Using Microsoft and Apple (Currently), please answer the following questions:

(This ongoing project began in Module 1 and continues through most of the book; even if previous segments were not completed, the requirements are still applicable to any business analysis.) Two common models used to estimate the value of companys equity are the discounted cash flow (DCF) model and the residual operating income (ROPI) model. Estimate the value of equity and a stock price for the company(ies) under analysis. The aim is to determine an independent measure of value and assess whether the stock appears to be over- or under-valued. Begin with a forecast of the companys balance sheet and income statement. See Module 12 and follow the forecasting steps outlined there.

1. Model Assumptions and Inputs. In addition to the assumptions used for the forecasts, we require several additional inputs.

Weighted average cost of capital (WACC) is required to discount future amounts to derive present values. We can find estimates at a number of websites. Find the latest WACC at three or more sites and explore why they differ. One approach would be to use an average in the calculation and then perform sensitivity analysis for the high and the low in the range.

Net nonoperating obligations (NNO) is needed to determine the value of equity from total enterprise value.

Number of shares outstanding. Recall that shares outstanding is equal to shares issued less treasury shares. The balance sheet typically reports both numbers but if not, we can find the amounts in the statement of shareholders equity or in a footnote.

2. Model Estimation. Use a spreadsheet and estimate the DCF and the ROPI models respectively. Here are some tips.

Pay close attention to the rounding conventions described in the footnotes in Exhibits 13.3 and 13.4. Use the spreadsheet rounding functions. Note: Setting the format of a cell to no decimals is not the same as rounding the number; with the former, the decimals are still there, but they are not displayed.

Make sure that NNO is subtracted from total enterprise value. In some cases, NNO is a negative number; this occurs when nonoperating assets such as cash and marketable securities exceed nonoperating liabilities. By subtracting this negative NNO, the value of equity will be greater than the enterprise value of the firm.

The stock prices obtained are point estimates derived from a specific set of assumptions. To understand the impact of each assumption, compute alternative stock prices by varying the assumptions. The point is to determine a range of stock prices that derive from a reasonable set of assumptions. One approach is to increase and decrease each of the model assumptions by a reasonable amount such as +/ 10%. Use the spreadsheet functions to perform this sensitivity analysis. Identify which assumptions are most important or impactful.

Determine the companys actual stock price. Compare the per share estimate to the actual stock price and form an opinion about the relative value. Is the stock over- or under-valued according to the model?

3. Interpretation. The final step in the project is to evaluate the companies based on all the analysis performed in the ongoing project. Revisit the conclusions made about the companies performance (profit and margin analysis), asset efficiency, solvency, liquidity, off-balance-sheet financing, and future opportunities based on analysis of strengths, weaknesses, opportunities, and threats. Our goal is to assimilate the various components of analysis and to synthesize what we discovered and learned.

Access one or more analyst reports for each company. How do the other professionals see the firms? How does their view differ from ours?

Our analysis was based primarily on historical data from financial statements. What additional information would we like to have to refine our opinion? Is this missing information critical to our opinion?

Based on our analysis, would we consider investing in the company? Explain