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IBM
Presented by: Zahra Bajgiran, Mikhail Karasik, Jason Oakley,
Kyle Thoresen, and Svetlana Zotikova
Company Overview
Weight of
Debt, Equity
1 - Market value
2 - Book value
Book
Market
21,932,000
21,932,000
Total
shareholder
equity
22,637,000
173,724,904
Total Capital
44,569,000
195,956,904
Weight of Debt
49%
11%
Weight of equity
51%
89%
Book
Weight of Debt
Weight of Equity
Weight of Debt
Weight of Equity
Cost of Equity
CAPM model
Ks = Krf+(RPm)*b
Beta
0.819
R2
0.35
Result
7.94%
Bond Yield
4.65
MRP
5
Result
9.65%
Fama-French Model
ks = kRF + bi(rM - rRF) + ci(rSMB) + di(rHML)
Result
8.76%
Cost of Debt
(1) Total interest expense paid/total debt based on balance sheet
Total debt:
Interest expense paid:
Kd:
0.0154023
26,100,000
402,000
1.54%
Kd:
4.25%
26,100,000
1,109,000
WACC
WACC = Wd*Kd (1-T)+We*Ke
WACC
Model
WACC
CAPM
7.43%
Fama-French
8.16%
Bond YieldPlus
Market Risk Premium
8.96%
2009
2008
2007
2006
2005
R&D
$1,509,000
$5,820,000
$6,337,000
$6,153,000
$6,107,000
$5,842,000
COGS
$12,880,000 $51,973,000
$57,969,000
Average
R&D
6.60%
6.08%
6.12%
6.23%
6.68%
6.41%
6.35%
COGS
56.35%
54.28%
55.94%
57.76%
58.11%
59.91%
57.06%
Forecasting: AFNs
Additional Funds Needed
Short / Current Long Term Debt
Long Term Debt
Additional Interest
2010 Pass
(12,442,178)
(1,986,935)
(10,455,243)
(191,638)
(141,843)
(22,651)
(119,191)
(2,185)
(1,617)
(258)
(1,359)
(25)
(18)
(3)
(15)
(0)
2011 Pass
(12,883,277)
(2,057,375)
(10,825,902)
(198,432)
(146,871)
(23,454)
(123,417)
(2,262)
(1,674)
(267)
(1,407)
(26)
(19)
(3)
(16)
(0)
2012 Pass
(13,329,446)
(77,058)
(405,481)
12,846,906
(7,432)
(5,501)
(0)
(0)
5,501
(0)
(0)
N/A
N/A
(0)
N/A
N/A
N/A
N/A
N/A
N/A
2011
2010
2009
2008
13,334,928
13,037,325
12,739,721
16,483,544
21,872,607
13400000
2010 12,739,319
13300000
2011 13,036,797
2.34%
2012 13,334,272
2.28%
13000000
2013 13,631,753
2.23%
12900000
2014 13,929,231
2.18%
12800000
2015 14,226,709
2.14%
2016 14,524,187
2.09%
13200000
13100000
12700000
2009.5
2010
2010.5
2011
2011.5
2012
2012.5
8.56%
2.23%
Horizon value
215,384,326
Adjusted FCF
228,719,254
$201,565,552
13,037,325
12,739,721
201,565,552
Non-operating Value
1,791,000
$203,356,552
$133.56
$130.90
Intrinsic MVA
$154,619,552
$203,356,552
$26,100,000
$0
$177,256,552
1,327,157
$133.56
$130.90
MMM Approach
Computers/Peripherals = 16%
= $136.50
= $130.90
Beta
Cost of Equity
WACC
Cost of Debt
Weight of
equity
Weight of
Tax Rate
Debt
After-tax Cost of
Debt
8.94%
8.84%
7.84%
94.68%
5.32%
10.12%
7.05%
Computers/Peripherals
Industry (Weighted
Average)*
1.29
10.28%
9.97%
7.84%
90.14%
9.86%
8.65%
7.16%
1.06
9.15%
9.02%
7.84%
93.96%
6.04%
9.88%
7.07%
CAPM
0.82
7.94%
7.43%
4.65%
88.79%
11.21%
25.98%
3.44%
Fama French
N/A
8.76%
8.16%
4.65%
88.79%
11.21%
25.98%
3.44%
N/A
9.65%
8.96%
4.65%
88.79%
11.21%
25.98%
3.44%
N/A
9.21%
8.56%
4.65%
88.79%
11.21%
25.98%
3.44%
CAPM
FF
MMM
166.50
143.69
124.62
133.56
123.31
136.50
130.90
130.90
130.90
130.90
130.90
130.9
under
under
over
under
over
under
Scenario Analysis
Scenario Analysis (WACC = average of FF and BY + RP)
Average growth rate of FCF (g)
Intrinsic Value of Equity
-1.00%
2.10%
2.37%
3.00%
116,841,271
173,724,986
181,157,046
201,982,962
136.50
152.19
130.90
130.90
130.90
130.90
Stock
overvalued
Fair
Stock
undervalued
Stock
undervalued
MMM
Strategy Shift
15,000
Software/Services emphasis
10,000
5,000
1960
1970
1980
1990
2000
2010
Year
-5,000
Hardware emphasis
-10,000
2020
Thank you!