Question

Assess the bid for Walgreens Corp. How does it compare with the firm's intrinsic value? As an alternative, the instructor could suggest that students perform a simple discounted cash flow (DCF) analysis.

Answer 1

Answer:-

Discounted cash flow (DCF) analysis:-

• Playing out a straightforward DCF investigation, I will utilize the CAPM. I utilized the insights recorded in the references of the perusing as sans inputs.

Here already we know the the CAPM formula is,

Discount rate = RFR + B(EMR - RFR)

Where,

RFR = Risk free rate (5.76%)

B = Beta (0.75 )

EMR = Expected market return ( 10.5%)

Now, substitute the above values.

Discount rate = RFR + B(EMR - RFR)

= 5.76% + 0.75 [ 10.5% - 5.76% ]

= 0.0576 + 0.75 [ 0.105 - 0.0576 ]

= 0.0576 + 0.75 [ 0.0474 ]

= 0.0576 + 0.03555

= 0.09315

= 9.315%

Discount rate = 9.315%

Bid for Walgreens Corp = $5.1 billion

Rest of the comparable firms = Bid for Walgreens Corp / [ 1 + Discount rate ]

= $5.1 billion / [ 1 + 9.315% ]

= $5.1 billion / [ 1 + 0.09315 ]

= $5.1 billion / 1.09315

= $4.665

Rest of the comparable firms = $4.665

• In other words scope of the company's natural esteem.