Suppose the company requires a source of finance for the above investment decision. The company is currently holding a portfolio of ‘so-called’ FAANG stocks: Facebook, Amazon, Apple, Netflix, and Google (now Alphabet). The firm is considering selling part of this portfolio to finance the above project. To make this decision, the company is struggling to value these shares and need your assistance.
The following questions should be addressed in this assignment:
- Find out the NPV, IRR and profitability index for the replacement proposal. What do these criteria say about the replacement? Begin the report by briefly explaining the capital budgeting methods. Explain why these criteria are considered superior to the accounting rate of return and payback period used by some firms.
- Some estimates are subjective and may be prone to judgement error or uncertainty. For this reason, please conduct a sensitivity analysis of NPV to the required rate of return falling between the range of 10% to 16% (with increments of 1%) for the replacement proposal. Discuss the implications.
- Using one relevant valuation method (Valuation by comparable or free cash flow), calculate the theoretical price of each FAANG stock. Explain the method chosen for the calculations, critically discussing the assumptions and validity of your result.
- Compare the theoretical price with the current market price and explain the reasons behind the differences observed. Which stock should the firm sell to arrange the finance and why?
- Summarise your findings, discuss any limitations of your evaluations and present your recommendations.
• The required word length for this assessment is 2,500 words (plus 10% tolerance).
• The list of references is required to contain at least 6–10 relevant references from different reputable sources, such as books, industry-related journals, magazines, company documents and recent academic articles.
Type Of Service: Academic paper writing
Type Of assignment: Essay
Number of sources: 10
Academic Level: Master’s
Paper Format: APA
Line Spacing: Double
Language style: AU English