FINANCIAL ACCOUNTING
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Transcribed Image Text: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 February 2, 2019, which we label fiscal year 2018.
Note: Complete the entire question in Excel and format each answer to two decimal places. Then enter the answers into the provided spaces below with two decimal places.
Reported Forecast Horizon Period
$
millions 2018
Terminal
2019
2020 2021 2022
$79,124 $83,830 $87,234 $92,346
Period
$93,428
4,767
Sales
$76,106
NOPAT
3,269
NOA
23,770
4,152 3,572 4,501 3,939
24,197 26,157 26,677 28,761 28,571
Answer the following requirements with the following assumptions:
Assumptions
Terminal period growth rate
2%
Discount rate (WACC)
7.63%
Common shares outstanding
517.80 million
Net nonoperating obligations (NNO) $12,473 million
Estimate the value of a share of Target common stock using the discounted cash flow (DCF) model as of February 2, 2019.
($ millions)
Increase in NOA
Reported
2018
$
LA
Forecast Horizon
Terminal
2019
2020
2021
2022
Period
427 $
FCFF (NOPAT - Increase in NOA)
Present value of horizon FCFF
3725
1960 $
1612
520 $
3981
2084 $
1855
3461.4
1402.92
3246.03
1420.39
Cum. present value of horizon FCFF $
0
Present value of terminal FCFF
0
Total firm value
NNO
0
12473
Firm equity value
$
-12473
Shares outstanding (millions)
Stock price per share
LA
517.8
24.05
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