IMMINENT INVESTORS

DIANNE DE LUISE
TAKASHI HANZAWA
SMIT SHARMA
PETER GENIS
J ULIA KIM
Company Price DCF Valuation Relative Valuation Option Recommendation
Model Used Value Multiple Used Value Valuation
Trump Entertainment Resorts 14.77 $ FCFF3 21.43 $ EV/EBITDA 23.25 $ Buy
Morgan Stanley 52.62 $ DDM 64.00 $ PBV 56.60 $ Buy
Wynn Resorts LTD. 52.94 $ FCFFSt 50.30 $ Forward PE 29.48 $ 57.69 $ Sell
NEC Electronics Corp. 4,740.00 $ FCFF2 7,761.00 $ PE 5,109.00 $ Buy
General Motors Corp. 26.68 $ FCFFSt 17.88 $ PBV 17.19 $ Sell
2
Trump Entertainment Resorts BUY
(DELISTED: Formally Trump Hotel and Casino Resorts Pre-Bankruptcy)
Potential High Growth

Company Overview
Trump Hotel Casino Resorts filed Chapter 11 in November of 2004. According to public bankruptcy and
restructuri ng plan documentation, upon restructuring the company will reemerge as Trump Entertainment Resorts.
The company owns and manages four casino hotel properties: Trump Taj Mahal (Atlantic City), Trump Marina
(Atlantic City), Trump Plaza (Atlantic City) and Trump Indiana (Gary, Indiana).

- Taj Mahal: Destination resort located on the northern end of ACs boardwalk. Features 1,250 hotel rooms,
including 242 suites, 19 dining and 12 beverage locations, parking for approximately 6,950 cars, 140,000
square feet of meeting space, and 159,086 square feet of gaming space housing approximately 4,419 slot
machines, 129 tables, and 78 poker tables
- Plaza: Located at the center of ACs boardwalk, the Plaza features 904 hotel rooms, including 140 suites,
36,000 square feet of conference space and 91,366 square feet of casino space housing 2,842 slot machines
and 91 table games
- Marina: Located in the Marina district, the Marina features 728 guest rooms, including 153 suites, 97 of which
are luxury suites, 79,700 square feet of gaming space housing 2,545 slot machines, 76 table games, a
simulcast racetrack facility and approximately 58,000 square feet of convention, ballroom and meeting space
- Indiana: Located 25 miles from Chicago, Trump Indiana is located on a 280 foot gaming vessel with
approximately 43,000 square feet of gaming space housing 1,632 slot machines, 30 table games, 30 poker
tables and capacity to accommodate approximately 2,700 passengers. Shares a docking facility and 40,000
square foot land-based pavilion, which it shares with its joint venture partner, Majestic Star Casino.

Valuation
DCFF Rationale: We used the three-stage FCFF discount model given the firms high degree of leverage (6.5x
Debt/EBITDA upon emergence from bankruptcy). FCFF, unlike FCFE, more appropriately adjusts for the volatility
brought on by significant debt repayment and the sensitivity of the value of equity (small % of overall firm
capitalization) to assumptions about growth and risk.

3 Stage Rationale: We selected a three-stage model because the firm, despite modest growth in the first few
years, has the potential for significant growth as a result of the construction of a new hotel tower at its Taj Majal
casino in Atlantic City. We expect the company to return to more normalized growth levels upon achieving the full
benefit from these room additions (expected within 24 months of opening).

Recommendation: BUY

Fair Value: $21.43 (45% upside from expected emergence value of $14.7)

The assumptions used to build the DCF model are as follows:

Phase Stable High Stable Terminal Notes:
Period 2005-2007 2007-2009 2009-2014 Perpetuity
Risk Free Rate 4.20% 4.20% 4.20% 4.20% Based on 10 year treasury
Bottom-up Beta Calculator:
Unlevered beta for sector = 0.95 0.95 0.95 0.95 Based on industry average (see comps)
Firm's Current mkt D/E ratio = 70.90% 76.03% 57.10% 46.27% Based on model
Firm's Current tax rate = 42.00% 42.00% 42.00% 42.00% As disclosed in company filings
Bottom-up beta for firm = 1.34 1.37 1.26 1.20 Calculation
Expected Return on the Market 10.00% 10.00% 10.00% 10.00% Expected return - Chase Gaming Index
Cost of Equity (CAPM) 11.98% 12.14% 11.54% 11.19% CAPM Calculation
Debt 1418.2 1686.4 1471.4 1082.1 Model
Equity 582 582 582 582 Model
Debt/(Debt+Equity) 70.90% 74.34% 71.66% 65.03% Based on model
Pre Tax Cost of Debt 8.23% 7.65% 7.15% 6.65% Model
Tax Rate 42.00% 42.00% 42.00% 42.00% As disclosed in plan
After Tax Cost of Debt 4.78% 4.44% 4.15% 3.86% Calculation
WACC 6.87% 6.41% 6.24% 6.42% Calculation

3


Based on these inputs our valuation is as follows:

Valuation Composition Pre-Reorg
Reorg Plan
Value
Post Reorg
Fair Value
(based on
DCFF)
Present Value of FCFF in Stage 1 - stable
growth phase ($193.91)
Present Value of FCFF in Stage 2 - High growth
phase $160.91
Present Value of FCFF in Stage 3 - stable
growth phase $390.50
Present Value of Terminal Value of Firm = $1,862.26
Value of the firm = $1,900.00 $2,047.00 $2,219.76
+ Cash and Marketable Securities = $30.00 $90.00 $90.00
Market Value of Debt = $1,850.00 $1,465.00 $1,465.50
Implied Value of Equity = $80.00 $582.00 $844.26
Shares Outstanding 29.90 39.40 39.40
Value of Equity per Share = $2.68 $14.77 $21.43
% Variance Versus Plan 45.1%

Relative Valuation
We used 15 companies to perform the relative valuation analysis. This data was collected from companies that
operate in both local and destination gaming markets in the US. Our selections were based on those companies
that were most alike (based on size, asset quality, diversification and leverage) to Trump Entertainment Resorts
upon emergence from bankruptcy (see Appendix Exhibit A for more detail).
The EV/EBITDA multiple here is 9.6x resulting in a stock price of $23.25.

Trump Entertainment
See Public Comps Worksheet EV/2005E EBITDA EV/Revenue P/E
Implied Multiple 9.6x 2.5x 21.6x
Current Price (Post Reorganization) $14.77 $14.77 $14.77
Implied Enterprise Value $2,291.43 $2,924.43 $1,731.46
Total Debt $1,465.50 $1,465.50 $1,465.50
Cash $90.00 $90.00 $90.00
Net Debt $1,375.50 $1,375.50 $1,375.50
Implied Equity Value $915.93 $1,548.93 $355.96
Shares Outstanding 39.40 39.40 39.40
Implied Price Based on Industry $23.25 $39.31 $9.03
% (Over)/Under Valued 57.4% 166.1% -38.8%
Peer Group Averages














4
Regressions were completed with the EV/EBITDA, the EV/Revenue and the PE multiples. The EV/EBITDA
produced the highest R-squared.(See Exhibit Below)
Return on Capital Vs. EBITDA Multiple
y = 0.0083x + 0.0375
R
2
= 0.6332
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0.00 5.00 10.00 15.00 20.00 25.00
EV/EBITDA
R
O
C


Regression Analysis

For our regression analysis, we selected a broader sample of 29 companies from the Gaming and Lodging sector
to more accurately compare against the industry.

The Regression equation is: EV/EBITDA Multiple (EV/EBITDA versus ROC) = .938 (Intercept) + 75.89 (ROC)

The Regression Summary is:

Regression Statistics
Multiple R 0.795723932
R Square 0.633176576
Adjusted R Square 0.619590523
Standard Error 2.912647626
Observations 29

Coefficients Standard Error t Stat
Intercept 0.938764372 1.476984032 0.635595478
ROC 75.89134478 11.11671513 6.826777864

EV/EBITDA= 7.97x

Based on our analysis, TERs predicted EV/EBITDA multiple is 7.97x forward EBITDA, resulting in an
implied equity value per share of $15.40.

EV/EBITDA= 7.97x
EBITDA $248.77
Valuation Multiple 7.97x
Enterprise Value $1,982.27
Net Debt $1,375.50
Equity Value $606.77
S/O 39.40
Implied Price Per Share $15.40
Current Price $14.77
% Over/(Under) Valued 4.26%
ROC Line Fit Plot
0.00
5.00
10.00
15.00
20.00
25.00
30.00
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%
ROC
E
V
/
E
B
I
T
D
A


Market Valuation
The Market regression equation is:
Enterprise Value /EBITDA= 8.554 + 1.016 g(rev) - .150 (Tax rate) -.0664 (Debt/Capital) -0.0188 Reinvestment Rate
(R
2
=38.0 %)

Based on this equation TERs EV/EBITDA multiple is 8.5x, resulting in a stock price of $15.30.


5
Final Analysis
The Current Post Reorganization stock price is set for $14.77. By this measure, the Market, Industry and Select
comps all indicate TER is undervalued.


Trump Entertainment
See Public Comps Worksheet EV/2005E EBITDA EV/Revenue P/E DCFF Price TEV Regression Averages
Implied Multiple 9.6x 2.5x 21.6x 9.28x 7.97x 9.32x

Current Price (Post Reorg) $14.77 $14.77 $14.77 $14.77 $14.77 $14.77

Implied Enterprise Value $2,291.43 $2,924.43 $1,731.46 $2,219.76 $1,982.27 2229.9x

Total Debt $1,465.50 $1,465.50 $1,465.50 $1,465.50 $1,465.50 1465.5x
Cash $90.00 $90.00 $90.00 $90.00 $90.00 90.0x
Net Debt $1,375.50 $1,375.50 $1,375.50 $1,375.50 $1,375.50 1375.5x

Implied Equity Value $915.93 $1,548.93 $355.96 $844.26 $606.77 854.4x
Shares Outstanding 39.40 39.40 39.40 39.40 39.40 39.4x
Implied Share Price $23.25 $39.31 $9.03 $21.43 $15.40 $21.68
% (Over)/Under Valued 57.4% 166.1% -38.8% 45.1% 4.3% 46.8%
Peer Group Averages Valuation Output


I recommend to BUY Trump Entertainment Resorts
6
NEC Electronics Corporation (TSE: 6723)
Foreign Company

NEC Electronics Corporation (TSE: 6723) specializes in semiconductor products encompassing advanced
technology solutions for the high-end computing and broadband networking markets, system solutions for the
mobile handsets, PC peripherals, automotive and digital consumer markets, and platform solutions for a wide range
of customer applications. NEC Electronics Corporation is a subsidiary of NEC Corporation (NEC holds 70.04% of
NEC Electronics Corporations voting stocks). However, as an enterprise primarily engaged in system LSIs and
other semiconductor businesses, the company is responsible for its own management and conducts its business
operations independently.


DCF Valuation
Model used: FCFF 2 stage
Strategic Background
NEC Electronics Corporation is one of the largest semiconductor firms in Japan. Most semiconductor businesses in
Japan have grown only as one division of general electronic companies, such as NEC, Hitachi, Toshiba, Fujitsu
and Mitsubishi. Such semiconductor divisions were expected to provide key components for the parents main
businesses, such as PC, Server, and Digital Consumer Products. NEC determined to carve-out its semiconductor
business so that the new company could capture lucrative businesses in broadband networking markets as well as
above mentioned markets not only from its parent, but also from their competitors.

Why 2 stage?
While semiconductor business is not new, its markets are still expanding. For instance, PC, Server, Digital
Consumer (DVD set top box, Digital TV, and HDD recorder), Mobile phone, Game consoles, broadband networking
devices are all promising markets. NEC Electronics Corporation focuses on System LSI which serves for those
applications. Whereas DRAM is already a commodity product, System LSI, including CPU, is customized and
highly sophisticated products. Developing and manufacturing such semiconductors need extremely heavy
investment, cutting edge technologies and experienced engineers. NEC Electronics Corporation is in a leading
position in this world. We expect that the growth trend will continue over the next 5 years.

Why FCFF?
Since NEC Electronics Corporation is a younger firm, the capital structure is fluctuating and debt ratio is not stable.
FCFF valuation is better for the firm.

Assumptions used to build DCF model are

Input High Growth Stable Growth
Length of growth period 5 Forever
Growth rate 15.37% 1.49%
Debt ratio 24.59% 24.59%
Beta 3.14 2.00
Riskfree rate 1.24% 1.24%
Risk Premium 1.21% 1.21%
Cost of Debt 2.24% 2.24%
Tax Rate 40.57% 40.57%
Return on Capital 4.00% 3.08%
Reinvestment Rate 384.14% 48.32%
Cost of Equity 5.03% 3.66%
Cost of Capital 4.12% 3.08%

Based on these inputs the valuation was as follows: (Unit: 100M Japanese Yen)
Firm Value 11,512
Market Value of Debt 1,913
Market Value of Equity 9,599
Value of Equity Option 14
Value of Equity in Common Stock 9,585
Market Value of Equity/share 7,761 Yen
Present market value = 4,740 Yen (as of 04/28/2005)

7

Relative Valuation
21 companies were used as comparables. Mainly US based semiconductor firms with Market Capitalization
greater than $1.5 bn were used.
Regression was completed with PE ratio. The regression with PE produced high R-squared and is reproduced
below.

The regression equation is
Current PE = 144 - 36.5 Payout Ratio - 58.9 Value Line Beta


Predictor Coef SE Coef T P
Constant 143.97 18.01 7.99 0.000
Payout Ratio -36.53 26.07 -1.40 0.178
Value Line Beta -58.90 10.99 -5.36 0.000


S = 20.1434 R-Sq = 62.7% R-Sq(adj) = 58.5%

As the Value Line Beta for NEC is not available, I used average Value Line Beta of semiconductor firms with similar
revenues, which is 1.70. I also applied bottom-up beta used in my DCF valuation, which is 3.14. Payout ratio as of
April 28, 2005 is 0.125. EPS is JY 130. Based on this regression, NECs predicted PE is as follows:
(Value Line Beta 1.70) : PE=39.3, resulting in a Price/share of JY 5109.
(Bottom-up Beta 3.14) : PE=-45.5, making no sense.
(Actual PE): 36.5 (EPS=JY 130, Per share price= JY 4740)


Market Valuation:
The market regression equation is
PE = -8.110+0.528 Payout+14.605 Beta + 0.799 g (R^2 = 32.5)

Based on this equation the predicted PE=50.09 (w/ Bottom-up Beta), 29.07 (w/ Value Line Beta)
This does not match very well with the comparable firm regression. The market regression will produce higher PE
with Bottom-up Beta, and lower PE with Value Line Beta. This result is the opposite of the relative valuation above.


Value of Control:
One common reason why a firms stock price might be mismatched with its value is poor management. Poor
management can lead to severe value loss. It is possible to estimate the value of control in a firm by calculating the
firm value under current management and comparing it to the firm value if it were optimally managed. NEC is the
case of a firm that could benefit from a value-enhancing strategy. The firm value would increase substantially if it
increases its operative efficiency. But taking more debt would not change its value. The following table summarizes
the DCF valuation of NEC in its current state.

Year FCFF Terminal Value PV
1 -873 -839
2 -1007 -929
3 -866 -769
4 -353 -303
5 224 186
14272 11873
Total 9220
Cash and securities 2291
Firm Value 11512

If NEC were to raise its debt ratio from 25% to 30%, its beta would increase and its cost of capital would also
increase rather than decrease. We find that the current debt ratio is almost optimal number and there is no merit of
changing debt ratio. The impact of increasing the debt ratio on various valuation variables is highlighted below.


8
Variable Old New
Beta 3.14 3.41
Cost of Equity 5.03 5.36
Cost of Debt 2.24 2.24
WACC 4.12 4.15

If we could increase ROC from 4% to 5%, we would get the following value of control. Actually, the current ROC is
lower than the cost of capital. It is highly possible to improve ROC.

Year FCFF Terminal Value(PV) PV
1 -902 -867
2 -1076 -992
3 -950 -843
4 -393 -337
5 249 207
15879 13210
Total 10379
Cash and securities 2291
Firm Value w/control change 12670
Firm Value Status Quo 11512
Value of Control 1158
(unit: 100M Japanese Yen)

Thus, either incumbent or new management would be able to increase the value of NEC by 1158 by improving
ROC.


Final Analysis:

Current price (04/28/05) JY 4,740
DCF 2stage FCFF JY 7,761
RV - PE JY 5,109 (w/ averaged Value Line Beta)
actual PE 36.5
Comparable regression - predicted PE 39.3 (w/ averaged Value Line Beta)
Market regression - predicted PE 50.09 (w/ Bottom-up Beta), 29.07 (w/ Value Line Beta)


I would place more weight on the DCF valuation than the relative valuation and market regression since relative
valuation and market regression produced contradicting numbers. Thus, I think the DCF valuation is most
representative of NECs current value.

I recommend to BUY NEC.
9
Morgan Stanley (MWD)
Service Company

Morgan Stanley is a global financial services firm that, through its subsidiaries and affiliates, provides its products
and services to a large and diversified group of clients and customers, including corporations, governments,
financial institutions and individuals. It operates its business trough four segments: Institutional Securities business
segment includes Investment Banking, Sales, Trading, Financing and market-making activities and other activities;
Individual investor group business segment includes comprehensive brokerage, investment and financial services
designed to accommodate individual investment goals and risk profiles; Investment management business
segment includes global asset management products and services for individual and Institutional Investors, and
Credit services business segment includes discover financial services (DFS), discover network, PULSE EFT
Association, Inc. (PULSE) and Consumer Banking Group International. (finance.yahoo.com)

DCF Valuation
Model used: DDM 2 stage
Strategic Background
Morgan Stanley is one of the foremost investment bank and has been earning a a high ROE (~20%) for the past
few years since its merger with Dean Witter brokerage. It is likley to continue earning excess returns in near future
as it exhausts the full gain of the merger synergy. But at the same time it faces tough competition from existing
institutions, both from niche players in each of its businesses and also from the traditional full service firms like
Goldman Sachs, Merrill Lynch, JP Morgan-Chase, Lehman Brothers, Citigroup and others.

Why 2 stage?
The structure of securities industry is changing, with "consolidation" being the keyword. Big behemoths like
Citigroup and JP Morgan-Chase,that combine the muscle of banking deposits to get investment banking business
are cutting into the lucrative aspects of Morgan Stanley's (MWD) business and this is likely to slow down MWD's
growth after 5 years to a stable growth model.

Why DDM?
MWD, has consistently given out dividends in the past and is likely to continue with regular increasing dividends in
the future. Further, the corporate governance is generally quite good at MWD and in addition the regulators (SEC
etc.) keep a close eye on the capital requierements and other ratios.

Beta Calculation
For financial firms we do not unlever and relever the beta since D/E does not have the same meaning as non-
financial firms. Moreover, financial firms are much more homogeneous with respect to capital structure.

Assumptions used to build DCF model are

Input High Growth Stable Growth
Length of growth period 5 Forever
Growth rate 12.06% 4%
Beta 0.943 1
Riskfree rate 4.5 4.5
Risk Premium 4.84 4.84
Tax Rate 35% 35%
Return on Equity 18.04% 10%
Cost of equity 9.06% 9.34%
Payout Ratio 24.35% 60%


Based on these inputs the valuation was as follows
Value/share = $64
Present market value = $52.62 (as of 04/29/2005)

Relative Valuation
16 companies were used as comparables. Mainly US based financial firms with Market Capitalization greater than
$1 bn were used.

10
Regression was completed with both PE and PBV ratios. The regression with PBV produced the highest R-
squared and is reproduced below. Moreover, PBV relative valuation made sense for MWD, since for financial firms
the emphasis is on ROE and the BV of equity is a scarce resource since capital requirements are based on it due
to banking regulations. This requires BV to be marked to market as closely as possible and hence BV of equity has
more meaning for financial firms. Also, since I only had a limited set of comparables it made sense to include only
1 independent variable.

Regression equation is
PBV = 0.8 + 0.08 * ROE

Coefficients
Standard
Error t Stat P-value
Intercept 0.807 0.399 2.023 0.064
ROE 0.080 0.025 3.126 0.008


R Square 0.429
Adjusted R Square 0.385

Return on Common Equity Line Fit Plot
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
0 5 10 15 20 25
Return on Common Equity
P
r
i
c
e

t
o

B
o
o
k

R
a
t
i
o
Price to Book Ratio Predicted Price to Book Ratio


Based on this regression, MWDs predicted PBV = 2.16, while the actual observed PBV = 1.95; indicating that
MWD, appears undervalued wrt comparable firms by 10% relative to the way market is pricing the financial sector.
BV per share was $25.83, resulting in a Price/share of $56.62.

A simple matrix plot of the ROE and PBV of the comparable firms shows that MWD is marginally positioned in the
undervalued box due to its high ROE.
11
PBV - ROE Matrix
0
0.5
1
1.5
2
2.5
3
3.5
4
0 5 10 15 20 25
ROE
P
B
V
Undervalued
High ROE
Low MV/BV
Overvalued
Low ROE
High MV/BV
High ROE
High MV/BV
MWD


Market Valuation:
The market regression equation is
PBV = 0.202 ROE - 0.297 Beta + 0.0984 g - 0.0135 Payout (R^2 = 51.55)

Based on this equation the predicted PBV = 3.9.
This does not match very well with the comparable firm regression; nonetheless it confirms that MWD is
undervalued with respect to the broader market.

Final Analysis:
All the 3 valuations, DCF, Relative to comparable firms and Market regression show that MWD is undervalued.

Current price (04/29/05) $52.62
DCF 2stage DDM $64
RV - PBV $56.6
actual PBV 1.9
Comparable regression - predicted PBV 2.2
Market regression - predicted PBV 3.9


I recommend to BUY MWD.
12
General Motors (GM)
Auto & Truck Manufacturers / Consumer Cyclical

General Motors Corporation (GM) has two core businesses: Automotive and Other Operations (Auto and Other),
and Financing and Insurance Operations (FIO). GM's Auto and Other segment consists of GM's four automotive
regions: GM North America, GM Europe, GM Latin America/Africa/Mid-East, and GM Asia Pacific, which constitute
GM Automotive, and Other, which primarily includes the design, manufacturing and marketing of locomotives. GM
offers vehicles under the following nameplates: Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn,
HUMMER, Opel, Vauxhall, Holden and Saab. GM's FIO operating segment primarily relat es to General Motors
Acceptance Corporation (GMAC). GMAC provides a range of financial services, including consumer vehicle
financing, automotive dealership and other commercial financing, residential and commercial mortgage services,
automobile service contracts, personal automobile insurance coverage and selected commercial insurance
coverage.

DCF Valuation
Model used: FCFF Stable Growth Model
General Motors is a largest car manufacturer operating in market with a lot of over capacity. High growth is not
possible in this environment. We assume that GM will grow at rate that is a little lower then average of economy
(3%). Because stable growth model FCFF is used, using current reinvestment from 10K is not valid (it is very high
high). Instead, implied long term reinvestment is used (g/ROC*EBIT(1-t)). For GM, market value of debt is
significantly larger then market value of equity. As a result, levered beta of GM is very high (2.79).

Assumptions used to build DCF model are

Input High Growth Stable Growth
Length of growth period 0 Forever
Growth rate - 3.00%
Beta - 2.79
Riskfree rate - 4.59%
Risk Premium - 4.00%
Tax Rate - 35%
Cost of debt - 6.02%
Cost of capital - 5.35%
Reinvestment Rate - 75.73%
Debt Ratio - 87.84%

Based on these inputs the valuation was as follows
Value/share = $17.88
Present market value = $26.68 (as of 04/29/2005)

Relative Valuation
There are very few companies in Auto & Truck industry. I used Auto & Truck and Auto Parts industry together to
run the regression. Both of these industries are part of Consumer Cyclical sector, so regression was also ran
against broader list of consumer cyclical companies. While, PE ratio, seems to be most appropriate ratio to used, a
lot changed in GM financials since they released 10K report in March, 2005. Since then NI stopped being positive
and predicted not to be positive for a while. As a result stock lost about 40% of value and using 10K earnings gives
very low value of PE. I decided to use PBV ratio instead due to relatively stable book value of equity. Using Auto &
Trucks and Auto Parts, I had sample of 30 companies.
Following is a regression equation:

PBV=9.63*ROE+0.05*beta+13.35*g-2.68*payout_ratio

In this equation, beta is a regression beta, g is a growth in equity earnings and percentages are in the normal
percentage form (10% is 0.1 in equation)
R square of this regression is 78.6%
t-statistics is as following:
ROE -> 3.85, beta -> 0.14, g -> 5.54, payout ratio -> -4.18
Based on the regression and current values, PBV=0.35, while actual observer PBV=0.54. Based on this value,
value per share is $17.19

13
Market Valuation:
The market regression equation is
PBV = 0.202 ROE - 0.297 Beta + 0.0984 g - 0.0135 Payout (R^2 = 51.55)

Based on this equation the predicted PBV = 1.465.
This is much higher then observed PBV and would imply price of stock of $71.95. Interesting observation is, if I get
rid of pensions and other postretirement liabilities, price of the stock would be in that range (about $64). GM is
relatively unique in the market considering how high the pension and other postretirement obligations are. Most of
the companies either do not have any obligations at all (using defined contributions vs. defined benefits), or have
very little obligations. GM is a old company and has a legacy of obligations. In fact, GM is a biggest private medical
and pension provider in the United States. Why did regression on auto companies worked more closer with
expectations? All auto manufacturers have relatively high pensions and other post retirement obligations (both
American and Japanese). So, I will not consider $71.95 as a possible value, and will actually make an assumption,
that regression on market as a whole will show companies like GM as undervalued (due to not taking in
consideration pensions and other postretirement benefits)

Final Analysis:
Both DCF and relative (by industry) valuations show that GM is currently overvalued. I recommend to sell it. GM
has a lot of problems in the future. Not only Auto market is in over capacity, GM has disadvantage to other
companies in the sector due to higher legacy cost to former employees.

I recommend to SELL General Motors.
14
Wynn Resorts, Limited (WYNN)
Negative Earnings

Company Overview
Wynn Resorts, Limited recently opened Wynn Las Vegas, a concept of Stephen A. Wynn, which is considered the
preeminent luxury hotel casino in Las Vegas. The $2.7 billion Wynn Las Vegas opened on April 28
th
, 2005. Most
recently, Mr. Wynn was Chairman of the Board, President and CEO of Mirage Resorts, Incorporated and its
predecessor from 1973 to 2000. In that role, he was responsible for the development of Bellagio, The Mirage,
Treasure Island at The Mirage and the Golden Nugget in Las Vegas, Nevada as well as the Atlantic City Golden
Nugget in New Jersey and Beau Rivage in Biloxi, Mississippi. Wynn Resorts Ltd. plans to expand by opening
another resort, Encore, next to Wynn Las Vegas, which is slated to open in 2008.


DCF Valuation
The n-stage FCFF discount model was used since the firm is small in size, growing at a high rate, and the industry
has significant barriers to entry. Because their first resort did not open until recently, their earnings were negative,
and due to the lack of historical data, we used comparables as benchmark. Target growth rates were estimated for
a 10-year high growth phase using average analyst estimates. The key drivers for this company are the length of
the growth period, high and stable growth rate and reinvestment rate.

The assumptions used to build the DCF model are:

Input High Growth Stable Growth
Length of growth period 10 Forever
Growth Rate Declining from 68% to 7% 4%
Beta 0.67 0.72
Riskfree Rate 4.2 4.2
Risk Premium 4.0 4.0
Tax Rate 0% 35%
Return on Capital -4.99% 17.53%
Cost of Equity 6.87% 7.08%
Cost of Capital 6.81% 6.67%
Reinvestment Rate 100% 50%
Debt Ratio 24% 24%
After Tax Cost of Debt 6.63% 5.33%

Based on these inputs, the valuation was as follows:

Debt Value $1,627.97
Equity Value $5,004.18
Firm Value $6,632.15
Value/Share $50.30
Current Market Price $52.94

Relative Valuation
20 companies were used as comparables. Since Wynn Resorts, Limited will derive the majority of its revenue from
the US, the comparables used were primarily US firms in the hotel/gaming sector. We note that because this
companys fi rst hotel/casino just opened recently, and due to its negative earnings, the only relevant and applicable
multiple was the Forward PE ratio.





15

Regression Analysis: Forward PE versus Expected Growth in EPS: next 5
The regression equation is
Forward PE = 7.13 + 107 Expected Growth in EPS: next 5

Predictor Coef SE Coef T P
Constant 7.135 2.514 2.84 0.011
Expected Growth in EPS: next 5 107.49 15.87 6.77 0.000

S = 3.10478 R-Sq = 73.0% R-Sq(adj) = 71.4%

Based on this regression, WYNNs predicted forward PE is 25.86 resulting in a predicted stock price of $29.48.

Expected Growth in EPS: next 5
F
o
r
w
a
r
d

P
E
0.25 0.20 0.15 0.10 0.05
35
30
25
20
15
Scatterplot of Forward PE vs Expected Growth in EPS: next 5



Market Valuation
The market regression equation is
Forward PE = 20.7 + 20.8 Expected Growth in EPS: next 5 - 0.209 Payout Ratio
- 15.6 Market Debt to Capital

Predictor Coef SE Coef T P
Constant 20.6965 0.6112 33.86 0.000
Expected Growth in EPS: next 5 20.765 2.586 8.03 0.000
Payout Ratio -0.2087 0.5641 -0.37 0.711
Market Debt to Capital -15.560 1.638 -9.50 0.000

S = 11.0096 R-Sq = 10.6% R-Sq(adj) = 10.5%

Based on this equation, the predicted forward PE was 20.62, resulting in a predicted stock price of $23.51. We
would place more weight on the DCF valuation than the market regression since there is some ambiguity
associated with choosing comparables across different sectors and because the R-sq is very low.











16


Option Pricing Model
Wynn Resorts Ltd. was a negative earnings firm because it did not have any operating resorts until recently.
Utilizing the option pricing model, with industry average standard deviation for stock and bond prices and an
average debt life of 15 years, results in an option value of $57.69



Final Analysis:


I recommend to SELL Wynn.

17
APPENDIX:
Trump Entertainment Resorts

Exhibit A: Public Comp Worksheet
Trading Statistics
Price Ratios Enterprise Value Ratios Other
Price Price / LTM Equity Enterprise EPS Book Revenue EBITDA Est. EPS CY05E Div.
Company Ticker Current High Low Value Value
(1)
LTM CY05E Value LTM CY05E LTM CY05E Growth P/E/G Yield
Trump Entertainment Resorts TER 14.60 NM NM 582 1,980 NM NM 1.0x 1.7x 1.7x 8.6x 8.3x 16.5% NA 0.0%
Ameristar Casinos, Inc. ASCA 51.44 (11.7%) 115.5% 1,504 2,184 23.0x 21.0x 4.7x 2.6x 2.3x 9.4x 8.4x 16.0% 1.3x 1.2%
Aztar Corporation AZR 27.10 (23.4%) 16.6% 1,002 1,686 22.2x 18.3x 1.8x 2.1x 1.9x 10.0x 8.1x 10.0% 1.8x 0.0%
Boyd Gaming Corporation BYD 51.41 (13.2%) 141.7% 4,714 6,865 35.7x 25.5x 5.0x 3.2x 3.1x 14.5x 11.0x 17.0% 1.5x 1.0%
Isle of Capri ISLE 25.07 (20.1%) 60.4% 790 1,792 31.0x 21.8x 3.1x 1.3x 1.6x 7.8x 7.3x 20.0% 1.1x 0.0%
Kerzner International KZL 57.72 (14.1%) 44.5% 2,156 2,734 22.6x 21.4x 1.9x 4.4x 4.1x 17.0x 14.7x 17.5% 1.2x 0.0%
Penn / Argosy Pro Forma PENN 32.36 (9.4%) 143.3% 2,844 5,953 30.5x 21.6x 7.1x 2.7x 2.7x 10.9x 10.4x 20.0% 1.1x 0.0%
Pinnacle Entertainment PNK 14.71 (28.6%) 39.3% 619 1,057 367.8x 54.5x 1.5x 1.9x 1.5x 10.2x 7.9x 15.0% 3.6x 0.0%
Monarch Casino MCRI 18.60 (25.6%) 187.3% 361 382 21.3x 17.8x 5.5x 3.0x 2.8x 10.6x 9.7x 25.0% 0.7x 0.0%
Riviera Holdings RIV 14.65 (9.8%) 429.5% 187 384 NM NM -6.4x 1.9x 1.9x 9.6x 9.5x NM NM 0.0%
Station Casinos STN 65.55 (8.0%) 61.6% 4,639 5,911 31.7x 27.0x 9.5x 6.0x 5.5x 15.5x 13.4x 15.0% 1.8x 1.3%
MGM Mirage / Mandalay PF MGG 69.40 (12.8%) 75.2% 10,579 22,545 NM 23.4x 3.8x 3.4x 3.3x 11.4x 10.1x 15.0% 1.6x 0.0%
Harrah's Caesars Pro Forma HET 66.05 (9.0%) 50.3% 12,153 21,710 NM 17.9x 2.1x 2.5x 2.3x 9.3x 9.2x 15.0% 1.2x 0.0%
WYNN Resorts WYNN 54.86 (28.2%) 60.5% 5,512 6,783 NM NM 3.4x NM 9.3x NA 37.0x 17.5% NM 0.0%
Las Vegas Sands LVS 37.26 (31.0%) 2.4% 13,245 13,752 58.2x 34.5x 10.1x 11.5x 8.7x 45.5x 21.7x 17.5% 2.0x 0.0%
Mean Excluding Trump 64.4x 25.4x 3.8x 3.6x 3.6x 14.0x 12.7x 17.0% 1.6x 0.2%
Median Excluding Trump 30.5x 21.6x 3.5x 2.6x 2.5x 10.4x 9.6x 0.2x 1.3x 0.0x
Low Excluding Trump 21.3x 17.8x -6.4x 1.3x 1.5x 7.8x 7.3x 10.0% 0.7x 0.0%
High Excluding Trump 367.8x 54.5x 10.1x 11.5x 9.3x 45.5x 37.0x 25.0% 3.6x 1.3%
1. Enterprise value defined as market equity value plus total debt, minority interest and preferred stock at book value less cash & cash equivalents. Assumes debt instruments trade at par