Discounted free cash flow models and financial statement

Assignment Task

Discounted free cash flow models and financial statement

1. Find the WACC after tax that makes the market and DCF model-estimated share prices equal. In other words, find the IRR.

2. Find the run-growth rate that makes the market and DCF model-estimated share prices equal.

3. Conduct a 2-dimensional sensitity analysis of your estimated share price (based on Question 5's DCF model) by varying the WACC after tax (in the table's left column) and the year long-run growth rate (in the table's top row). Make the WACC numbers increase from smaller to bigger as they're written from top to bottom, and make the growth rate numbers increase from smaller to bigger as they're listed from left to right. Ensure that the table shows your base case share price bolded in the middle somewhere.

4. Compare the estimated share price from your DCF model to the market share price and provide a recommendation to buy, hold or sell your chosen company's shares, clearly stating why. Your recommendation should be supported by arguments that discuss the differences between the estimated share price from your DCF model and the market price with regard to the assumptions you have made in your DCF model and the risk analysis you performed in questions 6, 7 and 8 above.

Purpose
The purpose of this assessment is to apply the skills developed on discounted free cash flow models and financial statement modelling in weeks four and five to a company listed on the Australian Securities Exchange (ASX). In this assessment, you will develop your skills in financial modelling, which is a valuable skill sought by employers.

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