USE THE COMPANY VERIZON COMMUNICATIONS
see attached assignment instructions
Using the information from the websites the student will develop evaluation of bond and stock performance for THE COMPANY (SELECTED BY INSTRUCTOR). (The evaluation portion will total 85% of the assignment grade)
-1—Background and Industry (one short paragraph).
-2- The financial leverage ratios (10% of the project grade)
a) Find the financial leverage ratios for THE COMPANY assigned for you of the project for the last 3-5 years in the Internet. Present these ratios as the table(s) in your project.
b) Write (about) 1 page of the analysis of the ratio results. In your analysis you should answer the following questions. Please explain your answer to each question.
How is THE COMPANY financing its assets? Discuss how much risk is associated with the bonds issued by the company? How can this risk be measured? Please explain.
-3- Collect and evaluate the data about bond performance of the assigned company. (15% of the project grade).
The information on bonds can be found on the website http://finra-markets.morningstar.com/BondCenter/Default.jsp. To find the information on bonds, click on Search in the middle of the screen (under Market Center Bond Guide), under Quick Search type the Issuer Name and the Symbol, and click SHOW RESULTS.
Another useful website on bond information is https://markets.businessinsider.com/bonds. To find the information on bonds, scroll down the page, type the name of the company in the window under Bond Finder, and click SEARCH.
Copy the quotations of two bonds issued by THE COMPANY (SELECTED BY INSTRUCTOR) that contain the Price. Present these quotations in your project.
-4- Collect and evaluate the data about stock performance of the assigned company for the last one year. (totally 35% of the project grade).
1) Find the market ratios for the company for the last 1-3 years and its major competitor for the last year in the Internet. (10% of the project grade)
-2) Analysis of the historical stock prices trend for the last year. (10% of the project grade)
3) Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on THE COMPANY stock. Note that you will need the risk-free rate and the market return. Show this information in your project. (15% of the project grade)
1. Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on stock. Note that you will need the risk-free rate, beta, and the market return.
a) To get the current yield on 10-year Treasury securities go to www.finance.yahoo.com -click on Markets – U.S. Treasury Bonds Rates. You will use the current yield on 10-year Treasury securities as the risk-free rate to estimate the required rate of return on stocks. Discuss how appropriate this rate is as a measure of risk.
b) Between 1926 and 2017, the compound annual rate of return of S&P 500 is estimated a 10%. We will use this number as the market return. Discuss how appropriate this rate is as a measure of return.
c) Beta is listed in www.finance.yahoo.com under Trading Information – Stock Price History, as well as on the company’s front page. What is the beta listed for the company? What does it mean?
d) Calculate the required return on the stock using the Capital Asset Pricing Model (CAPM) Security Market Line. Please show your work.
2. There are several methods how to calculate the growth rate. One of the possible ways is to calculate the sustainable growth rate as g = ROE *(1- Dividend payout ratio). You can find ROE and the dividend Payout Ratio on www.finance.yahoo.com under Statistics.
Calculate the company’s sustainable growth rate. Please show your work.
3. Apply the Gordon model (constant growth rate model) to calculate the intrinsic (economic) value of the stock. Please show your work.
Please note that for some companies it is not possible to use the Gordon model. If that is the case, please explain why it is not possible to use this model for your company. What other models is it possible to use?
4. Compare the result of your calculations with the current stock price. Is the stock overvalued, undervalued, or properly valued? Why? In accordance with your findings, is it reasonable to buy the stock? Why? Please explain your answer.
–5- Develop a specific recommendation, with supporting rationale for your client, as to whether the assigned company’s recent trend in financial and stock performance is of sufficient financial strength to warrant entering in a long-term investment in bonds and/or stocks of the company. Explain your answer (about 1 page) (10% of the project grade).
-6- Develop a specific recommendation, with supporting rationale for the COMPANY’S management – Think about the financial strategy of the company, how to best balance THE COMPANY’S financial leverage to optimize shareholder wealth going forward taking into consideration the company’s current market position, credit rating, dividend policy, etc. (10% of the project grade).
-7- Reflection – the students should write a paragraph in their own words reflecting on what they learned from the assignment and how they think they could apply what they learned in the workplace. (5% of the project grade).
PRESENTATION OF PAPER AND WRITING (15%) of the project grade):
-Organization, Format and Presentation of Paper including the Title page, Introduction, Body, and Summary. Each section of the paper must begin with a sub-heading. Please use the sub-headings included in the assignment (4% of the project grade)
Use of Tables, Figures and Other Graphics to Summarize and Support Analysis Presented in the Paper (3% of the project grade)
Logical and Smooth Flowing Transitions and Relationships among Sections of the Written Report (3% of the project grade)
Research Sources and Significance of Research Information and Data, Use of APA Citation Methodology (5% of the project grade)
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