How do you give a buy or sell decision based on the expected and required rate of return?

1. Using this online Ratio Analysis calculator, compute the financial ratios for one of the Dow Jones Industrial Average (DJIA) Companies. No two students can choose the same DJIA company. You will be using the DJIA company you have selected here in study hall forums throughout this course. Upload a table containing the financial ratios to this forum. Post an analysis of the ratios. What do these numbers mean? What can you infer about the health of your company?
Discussion Question
2.
For your original submission, Go to http://finance.yahoo.com. Enter the ticker symbol of the DJIA company you chose in the study hall forum of module 1. Choose “Key Statistics” from the left side. Get the value of beta. Use 10% for the historical market rate of return. Choose the historical t-bill or t-bond rate for the risk free rate. Calculate the required rate of return using the Capital Asset Pricing Model. Use this online calculator. Then calculate the expected rate of return. To calculate the expected rate of return, use the formula (Expected Stock Price – Current Price)/Current Price. You can get the expected price from the Analyst Opinion in Yahoo Finance. Give a buy or sell recommendation on your stock. If expected rate is greater (less) than required rate, you would buy (sell) the stock since the stock is undervalued.
For your response you may address the following questions: 3.
What is an estimate of the historical market rate of return? From where do you get this value?
What rate do you use for the risk free rate? T-bill or T-bond? Why? Back your opinion with some research.
What is the expected rate of return?
What is the required rate of return?
How do you give a buy or sell decision based on the expected and required rate of return? Why?
Discussion Questions (Please upload a single file with your answers to the forum):

For your original posting, calculate the intrinsic value of your common stock. You will need the required rate of return you got from the previous module, you can get an estimate of the growth rate and dividends from http://finance.yahoo.com, analysts estimate. Use this online financial calculator (financial calculator, valuation calculator, constant growth model, current price), to calculate the price of the stock. Compare it with the current market price of the stock. Give a buy or sell recommendation. If the market price of the stock is greater (less) than the intrinsic value, the the stock is overvalued (undervalued), hence sell (buy) the stock
4.
For your responses you may comment on the values calculated by your peers. In addition, you may also address issues such as how do you calculate the intrinsic value of the stock, if the growth rate is greater than the required rate of return.
5.
Discussion Questions (Please upload a single file with your answers to the forum):

For your original posting, calculate the WACC for your DJIA company using this online calculator. Interpret the WACC.

For your responses you may comment on the usefulness of WACC. For example, consider the use of WACC in the calculation of EVA. Describe the implications of WACC in relation to the goal of shareholder wealth maximization. Include a brief discussion of how internal and external factors can impact the organization’s WACC. What are the other uses of WACC
6.
Discussion Questions (Please upload a single file with your answers to the forum):

For your original posting, discuss the risks of your DJIA company. These can be found in Item 1A of your company’s annual report or Form 10-K. There is likely to be an exhaustive list of the risks your company may or may not face, choose one or two of them that you believe are riskiest to your company. What made you choose these risks? How does your company measure, manage and respond to these risks?

Is your company managing cash flows appropriately? Look for a section within the Form 10-K titled Liquidity and Capital Resources. Comment on their cash generating ability. Comment on the total net cash flows within each category: Operating, Investing, and Financing. And what do each of these cash flows tell you about how the company uses or is provided with cash?

Discussion Questions:
7.
For your original posting, calculate the debt ratio of your DJIA company. Is the debt level of your company too high? What has been the debt management policy of your company

For your responses you may discuss other measures of risk for a company. What is the debt ratio of the average company in the United States. Discuss the industry effect on risk of a company
Discussion Questions (Please upload a single file with your answers to the forum):

For your original posting, now that you have done an extensive analysis of your DJIA company, how is your company doing? Is it a target fo takeover? Should it merge with another company?

For your response, comment on the role of corporations in United States, the effect of globalization. Which has a bigger role in creating employment: private or public sector? Comment on the effect of some public policies on the private sector