This document summarizes corporate governance, risk and return metrics, financing mixes, and dividend policies for five companies: FOX, Amazon, Comcast, Netflix, and Verizon. Key points include: - FOX has a controlling family ownership structure and treats programming commitments as debt. Comcast has a long-tenured CEO as chairman. Netflix has a CEO with strong control despite low equity ownership. - Amazon, Netflix and Comcast have high institutional ownership. FOX has significant Murdoch family ownership. - Netflix and Comcast have high debt ratios due to treating contractual obligations as debt. FOX and Verizon also have significant obligations. - Netflix shows positive but low returns relative to its high cost of capital

1. Corporate Finance Final Project
William Sawyer Sam Oke Sohil Shah Chirag Dhami John Gerard

2. I. Corporate Governance: Board of Directors
FOX: Run by the Murdochs. The board is filled with Rupert’s sons, friends and former colleagues. Outside directors are accomplished but most are retired or have significant business
relationships with the firm (Credit Suisse CEO).
CMCSA: The CEO is the Chairman from past 26 years. Other members are either CEOs / CXOs of other companies. The Board has some new members and are also looking forward for
new nominations other than CEO but an insider. In a way it is good that they have diversity of directors but CEO has been Chair for very long time.
NFLX: Very small board with extremely long tenure (average tenure is 11 years). As can be seen in the rest of the corporate governance section, Reed Hastings (CEO and Chairman) has
lots of control over board and decisions of company. Additionally, board recommendations have been wilfully ignored by Netflix with no repercussions to Hastings and board makeup.
VZ: Lots of ex CEO’s on board with vast experience. Very few had relevant telecom experience, which is notable.
Number of Members 13 11 12 9 12
Average Age 54 64 65 58 61
Number of Insiders 5 1 2 2 1
CEO is Chairman No Yes Yes Yes Y
Number of Outside CEOs 3 3 10 1 2
Corporate Governance
Score (10 = Best)
3/10 5/10 1/10 1/10 8/10

3. I. Corporate Governance: Chief Executive Officer
Name James Murdoch Jeff Bezos Brian L. Roberts Reed Hastings Lowell McAdam
Age 44 53 56 56 62
Tenure as CEO 2 Years 23 Years 26 Years 20 years 5 Years
Total Compensation $26.4 M $1.68 M $ 27.52 M $23.2 M 17.7M
Options % of Total Comp 61% 0% 19.44% 96% 67%
% ownership of Equity 0.12%* 16.9% 29.91 % 3% <1%
# of boards seated on 2 1 3 2 1
FOX: *Direct ownership. James is an heir to Rupert Murdoch and the Murdoch Family Trust, which own 40% of the voting stock. James and Rupert are also heavily involved with the
family’s other assets, primarily News Corp.
CMCSA: Brian Roberts has been having around 30 % holdings on equity and has control over decisions. The notable part is the other board members are changing in past few years.
NFLX: Reed Hastings has complete control over direction of company and decisions, even though his %ownership of equity does not exude enough control over the company. This is
done through a very comfortable board that has not challenged him or pushed him out.
VZ: McAdam was promoted from within Verizon and sits on the board of GE.

4. II. Ownership: Percentage Breakdown
Institutional 70.4% 64.4% 64.87 % 83.7% 65%
Individual / Insider 19.6% 16.8% <1 % 5.5% <1%
Hedge Fund 8.3% - - - <1%
Other 1.7% 18.8% 35 % 10.8% 35%
FOX: The Murdoch Family Trust owns 40% of the voting stock. Some activist investors have taken a stake recently.
AMZN: Jeff Bezos owns the largest percentage of shares of individuals or institutional investors
CMCSA: The other number includes ownership from mutual fund i.e. Vanguard and State Street Corporation are the largest investor.
NFLX: Largest individual investors are mutual funds (i.e. Vanguard) which has very little reason to shake the boat of a highly performing stock in recent years.
VZ: The marginal investor is a well diversified multinational investor. The other number includes ownership from mutual funds.

5. III. Risk and Return: Top Down Risk Analysis
Unlevered Beta 0.6 1.19 1.22 1.17 .31
Industry Segment
Cable TV, Broadcast TV,
FIlmed Entertainment
Internet and Direct
Marketing Retail
Cable Communications &
Network, Broadcasting TV,
Film Entertainment,
Theme Parks
Software (Entertainment) Services / Wireless
Share Price $29.14 $934.15 $39.01 156.46 46.69
Shares Outstanding 1.85 M 477.2 M 4,734 M 430.1 M 4,077 M
Market Value of Equity $53,486 M $445,590 M $184,673 M $ 67,300 M 217,613 M
Market Value of Debt $23,374 M $14,668.35 121,118 M $ 16,860 M 169,240 M
Debt/Equity 128.13% 3.29% 65.59% 26.66% 78%
Levered Beta 1.081 1.229 0.829 1.81 .456
Jensen’s Alpha (annualized) -9% 67.03% 8.28% 35.65% 1.84%
FOX: 2 year Bloomberg regression beta. Treated all contractual programming commitments as debt, which significantly increased debt/equity ratio.
CMCSA: 2 years regression beta was lower as contractual commitments as debt is not considered.
NFLX: Netflix’s actual Debt / Capital on interest bearing loans is 4%, however all contractual obligations were treated as debt for purposes of this exercise. This point will continue to
arise as an adjusted operating income number is used throughout the project financials.

6. III. Risk and Return: Bottom Up Beta
Unlevered Beta .9978 1.080 0.8792 1.17 .60
Unlevered Beta for
Operating Assets
1.07 1.117 0.9245 - .61
Levered Beta 1.77 1.103 1.21 1.35 .89
Levered Beta for Operating
Assets
1.89 1.141 1.285 - .90
Levered Beta for
Comparable Companies
1.41 1.42 1.22 1.26 .69
FOX: Given the large contractual commitments, FOX’s levered beta is significantly higher than it’s unlevered beta. This is significantly higher than the regression beta- which implies that
the market isn’t treating these commitments as debt. Additionally, FOX exited a lower beta industry 1 year ago.
CMCSA: Due to large contractual commitments, Comcast has significant Beta and quite higher from the Regression Beta. This implies market is not taking these commitments as Debt.
NFLX: Levered Beta is inline with the riskiness of Netflix’s business based on no physical assets in case of bankruptcy failure.
VZ: With high capital intensity and huge contractual obligations beyond leases and debt, levered beta rose rose to 50% above unlevered beta. Otherwise, the business is not terribly
susceptible to fluctuations in the market; people still need cell phones and internet in a slow growth economy.

7. III. Risk and Return: Cost of Capital
PV of ST & LT Debt $21,675 M $18,145 M $69,042 M $3,043 M $78,278 M
PV of Operating Leases &
other Contractual
Obligations
$50,058 M $6,691 M $ 52.076 M $13,818 M $90,962 M
Total Debt $71,734 M $24,836 M $121,118 M $16,862 M $169,240 M
Total Equity – Market
Capitalization
$53,486 M $445,590 M $184,673 M $67,300 M $217,613 M
Total Capitalization $123,834 M $470,426 M $305,791 M $84,162 M $386,853 M
Weighted ERP 6.28% 5.92% 5.69% 6.36% 5.69%
FOX: FOX has significant and long-term programming agreements which are treated as debt. These costs are significant and are driven primarily by sports rights. FOX does not break out
these costs on their income statement. Assumed costs (to adjust operating income) were based on future costs. International businesses brought up ERP.
CMCSA: Contractual obligations are major part of the debt for Comcast.
NFLX: Netflix’s actual Debt / Capital on interest bearing loans is 4%, however all contractual obligations were treated as debt for purposes of this exercise. This number will continue to
increase over the next few years as Netflix’s aim is for 50% of all content on its website to be originally made or co-sponsored. Timing for Netflix is interesting as it is transitioning from a
software company to a pure-play entertainment company.
VZ: Off-balance sheet contractual obligations make up the majority of debt.

8. III. Risk and Return: Cost of Capital
20th Century Amazon Comcast Netflix Verizon
WACC 7.56% 10.60% 6.59% 9.52% 5.26%

9. IV. Measuring Investment Returns:
ROE 17.51% 24.63% 48.41% 13.57% -152%
ROIC 8.05% 24.05%
13.63% (Default)
5.67% (Adjusted)
10.42% 16.78%
Cost of Equity 13.47% 11.05% 9.40% 11.07% 8.37%
WACC 7.56% 10.60% 6.59% 9.52% 5.26%
Equity Return 4.04% 2.50%
BV of Equity $17,220 M $13,384 M $53,943 M $2,937 M $16,428 M
BV of Capital $81,162 M $21,611 M $ 115,039 M $6,339 M $126,200 M
Firm EVA $401.98 $2143 M $1,436 M 7,991 M
FOX: FOX carries significant goodwill on balance sheet, some of which is a growth asset (some is not). Calculations kept 50% of goodwill on balance sheet. Cash was netted out.
CMCSA: They spend a lot on Good will and hence they have remarkable ROE of around 48%. The adjusted return on capital is less than cost of capital due to higher contractual
commitments for Comcast.
NFLX: All numbers listed above are adjusted numbers taking into account Netflix’s contractual expenses and obligations into the overall margin and debt numbers for the company. The
nature of the projects that Netflix is taking on is also adjusting over the past five years, with a greater propensity to create / produce original media content which will take a larger
amount of invested capital. Netflix is hoping this additional capital requirement will correlate with a higher user base / revenue return numbers. As of now, they are showing slightly
positive returns when compared to its cost of equity (11.07%) and firm cost of capital (9.52%).
VZ: Overpaying for acquisitions created a large goodwill balance on the balance sheet. That adversely affects ROE.

10. V. Financing Mix: Current
Market Value of Equity $56,523 M $445,590 M $ 184,673 M $ 67,300 M 217,613 M
Debt/Equity 126% 4.07% 65.04% 26.66% 78%
Loans & Bonds % of Debt 30% 42.40% 47.18% 18% 46%
Weighted Maturity 11.36 10.56 16.71 6.91 15
Current Interest Rate 4.85% 3.52% 4.5% 4.46% 4.45%
Operating Leases % of Debt - 36.88% 2% - 8%
Other Contractual
Obligations % of Debt
70% 20.72% 41% 82% 45%
Currency USD USD USD USD USD
Marginal Tax Rate 40% 40% 40% 40% 40%
FOX: Programming costs are the primary other contractual obligation
CMCSA: Comcast has the right optimal debt. It has very high maturity of around 16 year. BUt have the right optimal structure.
NFLX: Netflix has very little interest bearing debt (due to the fact that they have very little upfront costs). This may slowly change depending on their future role as a true production
house vs. leasing content to be distributed on their platform.
VZ: Verizon is actually slightly below the industry average for D/E, which is surprising by the size and maturity of the company. That is highlighted in the optimal structure calculation.

11. VI. Optimal Financing Mix
Optimal Debt /
Capital Ratio
Comparison to
Sector
50% 33%
10% 63.3%
40% 48.96%
20% 12.85%
60% 49%
NFLX: Netflix’s sector comparison is to the software (entertainment) sector, in which margins are lower for
leading to lower reinvestment rates. If the comparison is done to more mature entertainment / media
companies such as Fox, Comcast, or Verizon, a larger optimal debt / capital ratio could be used to finance
new media projects.

12. VII. Moving to the Optimal Financing Mix
Current Debt Ratio 55.93% 3.97% 39.61% 20.75% 40.72%
Optimal Debt Ratio 50% 10% 40% 20% 60%
Change Needed
No major change required.
Slightly reduce debt ratio by
lessening dividend. Use
shorter term debt
6.03%
No major change required,
the major debt is due to
contractual obligations
No change needed. Netflix’s
actual debt is only 4%, but
20% number due to
outstanding contractual
obligations
19.28%
Timing of Change (i.e
gradually or right away)
Gradual Right away N/A N/A Right away
Corrective Action
Can’t continue to overinvest
in contractual commitments
in sports
Take on more inexpensive
debt while markets are
receptive
Can continue with the
current commitments as it
is fruitful in terms of making
good investments.
Need to make sure push
into new original content
continues to build user base
at same historical rates
Take on more inexpensive
debt while markets are
receptive
New Financing
Replace some long-term
debt with shorter term debt
Take on longer-term debt N/A N/A
Mimic the current duration
mix.
Short Term vs. Long Term Shorter Long Term Long Term N/A Long Term
Currency USD USD USD N/A USD
Fixed or Floating Fixed Fixed Fixed N/A Fixed

13. VIII. Existing Dividend Policy
Cash Balance $4,424 M $19,334 M $3,301 M $1,467 M $2,880 M
Historical Dividends
$821 M (2016)
$.33 per share
$0
No historical dividends
$0.55 per share (last three
years)
$0
No historical dividends
$10.8 / share
(last five years)
FCFE $1550 M (2016) $ -3,713 M $7,004 M $ -284 M $35,762 M
Dividend Yield 1.14% 0% 1.41% 0% 4.29%
Fox has used share
buybacks to return cash to
shareholders. 81% of value
returned has been through
buybacks
Amazon has no historical
dividends. In 2016, the
Board of Directors
authorized a $5.0 billion
buyback program with no
fixed expiration. The last
buyback was for $960 M in
2012.
Comcast pays small portion
in form of dividends so that
they can take in more
investors. FCFE also is high
so it shows that lenders are
ready to sell at lesser rate.
Netflix has no historical
dividends and discontinued
share buybacks over 5 years
ago. As a true growth
company, needing to
continue to build its content
base, Netflix is spending as
much capital as possible for
new content obligations.
Verizon pays out a small
dividend, likely to attract
certain investors, and
always increases its
dividend. The company
would be wise keep its cash
balance low by returning as
much cash to shareholders
as possible while keeping
capital investment to a
minimum.

14. Year 1 Year 2 Year 3 Year 4 Year 5
Net Income $2,975 $3,213 $3,471 $3,748 $4,048
FCFE $2,559 $2,784 $3,027 $3,291 $3,576
Expected Dividends $862 $905 $950 $998 $1,048
Cash avail. buybacks $1,697 $1,879 $2,077 $2,293 $2,528
IX. Assessing Dividends and Future Dividend Policy
Net Income $3,557 $5,335 $8,002 $12,003 $18,005
FCFE ($11,939) ($17,684) ($26,256) ($39,060) ($58,201)
Expected Dividends $0 $0 $0 $0 $0
Cash avail. buybacks ($11,939) ($17,684) ($26,256) ($39,060) ($58,201)
Net Income $8956 $9225 $9501 $9786 $10,080
FCFE $6,881 $7,087 $7,300 $7,519 $7,745
Expected Dividends $2,679 $2,759 $2,842 $2,972 $3,015
Cash avail. buybacks $4,202 $4,328 $4,458 $4,592 $4,729
*all numbers in millions

15. IX. Assessing Dividends and Future Dividend Policy (cont.)
Year 1 Year 2 Year 3 Year 4 Year 5
Net Income $231.11 $286.11 $354.21 $438.51 $542.88
FCFE ($3,688.36) ($4,566.20) ($5,652.95) ($6,998.35) ($8,663.96)
Expected Dividends $0 $0 $0 $0 $0
Cash avail. buybacks $0 $0 $0 $0 $0
Net Income $14,164 $15,283 $16,490 $17,793 $19,199
FCFE $27,677 $29,201 $30,826 $32,559 $34,408
Expected Dividends $9,594 $9,937 $10,293 $10,661 $11,043
Cash avail. buybacks $18,083 $19,264 $20,533 $21,898 $23,365
FOX: projections FOX should continue to issue dividends to provide consistent returns to investors and not change their overall strategy of using buybacks as their
primary method of returning value to shareholders.
CMCSA: Based on current forecasts of dividends and FCFE, we see that they have large cash available for reinvestments as they pay less in dividends. I would suggest they
should go ahead with the current investments as they have been beneficial in the past.
NFLX: Based on current projections of capital spend and low margin numbers, Netflix should not change its dividend policy anytime soon. It’s best bet is to continue to
push growth and have 100% reinvestment rate of operating income of free cash flow to the firm.
VZ: Their payout ratio is 70%, so any additional FCFE needs to go towards buybacks, which pretty much appears to be their approach. As the company matures, it may be
important to invest less and increase FCFE as finding attractive projects becomes more difficult.
*all numbers in millions

16. X. Valuation
Current Stock Price $28.45 $934.15 $39.01 156.45 46.69
Current Market Cap $53,486 M $445,590 M $185,390 M $67,300 M $189,350 M
Type of Valuation Analysis DCF DCF DCF DCF DCF
Estimated Value of Firm $128,859 M $102,824 M $198,832 M $82,711 M $311,609 M
Estimated Value of Equity $65,260 M $116,396 M $92,211 M $64,173 M $204,191 M
Estimated Share Price $34.90 $243.51 $19.27 $149.10 $50.08
Market Comparison
Market price is undervalued
(Buy)
Market Price is overvalued
(Sell)
Market price is overvalued
(Sell)
Market price is overvalued
(Sell)
Market price is undervalued
(Buy)

17. X. Valuation
Analysis
Assumes marginal tax rate
going forward. If tax rate
increases to marginal rate--
company is slightly
overvalued ($28.45 vs.
$26.08)
Highly overvalued. The
valuation is based on
projected growth and
continued industry
disruption. The high level of
growth is projected to
continue for at least the
next five years.
Highly overvalued by 51%.
The valuation is based on
projected growth, huge
debt in form of contractual
commitments is used for
reinvestments .
Market valuation is a very
slight overvaluation. Entire
basis of Netflix’svaluation is
based on project growth /
spending levels which have
been inconsistent YoY and
not sustainable for
long-term viability.
Slightly undervalued. The
stock has declined over the
last few months from
above the target valuation.
The firm is capable of
generating additional value
through operations and
changing to the optimal
debt level.
Levers
4% growth decelerating to
steady-state. Slight increase
of EBIT margin to 35% (from
34%). Steady state sales to
capital ratio.
The sales to capital ratio is
currently well below the
industry average. Scaling
the ratio to more in line
with projected value yielded
the listed valuation.
EBIT Margin is higher
already around 22 % which
is higher than industry
average. Also if we see
growth rate is low as it is a
stable market in this sector.
EBIT Margin is the biggest
lever for Netflix’s valuation.
If Netflix has to spend more
to continue to build is
content base and revenue
growth does not follow, this
is significant overvalue.
Operating margins have an
enormous impact on value.
When I changed my
operating margin
assumption just a couple of
percent the target value
jumped wildly.
Overall Evaluation
Tax is biggest driver--if
corporate taxes come
down, or FOX continues to
pay their current rate- the
company is undervalued. If
programming costs
continue to rise and EBIT
margin declines, stock could
be overvalued.
Amazon is changing the
retail industry landscape.
Projects to deliver more
quickly
Tax benefit on contractual
commitment debt has been
one of the key drivers.The
company is also into a lot of
acquisitions like NBC and
Universal Studios. It should
carry on such investments
after proper analysis.
Overall, Netflix is a stable
company valued heavily
upon its potential future
growth. If Netflix’s level of
spending does not show
consistent YoY returns, the
company’s valuation will
not be accurate.
The company needs to
focus on returning cash to
investors via a combination
of dividends and buybacks
as the industry continue to
mature. Acquisitions will
probably destroy equity
returns, as they have in the
past.