Reference no: EM132893544
Assume that your analysis of Lenovo indicates the following forecasts and assessments (inalphabetical order):
Accounts receivable: increase of 156 in 2010; decrease of 251 in 2011,
Cost of capital is 10%
Depreciation and amortization: constant at 2009 levels for 2010 and 2011
Future free cash flows (already adjusted for interest) from 2012 to perpetuity, present
valued to 2009: 3,400
Future repurchases and dividends from 2012 to perpetuity, present valued to 2009: 3,590
Income tax rate: 25% for all future periods
Interest-bearing debt: 621 as of March 31, 2009, constant going forward
Interest expense: constant at 2009 levels for 2010 and 2011
Internally developed patents, fair value: 3,100M as of March 31, 2009
Inventories: decrease of 123 in 2010; increase of 44 in 2011
Net Income: 233 in 2010; 315 in 2011
Payables: increase of 442 in 2010; decrease of 51 in 2011
Payments for construction ofplant and equipment in progress: 23 in 2010 and 45 in 2011
Purchased intangibles, fair value: 1,600M as of March 31, 2009
Payments to purchase completed property, plant and equipment: 110 in 2011; 112 in 2011
Retained earnings: increase of 43 in 2010; increase of 115 in 2011
Sales ofPP&E: none in 2010; proceeds of 15, gain of 5 in 2011
Shares outstanding: 9,211 million as of March 31, 2009
Transfers of self-constructed property, plant and equipment from construction in progress
to completed PP&E: 17 in 2010; 19 in 2011
Share repurchases: 65 in 2010; 76 in 2011
Unrecognized environment liabilities, fair value: 150M as of March 31, 2009
Problem 1: Estimate the value per share of Lenovo using the dividend discount approach we discussed in class as of March 31, 2009. Assume all cash flows in subsequent years occur at year-end (e.g., discount 2010 cash flows back one year).