Review Integrative Case 13.1. Walmart (see Chapter 13 attached), answer the following questions from the text:
Use the CAPM to compute the required rate of return on common equity capital for Walmart.
Derive the projected residual income for Walmart for Years +1 through +6 based on the projected financial statements.
Using the required rate of return on common equity from Requirement a as a discount rate, compute the sum of the present value of residual income for Walmart for Years +1 through +5.
Using the required rate of return on common equity from Requirement a as a discount rate, and assuming a 3.0% long-run growth rate, compute the continuing value of Walmart as of the start of Year +6 based on Walmart’s continuing residual income in Year +6 and beyond. After computing continuing value as of the start of Year +6, discount it to present value at the start of Year +1.
Compute the value of a share of Walmart common stock.
Compute the total sum of the present value of all future residual income (from Requirements c and d).
Add the book value of equity as of the beginning of the valuation (that is, as of the end of fiscal 2020, or the start of Year +1).
Adjust the total sum of the present value of residual income plus book value of common equity using the midyear discounting adjustment factor.
Compute the per-share value estimate.
In the context of earnings-based valuation methods, how do you believe companies should navigate the balance between emphasizing short-term profitability and sustaining long-term value? Submit your answer in word, or excel.
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