cap); from the historical stock price data for your firm RU using the following formula B ( 1−T ) (RU −r B ) S B is the book value of Total Liabilities; S is the market value of equity (market T is the average corporate tax rate applicable to your firm; and rB is the interest rate on the firm’s bonds. 3. Options Use the BSM option valuation model to assess the probability of bankruptcy for your firm. When applying the corresponding formula from the slides, you can use T =1 to find default probability within the next year. However, this is probably not very relevant for a firm whose debt will not mature for many years. In that case, you can alternatively do the calculation by setting T to the average or the maximum maturity date for the firm’s debt. Does your firm have significant real options to consider? If yes, provide one or two examples; discuss what should be thought of as the underlying asset for option valuation purposes. 4. Firm Financing and Capital Structure Estimate cost of equity using Fama French Model. How does the outcome compare to the one you obtain using CAPM? Which one do you find more reliable? There is a range of things you may be able to discuss depending on your firm’s policies. Here are a few examples. o Examine the firm’s current practices concerning dividends, cash balance and share o repurchases. How do they compare to the industry or nearest competitor? Would you recommend o any changes? Discuss Flotation Costs – how likely are they to be significant? What can the company do o to minimize them? What was the last debt issue made by the firm? Specifically, what were the bond terms o o o (maturity, coupon, callable, convertible, both) and the size of the issue? Why did the firm issue the debt? What are the pros and cons of issuing additional debt? What is role of taxes, bankruptcy threat, investor clientele, and operating leverage for o your firm? Are there any important conflicts of interest between different investor groups, or o between investors and management? Based on your analysis, would you recommend any changes to the firm’s current capital structure? How would it affect your valuation estimates? 5. Leasing , Working Capital, and Risk Management Examine the firm’s current use of leases, if any. o o o What are the main types of leases that are used? Discuss the costs and benefits of the firm’s practices Compare to industry standards (or consider one or two peers) Alternatively, examine the firm’s inventory, payables and use of revolving credit. o o How do they differ from their nearest competitor or the industry? What are the strengths and weaknesses? Alternatively, list the main risk factors and discuss how the company addresses them o Can you identify any risk management tools that the company is using? Should be using? ...
View Full Document

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes