Reference no: EM133004137

Question 1:

The goal of this Week 6 Activity is to estimate the equity value in common stock per share in Brazilian Reals and compare it to the current stock price for Ambev.

This involves several adjustments to go from the estimation of Ambev's EV to the estimated equity value in common stock per share. These involve first estimating the Value of Firm by adding the cash to the EV, adjusting for minority and/or majority holdings in other companies, and adding other non-operating assets. It is also required to estimate the value of the debt and other liabilities and subtract these values from the Value of Firm to obtain the Value of Equity. If the company has issued executive or employee options, they should be valued, and the value subtracted from the Value of Equity. Finally, you should divide by the number of outstanding shares which results in the equity value in common stock per share. Comparing the valuation to Ambev's current stock price will result in a "buy," "hold," or "sell" recommendation.

Use the  DCF Valuation - Ambev spreadsheet you previously used in Week 5 and complete the following:

• Discounted cash flow - adjustments:
• Value of cash, holdings in other companies, and non-operating assets
• Value of debt and other liabilities
• Value of executive/employee stock options

Question 2:

For this Week 7 Group Project Activity, you will value Ambev relative to other large global brewing companies using a multiple, e.g., the Price-to-Earnings (P/E) ratio. This involves first selecting a set of comparable companies. In addition, it is important to understand what the fundamentals of the multiple are. It is required to plot the selected multiple against its companion variable (e.g., plot P/E ratios against expected future growth rates). It is also required to use a regression model in Excel to control for the "companion variable" (and potentially other fundamental determinants of the multiple) and to obtain predicted values for the multiple for each comparable company. Finally, a comparison of the multiple and the predicted multiple should be performed, resulting in a conclusion of whether Ambev is overvalued or undervalued relative to the comparable companies.

Use the Relative Valuation - Ambev spreadsheet provided and complete the following:

• Identify comparable companies
• Compare the multiples of these comparable companies
• Use a regression model in Excel to control for the "companion variable"
• Analyze whether Ambev is overvalued or undervalued relative to comparable companies