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Valuation Using Price-to-NOPAT Multiple The following table provides summary data for Applied Materials Inc. and its...
Valuation Using Price-to-NOPAT Multiple
The following table provides summary data for Applied Materials Inc. and its competitors, KLA Tencor Corporation and Lam Research Corporation.
|
(in millions) |
Applied Materials | KLA Tencor | Lam Research | ||
|---|---|---|---|---|---|
| Company assumed value | - | $9,791 | $11,530 | ||
| Equity assumed value | - | $8,988 | $13,245 | ||
| NOPAT | $1,444 | $440 | $674 | ||
| Net income | $1,377 | $366 | $656 | ||
| Net nonoperating obligations (assets) | $(1,369) | $803 | $(1,715) | ||
| Common shares outstanding | 1,160.0 | 157.9 | 158.5 |
a. Compute the price to NOPAT ratio for both KLA Tencor Corporation and Lam Research Corporation.
Round answers to two decimal places, when applicable.
| Price to NOPAT ratio | |
|---|---|
| KLA Tencor | Answer |
| Lam Research | Answer |
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.
-
Round company and equity intrinsic values to the nearest million.
-
Round equity intrinsic value per share to two decimal places.
| KLA Tencor Corporation | |||
|---|---|---|---|
| Company intrinsic value | Answer | million | |
| Equity intrinsic value | Answer | million | |
| Equity intrinsic value per share | Answer | ||
Solutions
Expert Solution
a. Price to NOPAT ratio = Company assumed value / NOPAT
For KLA TENCOR :
Company assumed value = $9791 million
NOPAT = $440 million
Price to NOPAT = 9791/440 = 22.25
For LAM RESEARCH :
Company assumed value = $11530 million
NOPAT = $674 million
Price to NOPAT = 11530/674 = 17.11
b. We consider both the companies as equally comparable to Applied Materials Inc. so we take simple average of their price to NOPAT ratios to calculate the same for Applied materials Inc.
So price to NOPAT ratio for Applied Materials Inc. = (22.25 + 17.11)/2 = 19.68
Company intrinsic value = NOPAT * price to NOPAT ratio of market = 1444*19.68 = $28417.92 million
Company's equity intrinsic value = Company assumed value - Net nonoperating obligations = $28417.92mn - (-$1369mn)
= $28417.92 mn +$1369 mn = $29786.92 million
Intrinsic value per share = Company's intrinsic equity value / number of shares = $29786.92 million / 1160 million
= $25.68
jeff jeffy answered 1 year agoRelated Solutions
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The following table provides summary data for Applied Materials
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(in millions)
Applied Materials
KLA Tencor
Lam Research
Company assumed value
-
$9,791
$11,530
Equity assumed value
-
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$13,245
NOPAT
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$674
Net income
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$366
$656
Net nonoperating obligations (assets)
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$803
$(1,715)
Common shares outstanding
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