Reference no: EM131282664
Use info for memo:
Please use Yahoo Finance, the US Treasury website, and other reliable sources to find the information necessary for this assignment. Please properly cite all information obtained from on-line sources.
For this case study you will take on the role of Rachel (or Ricky) Martin, an investment analyst with Kropp Brokerage and Financial Advisors.
Your job is to determine if Starbucks is a worthy investment for your new and existing clients. Furthermore, your job is to convince your clients of your position. As such, you must convince your clients that your analysis is correct and clearly explain how you arrived at the stock's intrinsic (fundamental) value and purchase recommendation. Analysts at Kropp suggest that clients purchase a stock when the intrinsic value is as at least 15 percent higher than the current market price.
With the discounted cash flow (DCF) method and the dividend discount model (DDM) of calculating stock price, and showed how these two methods are equivalent. In these models, the stock price is a function of dividends, growth, and required returns (with dividend projections supported by earnings projections). Hence, to complete the analysis you will need to make well justified assumptions regarding dividends, growth, and required returns. A detailed analysis of how you arrived at your assumptions regarding each of these three factors is critical. Fur-thermore, a strong analysis would test the sensitivity of stock price to all three of these assumptions.
In addition to the discounted cash flow method/dividend discount model method of calculating stock price, you should support your rec-ommendation by using at least two other stock valuation methods discussed in lecture (i.e. multiplier methods such as P/E; Price/Sales; etc.).
You should write a memo to your clients. Your clients are looking for advanced analysis with evidence of critical thinking.
What should be included in memo!
Explicitly stated intrinsic value and purchase recommendation: Clear intrinsic value given in the first sentence of memo and purchase recommendation towards beginning
Calculations of intrinsic value and entry price using DCF method: Intrinsic value is calculated using DCF/DDM method and the assumptions are clearly discussed and justified. And purchase recommendation is justified.
Sensitivity analysis: Clear discussion of sensitivity analysis for all three assumptions.
Calculations of intrinsic value using alternative methods: Two alternative me-thods of calculating intrinsic value with clear explanations.
Attachment:- MEMO DRAFT.rar
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