Question

	Applied Materials	KLA Tencor	Lam Research
Company assumed value	0	9679	23685
Equity assumed value	0	8876	21268
NOPAT	1444	440	9487
Net income	1377	366	7070
Net nonoperating obligations	-1369	803	2417
Common shares outstanding	1,160.0 shares	157.9 shares	158.5 shares
A) Compute the price to NOPAT ratio for both KLA Tencor Corporation and Lam Research Corporation
B) Use KLA Tencor Corporation and Lam Research Corporation as comparables, along with the price to NOPAT ratios from part a. and then estimate for Applied Materials its company intrinsic value, its equity intrinsic value and its equity intrinsic value per share

Answer 1

Part (A)

Please see the table below. The last row contains the answer:

Parameter	Linkage	KLA Tencor	Lam Research
Company assumed value	A	9,679.00	23,685.00
Equity assumed value	B	8,876.00	21,268.00
NOPAT	C	440.00	9,487.00
Net income	D	366.00	7,070.00
Net nonoperating obligations	E	803.00	2,417.00
Common shares outstanding	F	157.90	158.50
Price / NOPAT ratio	B/C	20.17	2.24

Part (B)

Average of Price / NOPAT ratio = (20.17 + 2.24) / 2 = 11.21

Intrinsic equity value of Applied Materials = Average Price / NOPAT ratio x NOPAT of Applied Materials = 11.21 x 1,444 =  16,183.29

Company Intrinsic Value of Applied Materials = Intrinsic equity value + Net nonoperating obligations =  16,183.29 - 1,369 =  14,814.29

Intrinsic equity value per share of Applied Materials = Intrinsic equity value of Applied Materials / Number of shares =  16,183.29 / 1,160 = 13.95