FIN 419 - Week 3 - Capital Valuation Paper

FIN 419 - Week 3 - Capital Valuation Paper - Capital...

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Capital Valuation Paper 1 Capital Valuation Paper Finance for Decision Making FIN/419 February 14, 2011
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Capital Valuation Paper 2 Capital Valuation Paper Wal-Mart is a household name across the United States and throughout the world. It has grown substantially since its startup in 1962 because the company prides itself on low prices and high quality products. Along with operating a successful business, comes the need for valuation. Valuation is the estimation of the possible market value of an asset or liability. By using valuation, one can determine the current market price of Wal-Mart’s debt as well as equity by using any of the valuation methods available. In this paper, the subject is to discuss the different valuation models as well as their calculations for Wal-Mart’s debt and equity and discuss which model best supports the findings. “Market value of equity is the total cash value of the fully diluted outstanding shares in a company. Fully diluted means this includes all shares owned by the pubic and restricted shares owned by company officers” (Adkins, 2010). Market Price of Common Stock Fiscal years ended January 31, 2010 2009 High Low High Low High Low High Low 1st Quarter $54.57 $46.25 $59.04 $47.84 2nd Quarter 51.75 47.35 59.95 55.05 3rd Quarter 52.56 48.73 63.85 47.40 4th Quarter 55.20 49.52 59.23 46.92
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Capital Valuation Paper 3 Fiscal year ended January 31, 2011 High Low 1st Quarter* $56.05 $52.77 *Through March 19, 2010 Shareholders As of March 26, 2010, there were 292,983 holders of record of Wal-Mart’s common stock. To determine the current market price of Wal-Mart’s debt and equity, the amount of shares have to be multiplied by the price of the stock. 292,983 (Shares) * $56.05 = $16,423,162.07 Wal-Mart’s current market value. Retrieved from numeraire.com, 2003: The General Discounted Cash Flow (DCF) model, the most widely used , is appropriate for this case. It requires the most input data. The most general DCF model allows any number of input line items, any desired input line items, any number of input periods, and any unique values of each input line item in each input period. This will work for negative cash flows and for irregular cash flows that can't be well approximated by a growth pattern.
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