Question

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	$77,118	$78,660	$80,233	$81,838	$83,475	$84,310
NOPAT	3,470	3,540	3,610	3,683	3,756	3,794
NOA	23,135	23,598	24,070	24,551	25,043	25,293

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			Answer	Answer	Answer	Answer	Answer
FCFF (NOPAT - Increase in NOA)			Answer	Answer	Answer	Answer	Answer
Discount factor [1/(1+rw)t]			Answer	Answer	Answer	Answer
Present value of horizon FCFF			Answer	Answer	Answer	Answer
Cum. present value of horizon FCFF		Answer
Present value of terminal FCFF		Answer
Total firm value		Answer
NNO		Answer
Firm equity value		Answer
Shares outstanding (millions)		Answer
Stock price per share		Answer

Answer 1

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