SWM - Mark Moore

12.32%. The upper and lower bounds are the 95% confidence intervals that show the cost ofequity to be between 5.44% and 19.28%, which is true. Once we calculated the cost of debt of3.57%, we were able to put both inputs into the weighted average cost of capital equation. TheWACC before tax was evaluated to be 6.9%, and 6.18% after taxes. The principal material forour valuation analysis were the forecasted financial statements, cost of capital figures (Ke), andthe weighted average cost of capital before tax (WACCbt).The equity valuation analysis was able to find an intrinsic value of Schweitzer-Mauduit.In order to determine its value, two different valuation analyses were conducted; the method ofcomparables and the intrinsic valuation analysis. The method of comparables has many flawsand cannot be weighted on too much. After observing the numbers and ratios of SWM and itscompetitors, we were only able to compute few comparable prices. The prices were comparedto the observed price of $50.95 with a 15% fairly valued position, meaning anything between$43.31 and $58.60 would consider SWM to be fairly valued. Any price above $58.60 wouldmean SWM is undervalued, and any price below $43.31 would mean SWM is overvalued.Overall, the method of comparables gave us a highly overvalued firm.The next valuation was the intrinsic analysis which is much more reliable than themethod of comparables. Five models were evaluated in order to determine value; thediscounted dividends model, the free cash flows model, the residual income model, the long runresidual income model, and the AEG model. All of these models are very effective, howeversome more than others. The discounted dividends and the discounted free cash flows accountfor dividends in their models, which is very unreliable. Forecasting dividends is difficult for anoutsider because it is up to management’s discretion. Nonetheless, both models proved SWM tobe overvalued. The last three intrinsic valuations are of the highest explanatory power, which iswhere most base their conclusions. After all of the computed stock prices were compared to theobserved price (with the same 15% fairly valued approach), it has shown SWM to beovervalued, as well. Taking all of this into account, especially the high explanatory models, weare confident in saying that SWM is a highly overvalued firm. This being said, we would advisethat any investor’s or stock holders sell any stock they currently hold in Schweitzer-Mauduit asin the stock is significantly over valued.184