Scenario:
You have recently taken a role as an intern at a money management firm. As your first project, you have been asked the following question: “Based on your own quantitative analysis, what are the key (specific) assumptions that the market may be making to justify the current market price of Facebook Inc. (ticker: FB) common stock?” As of January 31, 2017, Facebook’s stock closed at $130.32, and its price range has been $114.00 – $133.14 since December 2016. You know from your valuation course at PSU that “big-picture” assumptions that affect company value revolve around revenue growth, profit margins, investment, and financing choices. Cost of equity and forecast horizons also affect company value estimates. As such, you plan to do your analysis in such a way to emphasize how these assumptions may be incorporated into current observations of Facebook’s stock price.

In addition to utilizing historic financial information for Facebook, the intern supervisor suggests that you may want to benchmark some of your analysis by utilizing information about Google (ticker: GOOGL), now trading under its new holding company name of Alphabet.

You have over two weeks to write a short report (MAXIMUM of 1,500 words of text PLUS supporting data exhibits/charts) for your intern supervisor. You will receive feedback a week after submission. Your report (along with the feedback) will go into your personnel file and may be used in any subsequent permanent hiring decision.

You have been provided with the following information (files are available on the class D2L page). You are free to gather any other relevant information that is available to you through public or PSU library sources (examples: Compustat database in WRDS, Morningstar.com, SEC filings, Yahoo!Finance, etc.). Please make sure to properly cite sources of additional information in your report and provide a bibliography.

Spreadsheet files:attached
? Facebook annual financial statements from 2010 – 2015 as downloaded from Compustat using WRDS.
? Facebook quarterly income statement summary (September 2015 – September 2016) as downloaded from Morningstar.
? Facebook quarterly balance sheet summary (September 2015 – September 2016) as downloaded from Morningstar.
? Google annual financial statements from 2005 – 2015 as downloaded from Compustat using WRDS.

General assessment criteria: I will evaluate submitted reports on the following points.

Content points (60% of score):
o How well does the intern’s valuation estimate(s) approximate Facebook traded market value of equity around the valuation date?
o To what degree are big-picture assumptions communicated?
o How effectively are metrics utilized to communicate the big-picture assumptions?
o To what degree are the rationales for big-picture assumptions communicated?
o To what degree are economic rationales provided for big-picture assumptions made?
o What overall level of rigor is employed in the analysis?
o Are there technical/methodological problems that detract from the quality of the analysis?