Report- CORPORATE FINANCIAL MANAGEMENT
Strathclyde Associates is a company with a proven track record in providing valuation advice to multinational corporations. In your role as a Valuation Consultant at Strathclyde Associates (SA), you have been asked by the board of Rightmove plc to produce a report outlining an appropriate valuation for the company.
Valuation Model (20 marks)
Produce a company valuation using a free cash flow valuation model. The model should incorporate estimates of the following;
(i) Return on invested capital (ROIC)
(ii) Cost of capital (combining the Risk Free, Expected Market Rate of Return and Beta)
(iii) Horizon or competitive advantage period
(iv) Growth in future cash flow
(v) Reinvestment required
This section of the report should be included as an Appendix to the written element of the report. An Excel based valuation
The marks are awarded as follows;
– Presentation (3 marks)
– Model Accuracy (5 marks)
– Cost of Capital Calculation (3 marks)
– Perpetuity Calculation (3 marks)
– Reinvestment Calculations (2 marks)
– Sensitivity Analysis (4 marks)
The written element of the report should contain three distinct sections.
Section A (20 marks)
In your role as Valuation Consultant at SA;
(a) You will comment briefly on the valuation you have produced (2 marks), and;
(b) You will be expected to fully justify the estimates used in your model with regard to the following key elements;
(i) The horizon period chosen (6 marks)
(ii) The difference (spread) between ROIC and the Cost of Capital both during and after the horizon period (6 marks)
(iii) The expected future growth both during and after the horizon period (6 marks)
Justification should be given with reference to a combination of theoretical literature, company and industry specific factors.
Section B (30 marks)
In your role as Valuation Consultant, you will be required to justify the choice of valuation model employed (e.g. free cash flow valuation model) (20 marks), relative to two alternative valuation methodologies (10 marks).
This section is not needed to be related to Ritghtmove, therefore you should be critical. Justification should be made with reference to a wide range of relevant theoretical literature.
Section C (30 marks)
This section is not needed to be related to Ritghtmove, therefore you should be critical.
In your role as Valuation Consultant;
(a) You will be briefly required to justify the choice of model used to estimate the Cost of Capital e.g. CAPM (12 marks) and;
(b) You will be required to justify the estimates used in respect of;
(i) the risk free rate (6 marks)
(ii) the risk premium (6 marks)
(iii) Beta (6 marks)
Issues surrounding the model (CAPM) and the difficulties in estimating inputs to the model should be fully explored with reference to relevant theoretical literature.
Students will be required to base any figures or estimates used on Rightmove plc.
Students should assume, for the purposes of the assignment, that Rightmove plc is an all equity-financed company.
When constructing the valuation model students should carry out some sensitivity analysis to assess the impact that any changes in estimates will have on their valuation. Evidence of sensitivity analysis should be included in the form of additional valuation models included as appendices.
Students may wish to structure the report as follows:
Section A – 500 words (25% of total word count) (20 marks)
Section B & C – 1,500 words (75% of total word count) (60 marks)
Word limit: 2,000 words +/- 10% (excluding company valuation calculation, bibliography, references and appendices).
The report should include Harvard referencing. The report is to be completed on an individual basis.