Question

Valuation Using Price-to-NOA Multiple and PB Multiple

The following table provides summary data for Target and its competitors, Kohl's and Wal-Mart.

(in millions)	Target	Kohl's	Wal-Mart
Company assumed value	--	$23,098	$237,306
Equity assumed value	--	$22,470	$198,288
Net operating assets	$25,952	$6,040	$89,991
Book value of equity	$15,033	$5,603	$61,573
Net nonoperating obligations (assets)	$10,109	$628	$39,018
Common shares outstanding	860 shares	321 shares	41 shares

(a) Compute the price to net operating assets ratio for both Kohl's and Wal-Mart.

Round your answers to two decimal places.
Kohl's Answer
Wal-Mart Answer

(b) Use Kohl's and Wal-Mart as comparables, along with the price to NOA ratios from part (a), and then estimate for Target its company intrinsic value, its equity intrinsic value, and its equity intrinsic value per share.

Round the intrinsic value and equity intrinsic value to the nearest million and the value per share to the nearest cent.

Average of the two rounded ratios in (a) above
Answer (Rounded to two decimal places.)

Use your rounded answer above to calculate the following:
Company intrinsic value $Answer million
Equity intrinsic value $Answer million
Equity intrinsic value per share $Answer

(c) Compute the PB ratio for both Kohl's and Wal-Mart.

Round your answers to two decimal places.
Kohl's Answer
Wal-Mart Answer

(d) Use Kohl's and Wal-Mart as comparables, along with the PB ratios from part (c), and then estimate for Target its equity intrinsic value and its equity intrinsic value per share.

Round the equity intrinsic value to the nearest million and the value per share to the nearest cent.

Average of the two rounded ratios in (c) above
Answer (Round to two decimal places.)

Use the rounded average calculated above to calculate the following:
Equity intrinsic value
Equity intrinsic value per share

Answer 1

A) Price to Net Operating Assets Ratio = Price or Company assumed Value / Net Opeating Assets Ratio

KOHLS : 23098/6040 = 3.82417 = 3.82

WALMART: 237306/89991 = 2.636997 = 2.64

B) Average ratio of Price to Net operating assets ratio = (3.82 +2.64)/2 = 3.23

Company intrinsic Value = Target net operating assets * Average ratio of Price to Net Operating Assets

= 25952*3.23 = 83824.96

Equity Instrinsic Value = Book Value of Equity * Average Ratio of price to Net Operating Assets

= 15033*3.23 = 48556.59

Equity Intrinsic Value per share :

Equity Instrinsic Value Per share = Equity Intrinsic Value/Target Common Shares outstanding

= 48556.59/860 shares = 56.46

C) PB ratio: Equity Assumed Value / Book value of Equity

KOHLS : 22470 / 5603 = 4.01035 = 4.01

WALL MART ; 198288/61573 =  3.2203 = 3.22

Average PB Ratio: = (4.01+3.22 ) /2 = 3.615 = 3.62

Equity Intrinsic Value using PB ratio ; Target Book value of Equity * Average PB ratio

= 15033*3.62 = 54419.46

Equity Instrinsic Value Per share using PB ratio = Equity Intrinsic Value calculated using PB ratio /Target Common Shares outstanding  

=54419.46/860 = 63.28

d. Average equity value to net income ((22470/11.09) + (198288/12.178))/2 = (20.26+16.28)/2 = 18.27

Target equity intrinsicc value = 2787 * 18.27 = $50918.49

Target equity intrinsic value per share = 50.92/860 = $ 59.2