Please help with the following project. I have attached a sample for your review.
Cost of Capital, Capital Structure, and Capital Budgeting Analysis
Using United Airlines a publicly traded company and analyze its financial ratios, capital structure, cost of capital, and do a capital budgeting.
1. Purpose of the project:
In this project, you are supposed to be a financial manager working for a big corporation and you have to apply the knowledge to determine the cost of debt, cost of preferred stock, cost of common equity, capital structure, and the weighted average cost of capital (WACC) for a publicly traded company United Airlines. You will use the WACC as the discount rate to conduct capital budgeting analysis for a project that the firm is considering and then decide whether it should be accepted or not.
2. Outline for the project:
(1) Executive Summary (10 points)
– Summarize the results and analysis of the report.
(2) Financial Ratio Analysis (40 points)
You are supposed to be a financial analyst covering a firm in particular. You are expected to determine the firm’s strengths and weaknesses relative to its peers and to describe historical growth of key variables.
– Perform trend analysis of the key financial ratios (i.e., liquidity ratios, asset management ratios, debt management ratios, profitability ratios, market value ratios) of the company.
– Perform industry (or benchmark companies) comparison analysis of the key financial ratios of the company.
– Based on the financial ratio analysis results, evaluate the financial performance of the company.
(3) Estimate Capital Structure (25 points)
– Estimate the firm’s weights of debt, preferred stock (If any), and common stock using the firm’s balance sheet (book value).
– Estimate the firm’s weights of debt, preferred stock (If any), and common stock using the market value of each capital component.
(4) Compute Weighted Average Cost of Capital (WACC) (35 points)
– Estimate the firm’s before-tax and after-tax component cost of debt; (Note: Use 21 % tax rate for your chosen corporation).
– Estimate the firm’s component cost of preferred stock if the company uses preferred
stocks in its capital structure;
– Use three approaches (CAPM, DCF, bond-yield-plus-risk-premium) to estimate the component cost of common equity of the firm. Then assign a weight for each method and estimate weighted average cost of equity. Using this average:
– Calculate the firm’s weighted average cost of capital (WACC) using market-based capital weights.
(5) Cash Flow Estimation (40 points)
We assume that the company you selected is considering a new project. The project has 8 years’ life. This project requires initial investment of $195 million to purchase land, construct building, and purchase equipment, and $15 million for shipping & installation fee. The fixed assets (Total of 195+15= $210 M) fall in the 7-year MACRS class. The salvage value of fixed assets is $38 million. The number of units of the new product expected to be sold in the first year is 880,000 and expected to grow at annual growth rate of 9%. The sales price is $266 per unit and the variable cost is $179 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized inflation rate of 2.8%. The required net operating working capital (NOWC) is 15% of sales. The company is in the 21% tax bracket. The project is assumed to have the same risk as the corporation you have chosen, so you should use the WACC you obtained
from prior steps as the discount rate. Compute the depreciation basis and annual
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