Module 4: Trading Report #2

OVERVIEW

Course: FIN502 Managerial Finance
Assignment: Trading Report 2 (TR2)
Due Date: Sunday, April 12, 2026, by 11:59 PM CT
Total Points: 20 points (out of 60 total Trading Game points)
Course Objectives: CO3 (Calculate cost of capital), CO4 (Implement DCF valuation), CO7 (Perform capital budgeting analysis)

Purpose

This assignment builds on TR1 by introducing valuation techniques and portfolio management. You will: – Execute additional trades including at least one sell transaction – Calculate the Weighted Average Cost of Capital (WACC) for one company – Perform a Discounted Cash Flow (DCF) valuation analysis – Make and justify an investment decision (buy/sell/hold)

What You Need

• Your existing MarketWatch portfolio from TR1
• Access to company financial data (Yahoo Finance, company investor relations websites, SEC filings)
• Financial calculator or Excel for WACC and DCF calculations
• Course materials from Chapters 7, 9, and 10

Submission Format

• Submit as a single PDF file via Canvas
• File name: FIN502_TR2_[YourLastName]_[YourFirstName].pdf
• Include all screenshots, tables, calculations, and written responses in one document
• Use clear headings for each section (Part A, Part B, Part C)

DIRECTIONS

Before You Begin

1. Review Your TR1 Portfolio
   • Log in to your MarketWatch account
   • Review your current holdings and their performance since TR1
   • Identify which stocks you might want to sell, hold, or add to
2. Execute New Transactions
   • Complete at least 3 new transactions between March 23 and April 12, 2026
   • At least 1 transaction must be a SELL (you must sell shares of a stock you currently own)
   • The other transactions can be additional buys or sells
   • Take screenshots of all transaction confirmations
3. Select a Stock for Valuation Analysis
   • Choose 1 stock from your current portfolio (can be a stock youre holding or one you just sold)
   • You will perform detailed WACC and DCF analysis on this company
   • Ensure you can access the necessary financial data for this company
4. Gather Required Data
   • Company financial statements (Income Statement, Balance Sheet, Cash Flow Statement)
   • Current stock price and market capitalization
   • Beta (systematic risk measure – available on Yahoo Finance or Bloomberg)
   • Risk-free rate (use current 10-year U.S. Treasury yield)
   • Market risk premium (use 7% as a standard estimate, or cite another source)
   • Companys debt and equity structure
   • Cost of debt (interest rate on companys debt)

ASSIGNMENT STRUCTURE

This assignment has three parts:

• Part A: Transaction Log (3 points) – Document your new trades including at least 1 sell
• Part B: Valuation Analysis (10 points) – Calculate WACC and perform DCF analysis for 1 stock
• Part C: Investment Decision (7 points) – Explain your buy/sell/hold decision

Complete all three parts using the Answer Template provided below.

PART A: TRANSACTION LOG (3 points)

Instructions

Create a table documenting all new transactions you made since TR1. Include at least 3 transactions, with at least 1 being a sell transaction.

Grading Criteria

• 3 points: Complete transaction log with all required information for at least 3 transactions, including at least 1 sell
• 2 points: Transaction log complete but missing 1-2 pieces of information, or missing the required sell transaction
• 1 point: Transaction log incomplete or fewer than 3 transactions
• 0 points: No transaction log provided

Required Information

For each transaction, provide: 1. Transaction type (BUY or SELL) 2. Stock ticker symbol 3. Company name 4. Transaction date 5. Number of shares 6. Price per share 7. Total transaction amount 8. Brief reason for transaction (1 sentence)

Note: Include a screenshot of your updated MarketWatch portfolio showing current positions and cash balance.

PART B: VALUATION ANALYSIS (10 points)

Instructions

Select 1 stock from your portfolio and complete a comprehensive valuation analysis. This section requires calculations for WACC and DCF valuation.

Grading Criteria

This section is worth 10 points total, distributed across 4 questions:

• Question 1: 3 points (WACC calculation)
• Question 2: 3 points (Free Cash Flow projection)
• Question 3: 2 points (DCF valuation)
• Question 4: 2 points (Valuation interpretation)

Question 1: Weighted Average Cost of Capital (WACC) Calculation (3 points)

Calculate the WACC for your selected company using the following formula:

WACC = (E/V) Re + (D/V) Rd (1 – Tc)

Where: – E = Market value of equity – D = Market value of debt – V = E + D (total firm value) – Re = Cost of equity (use CAPM: Re = Rf + Market Risk Premium) – Rd = Cost of debt (before-tax) – Tc = Corporate tax rate

Required Steps:

1. a) Gather the following data: – Market value of equity (Market Cap) = Current stock price Shares outstanding – Market value of debt (from Balance Sheet or notes) – Beta () from Yahoo Finance or similar source – Risk-free rate (Rf) = Current 10-year U.S. Treasury yield – Market risk premium = 7% (or cite alternative source) – Cost of debt (Rd) = Interest expense Total debt, or stated rate from debt notes – Corporate tax rate (Tc) = from Income Statement or notes
2. b) Calculate Cost of Equity using CAPM: Re = Rf + (Market Risk Premium)
3. c) Calculate WACC: Show all steps and intermediate calculations.

Grading: – 3 points: All components correctly identified and calculated; WACC formula applied correctly with clear work shown – 2 points: Minor errors in data gathering or calculation, but methodology is correct – 1 point: Significant errors or missing components, but some correct elements present – 0 points: No attempt or completely incorrect approach

Question 2: Free Cash Flow Projection (3 points)

Project the companys Free Cash Flow to the Firm (FCFF) for the next year using the following approach:

Free Cash Flow to Firm (FCFF) = Operating Cash Flow – Capital Expenditures

Or alternatively:

FCFF = EBIT (1 – Tax Rate) + Depreciation – Capital Expenditures – Change in Net Working Capital

Required Steps:

1. a) Extract historical data from the most recent financial statements: – Operating Cash Flow (from Cash Flow Statement) – Capital Expenditures (from Cash Flow Statement) – OR: EBIT, Depreciation, CapEx, and Change in Net Working Capital
2. b) Calculate historical FCFF: Show the calculation for the most recent year.
3. c) Project next years FCFF: Make a reasonable assumption about growth (e.g., use historical revenue growth rate, industry average, or analyst estimates). State your assumption clearly.

Grading: – 3 points: Historical FCFF correctly calculated; reasonable projection made with clear assumptions and methodology – 2 points: Minor errors in calculation or projection, but approach is sound – 1 point: Significant errors or unclear methodology, but some correct elements – 0 points: No attempt or completely incorrect approach

Question 3: DCF Valuation (2 points)

Using your WACC from Question 1 and projected FCFF from Question 2, estimate the intrinsic value per share of the company.

Simplified DCF Approach (Perpetuity Growth Model):

Enterprise Value = FCFF / (WACC – g)

Where: – FCFF = Next years projected Free Cash Flow – WACC = From Question 1 – g = Perpetual growth rate (use 2-3% as a conservative long-term growth assumption)

Then calculate Equity Value and Price per Share:

Equity Value = Enterprise Value – Net Debt – Net Debt = Total Debt – Cash and Cash Equivalents

Intrinsic Value per Share = Equity Value / Shares Outstanding

Required Steps:

1. a) Calculate Enterprise Value using the perpetuity growth formula
2. b) Calculate Equity Value by subtracting Net Debt
3. c) Calculate Intrinsic Value per Share
4. d) Compare to Current Market Price: – Current Market Price: $_______ – Intrinsic Value per Share: $_______ – Difference: $_______ or _______%

Grading: – 2 points: All calculations correct with clear methodology; comparison to market price included – 1 point: Minor errors in calculation but approach is correct – 0 points: No attempt or completely incorrect approach

Question 4: Valuation Interpretation (2 points)

Based on your DCF analysis in Question 3, answer the following:

Is the stock currently overvalued, undervalued, or fairly valued?

Write a brief explanation (3-5 sentences) that: – States whether the stock is overvalued, undervalued, or fairly valued – References the specific intrinsic value and market price from your analysis – Discusses what this means for investment decisions – Acknowledges any limitations or assumptions in your analysis

Grading: – 2 points: Clear interpretation with specific reference to calculated values; acknowledges assumptions and limitations – 1 point: Basic interpretation but lacks specificity or doesnt acknowledge limitations – 0 points: No interpretation provided or interpretation doesnt relate to analysis

PART C: INVESTMENT DECISION (7 points)

Instructions

Based on your valuation analysis in Part B and your overall portfolio strategy, make a clear investment decision for the stock you analyzed: BUY, SELL, or HOLD.

Write a brief explanation (fewer than 100 words) justifying your decision.

Grading Criteria

• 7 points: Excellent decision rationale that clearly states BUY/SELL/HOLD, directly references the DCF valuation results, considers other relevant factors (market conditions, portfolio diversification, risk), and demonstrates sound investment reasoning; well-written and concise
• 5-6 points: Good rationale that states decision and references valuation, but may lack depth in considering other factors or investment reasoning
• 3-4 points: Basic rationale that states decision but lacks specific reference to analysis or doesnt demonstrate clear reasoning
• 1-2 points: Minimal rationale that is vague or doesnt connect to the valuation analysis
• 0 points: No rationale provided or significantly exceeds word limit

Guiding Questions (You dont need to answer all of thesetheyre just to help you think)

• Based on your DCF analysis, is the stock overvalued or undervalued?
• Does this align with your investment goals (growth, value, income)?
• How does this stock fit into your overall portfolio diversification?
• Are there any market conditions or company-specific factors that influence your decision?
• What is your risk tolerance, and how does this stock match it?

Word Limit: Maximum 100 words

What to Submit?

The fillable Word file Trading Report 2 Answer Template. Remember to rename it to the correct format.

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