Please answer these question and provide a listing of the sources of information. Please note the date of any article (or news item) when appropriate.
1) What was the IPO date?
2) What was the IPO price per share?
3) How many shares were issued?
4) Who was the principal underwriter(s), that is investment banker(s))?
5) What was the closing price on the first day of trading?
6) Assume you were able to buy 1000 shares through the IPO and sold your investment on January 30, 2020. What was your return on investment?
If your company was acquired before January 30, 2020 what was the price per share paid for the company? What was your return on investment? Please provide the party who bought the company and the details of the acquisition/merger deal.
If your company filed for bankruptcy, please provide what happened to the company; where they liquidated, where they acquired, or did the emerge from bankruptcy? How did stockholders fair
S&P 500- VLO, Valero Energy Corp.
Using Yahoo Finance! or s similar source, please answer the following questions for the company that you have been assigned.
1) In what market is the stock traded in?
2) Pick a date and note it on the work that you will turn in. On that date, go to one of the stock reporting services and report the following: a. The opening price b. The price range for the day (lowest and highest price) c. The closing price
3) Calculate the one-day return for the stock? What was the gain or loss?
4) Now look at the stock price a year prior on the same month and day? What was the annual gain or loss?
5) What is the reported EPS and DPS for the most recent period?
6) What is the trend in free cash flows over the past three years? What explains the trend?
7) What is the reported Beta? What can you conclude about the riskiness of the stock?
8) Is the recommendation given by analysts, as reported in your source, to buy, sell, or hold?
Discussion Questions
- As a first step, we need to estimate what percentage of MMM’s capital comes from debt, preferred stock, and common equity. This information can be found on the firm’s latest annual balance sheet. (As of year end 2017, MMM had no preferred stock.) Total debt includes all interest-bearing deb and is the sum of short-term debt and long-term debt.
- Recall that the weights used in the WACC are based on the company’s target capital structure. If we assume that the company wants to maintain the same mix of capital that I currently has on its balance sheet, what weights should you use to estimate the WACC for MMM?
- Find MMM’s market capitalization, which is the market value of its common equity. Using the sum of its short-term debt and long-term debt from the balance sheet (we assume that the market value of its debt equals its book value) and its market capitalization, recalculate the firm’s debt and common equity weights to be used in the WACC equation. These weights are approximations of market-value weights. Be sure not to include accruals in the debt calculation.
- Once again we can use the CAPM to estimate MMM’s cost of equity. From the Internet, you can find a number of different sources for estimates of beta- select the measure that you think is best, and combine this with you estimates of the risk-free rate and the market risk premium to obtain an estimate of its cost of equity. What is your estimate for MMM’s cost of equity? Why might it not make much sense to use the DCF approach to estimate MMM’s cost of equity?
- Next, we need to calculate MMM’s cost of debt. We can use different approaches to estimate it. One approach is to take the company’s interest expense and divide it by total debt (which is the sum of short-term debt and long-term debt). This approach only works if the historical cost of debt equals the yield to maturity in today’s market (i.e., if MMM’s outstanding bonds are trading at close to par). This approach may produce misleading estimates in years in which MMM issues a significant amount of new debt. For example, if a company issues a great deal of debt at the end of the year, the full amount o debt will appear on the year-end balance sheet, yet we still may not see a sharp increase in annual interest expense because the debt was outstanding for only a small portion of the entire year. When this situation occurs, the estimated cost of debt will likely understate the true cost of debt. Another approach is to try to find this number in the notes to the company’s annual report by accessing the company’s home page and its Investor Relations section. Finally, you can go to FINRA’s Bond Center (finra-markets.morningstar.com/BondCenter/) and do a quick search for MMM’s bond issues. A longer-term issues’ YTM could provide an estimate if the firm’s current cost of debt to be used in the WACC calculation. Remember that you need the after-tax cost of debt to calculate a firm’s WACC, so you will need MMM’s tax rate (which is forecasted to be 22%). What is your estimate of MMM’s after-tax cost of debt?
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- What is your estimate of MMM’s WACC using the book-value weights calculated in Questions 1a?
- What is your estimate of MMM’s WACC using the market-value weights calculated in Question 1b?
- Explain the difference between the two WACC estimates. Which estimate do you prefer? Explain your answer.
- How confident are you in the estimate chosen in part c? Explain your answer.
