Intel Financial Analysis
Cost of bonds (Rd)
(1-.26)(2.503%) = 1.85% cost of bonds/ debt
Does the company have any preferred stock? If so, calculate Rps
Intel does not have any preferred stock.
Estimate the cost of common stock Rs using CAPM (aka, the required return) http://finance.yahoo.com/bonds dividend and yield=4.20%(on yahoo finance summary for intel page)
CAPM
Rs=Rf+Beta(E(RM)-Rf)
10 year Treasury bond rate Rf= 1.81%
Beta =0.98
10 year (2003-2013) arithmetic average of S&P500 = 5.69%
MRP= 6.675 – 1.81 =4.86%
Calculate beta using monthly returns for the past 24 months and the market model. Tell me a little bit about R2, R2 for this company, and what it means.
Beta= 0.91
Rs = 1.81+ 0.91(4.86) = 6.23%
R squared = 0.293879903 (SPY as Benchmark)
2.3 WACC estimation
Compute WACC
WACC = wd rd (1-T) + wps rps + ws rs = (13.3B/64.6B*1.85) + 0 + 51.2B/64.6B* 6.23% = 5.3%
Investors use WACC to help decide whether a company represents a good investment opportunity. To some extent, WACC represents the rate at which a company produces value for investors—if a company produces a return of 20% and has a WACC of 11%, then the company creates 9% additional value for investors. If the return is lower than the WACC, the business is unlikely to secure investment.
Also compute WACC using the arithmetic average of Rs from my website.
Rs for Technology sector is 16.27%
WACC = 13.3B/64.6B*1.85 * (1-26%) + 0 + 51.2B/64.6B* 16.27% = 13.28%
Tell me which WACC makes more sense to you, using required Rs or the arithmetic average Rs, and why. Bear in mind that the number chosen should be commensurate with risk.
WACC of 5.3% makes more sense because the WACC of 13.28 is influenced InfoTech, the dot-com run up prior to 2000 appears to be the reason for the high cross-sectional average Rs of 16.27%.
3.1 Financial statement analysis
Compute liquidity, asset management, debt management, profitability, market value, and DuPont measures
(1-.26)(2.503%) = 1.85% cost of bonds/ debt
Does the company have any preferred stock? If so, calculate Rps
Intel does not have any preferred stock.
Estimate the cost of common stock Rs using CAPM (aka, the required return) http://finance.yahoo.com/bonds dividend and yield=4.20%(on yahoo finance summary for intel page)
CAPM
Rs=Rf+Beta(E(RM)-Rf)
10 year Treasury bond rate Rf= 1.81%
Beta =0.98
10 year (2003-2013) arithmetic average of S&P500 = 5.69%
MRP= 6.675 – 1.81 =4.86%
Calculate beta using monthly returns for the past 24 months and the market model. Tell me a little bit about R2, R2 for this company, and what it means.
Beta= 0.91
Rs = 1.81+ 0.91(4.86) = 6.23%
R squared = 0.293879903 (SPY as Benchmark)
2.3 WACC estimation
Compute WACC
WACC = wd rd (1-T) + wps rps + ws rs = (13.3B/64.6B*1.85) + 0 + 51.2B/64.6B* 6.23% = 5.3%
Investors use WACC to help decide whether a company represents a good investment opportunity. To some extent, WACC represents the rate at which a company produces value for investors—if a company produces a return of 20% and has a WACC of 11%, then the company creates 9% additional value for investors. If the return is lower than the WACC, the business is unlikely to secure investment.
Also compute WACC using the arithmetic average of Rs from my website.
Rs for Technology sector is 16.27%
WACC = 13.3B/64.6B*1.85 * (1-26%) + 0 + 51.2B/64.6B* 16.27% = 13.28%
Tell me which WACC makes more sense to you, using required Rs or the arithmetic average Rs, and why. Bear in mind that the number chosen should be commensurate with risk.
WACC of 5.3% makes more sense because the WACC of 13.28 is influenced InfoTech, the dot-com run up prior to 2000 appears to be the reason for the high cross-sectional average Rs of 16.27%.
3.1 Financial statement analysis
Compute liquidity, asset management, debt management, profitability, market value, and DuPont measures