Reference no: EM133113194
1. Estimating Share Value Using the DCF Model
Following are forecasts of Home Depot's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 3, 2019, which the company labels fiscal 2018.
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Forecast Horizon Period
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Reported
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Terminal
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$ millions
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2018
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2019
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2020
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2021
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2022
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Period
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Sales
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$108,203
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$115,777
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$123,882
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$132,553
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$141,832
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$144,669
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NOPAT
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12,073
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12,967
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13,875
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14,846
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15,885
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16,203
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NOA
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25,546
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27,332
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29,245
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31,292
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33,483
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34,152
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Answer the following requirements assuming a discount rate (WACC) of 7.85%, a terminal period growth rate of 2%, common shares outstanding of 1,105 million, net nonoperating obligations (NNO) of $27,424 million.
Required
a. Estimate the value of a share of Home Depot's common stock using the discounted cash flow (DCF) model as of February 3, 2019.
Note: Do not round until your final answer; round your final answer to two decimal places.
Stock price per share: $Answer
b. Home Depot stock closed at $190.06 on March 28, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? AnswerStock price is overvaluedStock price is undervaluedStock price is appropriately valued
2. Estimating Share Value Using the DCF Model
Following are forecasts of Target Corporation's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 2, 2019, which we label fiscal year 2018.
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Reported
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Horizon Period
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Terminal
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$ millions
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2018
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2019
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2020
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2021
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2022
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Period
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Sales
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$75,356
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$79,124
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$83,080
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$87,234
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$91,596
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$93,428
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NOPAT
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3,269
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3,402
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3,572
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3,751
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3,939
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4,017
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NOA
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23,020
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24,197
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25,407
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26,677
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28,011
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28,571
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Answer the following requirements assuming a terminal period growth rate of 2%, a discount rate (WACC) of 7.63%, common shares outstanding of 517.8 million, and net nonoperating obligations (NNO) of $11,723 million.
Estimate the value of a share of Target common stock using the discounted cash flow (DCF) model as of February 2, 2019.
Instructions:
Round all answers to the nearest whole number, except for discount factors, shares outstanding (do not round), and stock price per share.
- Round discount factors to 5 decimal places.
- Round stock price per share to two decimal places.
- Do not use negative signs with any of your answers.
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Reported
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Forecast Horizon
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Terminal
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($ millions)
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2018
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2019
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2020
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2021
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2022
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Period
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Increase in NOA
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FCFF (NOPAT - Increase in NOA)
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Discount factor [1/(1+rw)t]
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Present value of horizon FCFF
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Cum. present value of horizon FCFF
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Present value of terminal FCFF
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Total firm value
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NNO
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Firm equity value
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Shares outstanding (millions)
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Stock price per share
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3. Computing Residual Operating Income (ROPI)
Home Depot reports net operating profit after tax (NOPAT) of $12,073 million for the fiscal year ended February 3, 2019. Its net operating assets at the beginning of the fiscal year are $24,887 million.
Assuming a 7.85% weighted average cost of capital (WACC), what is Home Depot's residual operating income for the fiscal year ended February 3, 2019?
Round answer to the nearest million.