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 Period 2017 2018 2019 2020 Sales $73,785 $75,261 $76,766 $78,301 $79,867 $80,666 3,630 NOPAT 3,312 3,387 3,454 3,524 3,594 23,443 NOA 21,445 21,872 22,309 22,755 23,210 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 $8,488 million. a. Estimate the value of a share of Target common stock using the discounted cash flow (DCF) model as of January 30, 2016. Instructions: Round all answers to the nearest whole number, except for discount factors and stock price per share. Round discount factors to 5 decimal places. Round stock price per share to two decimalplaces. Do not use negative signs with any of your answers. Reported Forecast Horizon Terminal ($ millions) Period 2016 2017 2018 2019 2020 0 x 0 x 0 x 0 x Increase in NOA 0 x 0 x 0 x 0 x 0 x 0 x FCFF (NOPAT Increase in NOA) Discount factor [1/(1+rw)t] 0 x 0 x 0 x 0 x 0 x 0 x 0 x Present value of horizon FCFF 0x 0 x Cum. present value of horizon FCFF $ 0 x Present value of terminal FCFF Total firm value 0 x 0 x NNO 0 x Firm equity value $ 0 x Shares outstanding (millions) $ 0 x Stock price per share

Answer 1

	2016	2017	2018	2019	2020	Terminal 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
ESTIMATED VALUE OF TARGET COMMON STOCK:
Increase in NOA		$                427	$                437	$                 446	$              455	$              233
FCFF (NOPAT-Increase in NOA)		$            2,960	$            3,017	$             3,078	$          3,139	$          3,397
Discount factor		0.94340	0.89000	0.83962	0.79209
Present value of horizon FCFF		$            2,792	$            2,685	$             2,584	$          2,486
Cumulative PV of horizon FCFF	$         10,548
Terminal FCFF = 3397/(0.06-0.01) =					$        67,940
Present value of terminal FCFF = 67940*0.79209 =	$         53,815
Total firm value	$         64,363
NNO	$            8,488
Firm equity value	$         55,875
Shares outstanding (millions)	602
Stock price per share	$            92.82