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- Using one of the methods listed above, compute a projected stock price for your group’s company.
Please show your calculations to earn full credit.
- Describe the difference between a projected stock price based on the Price/Sales valuation method versus a projected stock price based on the Price/Earnings valuation method.
- What does each method measure that results in different projected stock prices?
- In your opinion, which method gives a more accurate price when purchasing a company? Why?
- What does Johnson and Johnson’s current ratio tell you about the company’s specific operations? Is the quick ratio more appropriate for Johnson and Johnson– why or why not? (please speak to your company specifically – no credit will be given for providing a generic definition of current ratio or quick ratio)
- If a company has a Price to Earnings (P/E) ratio of 20.0x, the stock market has a P/E ratio of 16.0x, and the industry has an average P/E ratio of 12.0x, what does this tell you? In your opinion, is this a good time to buy the stock?
- You manage the finance team at Amazon (AMZN) and you have been charged with finding ways to keep your stock price increasing. Your team has brought you two projects to consider this week: the first involves acquiring Netflix (NFLX) to boost your streaming business. The NFLX project has an NPV of $100 million, an IRR of 15%, and a payback period of 3 years. The second project involves a strategic partnership with Google (GOOG) to enter the Middle East and China markets. The GOOG project has an NPV of $1 billion, an IRR of negative 15%, and a payback period of 17 years. If you only have the money to do one, which project which will you choose and why?
- Why would a shareholder (i.e. NOT the company) prefer a company to do a share buyback versus pay a dividend?
- As an individual INVESTOR, what are 2 reasons you would NOT want to buy shares of an IPO (a company’s initial public offering) during the first 6 months the shares are available?
