Estimating Share Value Using the DCF Model Following are forecasts of Target Cor

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 $73,785 $75,261 $76,766 $78,301 $79,867 $80,666 NOPAT 3,312 3,387 3,454 3,524 3,594 3,630 NOA 21,445 21,872 22,309 22,755 23,210 23,443 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 427 Answer 437 Answer 446 Answer 455 Answer 233 FCFF (NOPAT - Increase in NOA) Answer 2,960 Answer 3,017 Answer 3,078 Answer 3,139 Answer 3,397 Discount factor [1/(1+rw)t] Answer 0.9434 Answer 0.89 Answer 0.83962 Answer 0.79209 Present value of horizon FCFF Answer Answer 0 Answer 0 Answer 0 . present value of horizon FCFF $Answer Present value of terminal FCFF Answer Total firm value Answer 0 NNO Answer 8,488 Firm equity value $Answer 0 Shares outstanding (millions) Answer 602 Stock price per share $Answer 0

Explanation / Answer

Current Forecasted 2016 2017 2018 2019 2020 Terminal a Increase in NOA 427 437 446 455 233 b FCFF (NOPAT - Increase in NOA) 2960 3017 3078 3139 3397 c Discount factor [1/(1+rw)t] 0.9434 0.89 0.83962 0.79209 d=b*c Present value of horizon FCFF 2792 2685 2584 2486 e present value of horizon FCFF 10548 f Present value of terminal FCFF (terminal FCFF/(rw-g)) 67940 g=e+f Total firm value 78488 h NNO 8488 i=g-h Firm equity valuE 70000 j Shares outstanding (millions) 602 k=i/j Stock price per share 116.28

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