Read the case and excel data and answer the following questions:
(the case report should be 4 single-spaced pages long.) (the case report due 08/13 but I need a draft on 8/08)
Q1. Assess the reasonableness of the key inputs in Morgan Stanley’s valuation analysis. Discuss your
findings for each question:
a). The WACC of 9.7%. (18 points):
– Determine all of the WACC inputs used to get to Snap’s stated WACC. This includes
breaking down the cost of equity into its separate components as well.
– Calculate what beta Novak used to estimate the cost of equity? Do you think this beta is
reasonable? Discuss why or why not.
– How does this WACC compare to the WACCs Nowak has used to value other internet
and social media companies?
– How does this WACC compare to the WACC’s that other analysts have used to value
Snap?
– In your opinion, is 9.7% reasonable? Discuss why.
b). The terminal value growth rate of 3.5%. (18 points)
– Did Nowak calculate the terminal value using a growth perpetuity of FCF or did he use
multiples of FCF?
– How does 3.5% compare to what other analysts assumed?
– In your opinion, is 3.5% reasonable? Discuss why.
– What is the terminal value (in year 2025 dollars)? (Hint: The terminal value that he uses
is not shown in the table. He is just showing you the forecasted FCF in year 2026 that is
used in the TV formula.)
c). The free cash flow forecast in general and Snap’s 2020 revenue forecast in particular. (18
points)
– What growth rates does the FCF forecast assume for revenue? (Hint: not terminal value
but the first years of FCF)
– Discuss how Nowak’s report argues that Snap will accomplish this growth.
– In your opinion, is this growth rate reasonable? Discuss why.
– How does the revenue forecast compare against what other analysts have predicted?
-Did the analysts with more optimistic FCF forecasts use higher or lower discount rates?
– Does this explain why the price target estimates by the different analysts was fairly
close even though they had very different FCF forecasts? Explain.
Q2. Show how Nowak calculated the estimated share price. (18 points)
– What is the PV of the FCF from years 2017-2025? (show your work)
– What is the PV of the terminal value? (show your work)
– What is the total firm value? (show your work)
– What is the total equity value? (Hint: Assume Debt=0 here) (show your work)
– How many shares are outstanding? (Hint: The number listed is in millions, not billions.)
-How did he calculate the share price?
Q3: How much do you think Snap is worth per share, given the information available in the case? Justify
your answer with relevant tables showing your analysis. Discuss your analysis. (10 points)
Q4. What should Elizabeth Kemp do: buy more Snap shares or harvest her gain by selling shares? Discuss
why. (8 points)
Points for presentation style and clarity of tables and discussion. Try to add relevant graphs and tables
to visualize your analysis. (10 points)
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