Estimating Share Value Using the DCF Model Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2019 through 2022. Colgate Palmolive $ millions Sales.. NOPAT. NOA Reported 2018 $15,544 2,737 5,837 Forecast Horizon Period 2019 2020 2021 2022 $16,010 $16,491 $16,985 $17,495 2,818 2,902 2,989 3,079 6,012 6,193 6,378 6,570 Required a. Forecast the terminal period values assuming a 1% terminal period growth for all three model inputs, that is Sales, NOPAT, and NOA. b. Estimate the value of a share of Colgate-Palmolive common stock using the discounted cash flow (DCF) model; assume a discount rate (WACC) of 5.7%, common shares outstanding of 862.9 million, net nonoperating obligations (NNO) of $5,640 million, and noncontrolling interest (NCI) from the balance sheet of $299 million. c. Colgate-Palmolive's stock closed at $66.70 on February 21, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? What do you be- lieve are some reasons for the difference? d. The forecasts you completed assumed a terminal growth rate of 1%. What if the terminal rate had been 2%? What would your estimated stock price have been? e. What would WACC have to be to warrant the actual stock price on February 21, 2019?
Estimating Share Value Using the DCF Model Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2019 through 2022. Colgate Palmolive $ millions Sales.. NOPAT. NOA Reported 2018 $15,544 2,737 5,837 Forecast Horizon Period 2019 2020 2021 2022 $16,010 $16,491 $16,985 $17,495 2,818 2,902 2,989 3,079 6,012 6,193 6,378 6,570 Required a. Forecast the terminal period values assuming a 1% terminal period growth for all three model inputs, that is Sales, NOPAT, and NOA. b. Estimate the value of a share of Colgate-Palmolive common stock using the discounted cash flow (DCF) model; assume a discount rate (WACC) of 5.7%, common shares outstanding of 862.9 million, net nonoperating obligations (NNO) of $5,640 million, and noncontrolling interest (NCI) from the balance sheet of $299 million. c. Colgate-Palmolive's stock closed at $66.70 on February 21, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? What do you be- lieve are some reasons for the difference? d. The forecasts you completed assumed a terminal growth rate of 1%. What if the terminal rate had been 2%? What would your estimated stock price have been? e. What would WACC have to be to warrant the actual stock price on February 21, 2019?
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Transcribed Image Text:Estimating Share Value Using the DCF Model
Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2019 through
2022.
Colgate Palmolive
$ millions
Sales...
NOPAT.
NOA.
Reported
2018
$15,544
2,737
5,837
Forecast Horizon Period
2019
2020
2021
2022
$16,010 $16,491 $16,985 $17,495
2,818 2,902 2,989 3,079
6,012 6,193 6,378 6,570
Required
a. Forecast the terminal period values assuming a 1% terminal period growth for all three model inputs,
that is Sales, NOPAT, and NOA.
b. Estimate the value of a share of Colgate-Palmolive common stock using the discounted cash flow
(DCF) model; assume a discount rate (WACC) of 5.7%, common shares outstanding of 862.9 million,
net nonoperating obligations (NNO) of $5,640 million, and noncontrolling interest (NCI) from the
balance sheet of $299 million.
c. Colgate-Palmolive's stock closed at $66.70 on February 21, 2019, the date the Form 10-K was filed
with the SEC. How does your valuation estimate compare with this closing price? What do you be-
lieve are some reasons for the difference?
d. The forecasts you completed assumed a terminal growth rate of 1%. What if the terminal rate had been
2%? What would your estimated stock price have been?
e. What would WACC have to be to warrant the actual stock price on February 21, 2019?
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