Homework Answers
Data:
| Cost of Capital | 10% | Year | ||||||||
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | ||||
| FCF Forecast ($millions) | ||||||||||
| 1 | Sales | 19,300 | 21,230 | 23,140.7 | 24,991.96 | 26,741.39 | 28,345.87 | 29,763.17 | ||
| 2 | growth vs. prior year | 10% | 9% | 8% | 7% | 6% | 5% | |||
| 3 | EBIT | 10% | of Sales | 2,123 | 2,082.66 | 1,999.35 | 1,871.89 | 1,700.75 | 1,488.16 | |
| 4 | Less: Income Tax | 24% | of EBIT | (509.52) | (499.84) | (479.84) | (449.25) | (408.18) | (357.16) | |
| 5 | Less: Increase in NWC | 10.00% | of Δ sales | (193) | (191.07) | (185.13) | (174.94) | (160.45) | (141.73) | |
| 6 | Free Cash Flow | 1420.48 | 1391.75 | 1334.38 | 1247.7 | 1132.12 | 989.27 | |||
| 7 | PV of Free Cash Flows | 17,345.15 | ||||||||
| 8 | Value of Cash | 2,300 | ||||||||
| 9 | Value of Debt | 32 | ||||||||
| 10 | Number of Shares | 486 | ||||||||
| 11 | Share price | 40.35 |
Answer:
| a. | If Initial Revenue Growth Rate can vary between 7% and 11%, the stock price can vary between | 37.12 | and | 41.73 |
| b. | If EBIT Margin can vary between 9% and 11%, the stock price can vary between | 31.81 | and | 44.62 |
| c. | If Weighted Average Cost of Capital can vary between 9.5% and 12%, stock price can vary between | 36.11 | and | 46.02 |
| d. | If all three of the above can vary, the stock price can vary between | 26.86 | and | 52.97 |
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