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JRE300H1S – Foundations of Accounting and Finance – Project Part II PROJECT (PART 2): Question 1 - Stock Analysis 1a) AMD Intel Stock Price / Earnings per Share Ratio (diluted) 64.77/0.84 = 77.107 26.43/1.94 = 13.624 Stock Price / Book Value per Share Ratio 64.77/33.96 = 1.907 26.43/24.52 = 1.078 Annual Dividend Yield 0% 5.52% Market Capitalization* 64.77 * 1612 million = USD $104.409 billion 26.43 * 4137 million = USD $109.340 billion Return on Equity 4.24% 8.14% *Calculated Market Capitalization using Total Shares Outstanding Page 1 of 10

Stock Price / Earnings per Share Ratio - is also known as Price-Earnings (P-E) Ratio, and it measures the relationship between the market price per share and earnings per share [1]. Investors and analysts use P-E ratios to evaluate companies within the same industry, or compare a company against its own historical record [1]. A higher P-E ratio indicates that investors are expecting high growth rates in the future [2]. Stock Price / Book Value per Share Ratio - this ratio is used to evaluate a company’s current market value relative to its book value [3]. Investors use this ratio to gauge whether a company’s stock price is valued properly. A lower ratio could indicate that a stock is undervalued. When comparing two stocks with similar growth and profitability, this ratio can be used to determined the best valued stock at a given time [4]. Annual Dividend Yield - it is expressed as a percentage, and it shows how much a company pays out in dividends each year to its shareholders relative to the market price of its stock [5]. Mature companies and companies in the utilities and consumer staple industries are more likely to pay dividends [5]. Market Capitalization - it refers to the total dollar market value of a company’s all outstanding shares of stock. It is calculated by multiplying the number of outstanding shares by the current market value of one share. It is often used by investors to determine a company’s size [6]. Return on Equity - it is a measure of a company’s net income divided by its shareholder’s equity. It is used to measure and gauge a company’s profitability and how efficiently it generates these profits [7]. 1b) AMD is the more expensive stock as it has a higher Stock Price / Book Value per Share ratio than Intel. However, a more expensive stock does not necessarily mean that the stock is a bad investment. AMD also has a higher P-E ratio than Intel indicating that the investors of AMD expect higher favourable earnings in the future than Intel. Intel is the better performing stock for investors as it has a higher Return on Equity than AMD. With Intel having a higher ROE, it means that it is better at converting its equity financing into profits [7]. 1c) When choosing the companies in the same industry as Intel and AMD to be included in the calculation for the industry averages, we tried to the match companies with similar sizes and/or revenue with Intel and AMD. The companies that are included in the calculations for industry averages are: Intel, AMD, Qualcomm and Texus Instruments. Page 2 of 10

AMD Intel Industry Average LTM Tangible Book Value per Share 18.74 16.39 13.0 LTM Diluted EPS 0.84 1.94 5.64 Share Price/LTM Diluted EPS 94.03/0.84 = 111.940 32.35/1.94 = 16.675 107.455/5.64 = 19.052 Share Price to LTM Tangible Book Value 5.02 1.97 11.155 Note: Values in this table are calculated from FactSet as of April 12th, 2023. See Appendix, Figure 1. LTM Tangible Book Value per Share - both AMD and Intel are higher than the industry average. This indicates that AMD and Intel have a higher potential value per share of a company if the company must liquidate its assets. Intangible assets are not included, like goodwill because they cannot be sold during liquidation [8]. LTM Diluted EPS - both AMD and Intel are much lower than the industry average. Diluted EPS can be used to compare with expectations for that company from analysts. Diluted EPS is not comparable between two companies as they may have different shares outstanding. Share Price/LTM Diluted EPS - Intel has a lower P-E ratio compared to the industry average. This lower than the industry average indicates that investors expect lower favourable earnings in the future than the companies in the same industry. Investors expect lower growth rates from Intel. Whereas, AMD has a much higher P-E ratio than the industry average which indicates that investors expect favourable earnings in the future and higher growth rates [2]. Share Price to LTM Tangible Book Value - Both AMD and Intel have much lower values than the industry average, with AMD having a higher value than Intel. Price to tangible book value (PTBV) measures a company’s market value relative to its tangible assets. Stocks that trade at a higher PTBV have the potential to leave investors with a greater share price loss that those stocks with a lower PTBV [9]. This leaves investors of AMD and Intel with a better position than investing in other companies in this industry, if the company has to liquidate its assets. Question 2 - Discounted Cash Flow 2a) FCF = EBIT (1 - Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - CAPEX For AMD (values in $millions): Change in Net Working Capital = (Working Capital ‘22) - (Working Capital ‘21) Page 3 of 10

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= (15019 - 6369) - (8583 - 4240) = $4307 million CAPEX = PP&E ‘22 - PP&E ’21 = 1973 - 1069 = $904 million Assumption: For calculating CAPEX, we ignored depreciation Therefore, FCF = 1614(1 - 0.3) + 4262 - 4307 - 904 = $180.8 million For Intel (values in $millions): Change in Net Working Capital = (Working Capital ‘22) - (Working Capital ‘21) = (50407 - 32155) - (57718 - 27462) = -$12004 million CAPEX = PP&E ‘22 - PP&E ’21 = 81347 - 63794 = $17553 million Assumption: For calculating CAPEX, we ignored depreciation Therefore, FCF = 2336(1 - 0.3) + 13035 + 12004 - 17553 = $9121.2 million For both AMD and Intel, the FCF have an explicit horizon upto Dec 2027 of 10% and 2% respectively. From Dec 2027, there is a terminal horizon of 2.5% and 1% respectively. So the Dec 2028 FCF is calculated using the terminal horizon growth value from Dec 2027. See Appendix, Figure 2 and Figure 3 for AMD’s and Intel’s FCF. 2b) Weighted Average Cost of Capital (WACC) calculation for AMD : K e = R f + 𝛽 (R M - R f ) = 3.50% + 1.95 (5.60%) = 0.1442 = 14.42% WACC = K e (S/V) + K d (1 - T) (D/V) = 14.42%(0.8) + 6% (1 - 30%) (0.2) = 0.12376 = 12.376% Weighted Average Cost of Capital (WACC) calculation for Intel : K e = R f + 𝛽 (R M - R f ) = 3.50% + 0.81( 5.60%) = 0.08036 = 8.036% WACC = K e (S/V) + K d (1 - T) (D/V) = 8.036%(0.75) + 5.5% (1 - 30%) (0.25) = 0.069895 = 6.9895% See Appendix, Figure 4 and 5 for the values used on the WACC calculation for AMD and Intel. 2c) See Appendix, Figure 6 and 7 for the Present Value FCFs calculation for AMD and Intel respectively. The Present Value (PV) Factors are calculated using the equation (1 + WACC)^(-n), where WACC is the Weighted Average Cost of Capital for the company, and n is the number of years to discount the cash flows by. Then the PV Cash Flows are calculated by multiplying the FCF for the year with its PV Factor. The final PV of all FCFs is the sum of the PV Cash Flows (PVCF) due to the explicit horizon and terminal horizon. Page 4 of 10

For AMD , the PVCF for the explicit horizon is $1029.05 million and the PVCF for the terminal horizon is $1686.31 million. Therefore, the total Enterprise Value for AMD is $2715.36 million . For Intel , the PVCF for the explicit horizon is $48729.76 million and the PVCF for the terminal horizon is $121137.29 million. Therefore, the total Enterprise Value for AMD is $169867.05 million . 2d) Equity Value calculation for AMD (values in $millions): Net Debt = Gross Debt - Cash & Short-Term Investments = 2863 - 5855 = -$2992 million Equity Value = Enterprise Value - Net Debt = 2715.36 + 2992 = $5707.36 million Equity Value calculation for Intel (values in $millions): Net Debt = Gross Debt - Cash & Short-Term Investments = 42460 - 28338 = $14122 million Equity Value = Enterprise Value - Net Debt = 169867.05 - 14122 = $155745.05 million See Appendix, Figure 8 and 9 for the Equity Values for AMD and Intel respectively. 2e) Stock Price Estimate for AMD : Equity Value / Shares Outstanding = 5707.36 / 1612 = $3.54 See Appendix, Figure 10 for values. 2f) Stock Price Estimate for Intel : Equity Value / Shares Outstanding = 155745.05 / 4137 = $37.65 See Appendix, Figure 11 for values. 2g) See the Excel Sheet linked, calculations are under the Sheet named ‘Q2g’ 5% Higher Tax Rate and 5% Lower Tax Rate New Tax Rate = 35% Using the Formula from Part 2a, Free Cash Flow for AMD in Dec ‘22 = $100.1 million Free Cash Flow for Intel in Dec ‘22 = $9,004.40 million Using the formula from Part 2b, WACC of AMD = 12.316% WACC of Intel = 6.92075% Using the method outlined in Part 2c and 2d, Enterprise Value for AMD = $1512.320031 million Enterprise Value for Intel = $169303.3593 million Equity Value for AMD = $4,504.32 million Equity Value for Intel = $155,181.36 million Using the method outlined in Part 2e and 2f, Page 5 of 10

Estimated Stock Price of AMD = $2.79 Estimated Stock Price of Intel = $37.51 New Tax Rate = 25 % Using the Formula from Part 2a, Free Cash Flow for AMD in Dec ‘22 = $261.50 million Free Cash Flow for Intel in Dec ‘22 = $9,238.00 million Using the formula from Part 2b, WACC of AMD = 12.436% WACC of Intel =7.05825% Using the method outlined in Part 2c and 2d, Enterprise Value for AMD = $3904.232397 million Enterprise Value for Intel = $169971.2753 million Equity Value for AMD = $6,896.23 million Equity Value for Intel = $155,849.28million Using the method outlined in Part 2e and 2f, Estimated Stock Price of AMD = $4.27 Estimated Stock Price of Intel = $37.67 2h) See the Excel Sheet linked, calculations are under the Sheet named ‘Q2h’ 1% Higher Terminal Horizon and 1% Lower Terminal Horizon 1% Higher Terminal Horizon: Using the Formula from Part 2a, Free Cash Flow for AMD in Dec ‘22 = $180.80 million Free Cash Flow for Intel in Dec ‘22 = $9,121.20 million Using the formula from Part 2b, WACC of AMD = 12.376% WACC of Intel = 6.9895% Using the method outlined in Part 2c and 2d, Enterprise Value for AMD = $2923.648376 million Enterprise Value for Intel = $195357.7933 million Equity Value for AMD = $5,915.65 million Equity Value for Intel = $181,235.79 million Using the method outlined in Part 2e and 2f, Estimated Stock Price of AMD = $3.67 Estimated Stock Price of Intel = $43.81 1% Lower Terminal Horizon: Using the Formula from Part 2a, Free Cash Flow for AMD in Dec ‘22 = $180.80 million Free Cash Flow for Intel in Dec ‘22 = $9,121.20 million Using the formula from Part 2b, Page 6 of 10

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WACC of AMD = 12.376% WACC of Intel = 6.9895% Using the method outlined in Part 2c and 2d, Enterprise Value for AMD = $2545.370382 million Enterprise Value for Intel = $151280.485 million Equity Value for AMD = $5,537.37 million Equity Value for Intel = $137,158.48 million Using the method outlined in Part E and F, Estimated Stock Price of AMD = $3.44 Estimated Stock Price of Intel = $33.15 References [1] Price earnings ratio . Corporate Finance Institute. (2023, March 14). Retrieved April 12, 2023, from: https://corporatefinanceinstitute.com/resources/valuation/price-earnings-ratio/ [2] Fernando, J. (2023, March 25). P/E ratio - price-to-earnings ratio formula, meaning, and examples . Investopedia. Retrieved April 12, 2023, from: https://www.investopedia.com/terms/p/price-earningsratio.asp#:~:text=The%20price% 2Dto%2Dearnings%20ratio,earnings%20per%20share%20(EPS) [3] Market to book ratio . Corporate Finance Institute. (2023, March 15). Retrieved April 12, 2023, from: https://corporatefinanceinstitute.com/resources/valuation/market-to-book-ratio-price-b ook/ Page 7 of 10

[4] Bromels, J. (n.d.). Using price-to-book ratio to analyze stocks . The Motley Fool. Retrieved April 12, 2023, from: https://www.fool.com/investing/how-to-invest/stocks/price-to-book-ratio/ [5] Fernando, J. (2023, April 5). Dividend yield: Meaning, formula, example, and pros and cons . Investopedia. Retrieved April 12, 2023, from: https://www.investopedia.com/terms/d/dividendyield.asp [6] Fernando, J. (2023, April 5). Market capitalization: How is it calculated and what does it tell investors? Investopedia. Retrieved April 12, 2023, from: https://www.investopedia.com/terms/m/marketcapitalization.asp [7] Fernando, J. (2023, April 5). Return on equity (ROE) calculation and what it means . Investopedia. Retrieved April 12, 2023, from: https://www.investopedia.com/terms/r/returnonequity.asp [8] Hayes, A. (2022, December 7). Tangible book value per share (TBVPS): Definition and formula . Investopedia. Retrieved April 12, 2023, from https://www.investopedia.com/terms/t/tbvps.asp#:~:text=Tangible%20book%20value% 20per%20share%20(TBVPS)%20is%20the%20value%20of,equipment%20are%20conside red%20tangible%20assets [9] Hayes, A. (2023, February 15). Price to tangible book value (PTBV)? definition and calculation . Investopedia. Retrieved April 12, 2023, from https://www.investopedia.com/terms/p/ptbv.asp Link To Excel Sheet https://docs.google.com/spreadsheets/d/1sdSYkStqDFKOq2lHijfL-La3Nynr4QHB/edit?us p=sharing&ouid=110615434818188780496&rtpof=true&sd=true Appendix Figure 1: Comps table from FactSet with the companies includes to calculate the industry averages Page 8 of 10

Figure 2: FCF for AMD Figure 3: FCF for Intel Figure 4: WACC for AMD Figure 5: WACC for Intel Page 9 of 10

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Figure 6: Present Value of FCFs for AMD Figure 7: Present Value of FCFs for Intel Figure 8: Equity Value for AMD Figure 9: Equity Value for Intel Figure 10: Stock Price Estimate for AMD Figure 11: Stock Price Estimate for Intel Page 10 of 10