May 22, 2012
Write a 1,050- to 1,750-word paper in which you justify the current market price of the organization’s debt, if any, and equity, using various capital valuation models. Complete the following in your paper: The valuation of a company is planning, making decisions, and strategy. A way of building confidence and worth in a company is by putting a value on it, so that it shows sustainability. We will use the P&G annual report and choose a valuation model that will help to justify the current market price of P&G’s debt, if any, and equity. We will show calculations that will support our findings and include those that involve rates of return. An explanation of why we chose the valuation model will also be included. The text Principles of Managerial Finance states “Valuation is the process that links risk and return to determine the worth of an asset” (Gitman, L.J, 2009 Ch. 6). Valuation models are used as investment tools used to help with making investment decisions. Finding the market price of a debt or equity is the way to determine whether an asset is under or overvalued. Dayna
On the P&G ‘s balance sheet this exposes capital and current liabilities. Capital can be broken down into debt capital (long term borrowing and bonds) and equity capital. The purpose of Free Cash Flow Model is a method that determines the value of an organization as the present value of it’s expected free cash flow. (Gitman, 2005, p. 326) The formula is to calculate and find the organizations present value. This is a measure of how much cash a business is generating for equipment, expansion, dividends, debt management purposes. FCF=Operating cash flow minus capital Expenditures. Free cash flow=CFO- capital to maintain growth or Free Cash flow= CFO- capital expenditures. $15.8 B (operating income) $3.31B (capital expenditures) = $12 in cash flow. This weighs heavy on their net income of $11,797 M. The...