Question
In: Accounting
Estimating Share Value Using the DCF Model Following are forecasts of Target Corporation's sales, net operating...
Estimating Share Value Using the DCF
Model
Following are forecasts of Target Corporation's sales, net
operating profit after tax (NOPAT), and net operating assets (NOA)
as of January 30, 2016
| Reported | Horizon Period | Terminal | ||||
|---|---|---|---|---|---|---|
| $ millions | 2016 | 2017 | 2018 | 2019 | 2020 | Period |
| Sales | $73,785 | $75,261 | $76,766 | $78,301 | $79,867 | $80,666 |
| NOPAT | 3,312 | 3,387 | 3,454 | 3,524 | 3,594 | 3,630 |
| NOA | 21,445 | 21,872 | 22,309 | 22,755 | 23,210 |
23,443 |
Answer the following requirements assuming a terminal period
growth rate of 1%, a discount rate (WACC) of 6%, common shares
outstanding of 602 million, and net nonoperating obligations (NNO)
of $8,488 million.
a. Estimate the value of a share of Target common stock using the
discounted cash flow (DCF) model as of January 30,
2016.
Instructions:
-
Round all answers to the nearest whole number, except for discount factors and stock price per share.
- Round discount factors to 5 decimal places.
- Round stock price per share to two decimal places.
- Do not use negative signs with any of your answers.
| Reported | Forecast Horizon | Terminal | |||||
|---|---|---|---|---|---|---|---|
| ($ millions) | 2016 | 2017 | 2018 | 2019 | 2020 | Period | |
| Increase in NOA |
427 |
437 |
446 |
455 |
|||
| FCFF (NOPAT - Increase in NOA) |
2960 |
3017 |
3078 |
3139 |
|||
| Discount factor [1/(1+rw)t] |
0.9434 |
?? |
?? |
?? |
|||
| Present value of horizon FCFF |
2792 |
?? |
?? |
?? |
|||
| Cum. present value of horizon FCFF |
??? |
||||||
| Present value of terminal FCFF |
???? |
||||||
| Total firm value |
???? |
||||||
| NNO |
8488 |
||||||
| Firm equity value |
???? |
||||||
| Shares outstanding (millions) |
602 |
||||||
| Stock price per share |
???? |
||||||
Solutions
Expert Solution
Solution:
Estimate the value of a share of Target common stock using the discounted cash flow (DCF) model as of January 30, 2016:
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