Following are forecasts of Target Corporation\'s sales, net operating profit aft

ID: 2394116 • Letter: F

Question

Following are forecasts of Target Corporation's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 30, 2016

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 Horizon Period Terminal $ millions 2016 2017 2018 2019 2020 Period Sales $74,340 $75,827 $77,344 $78,891 $80,469 $81,274 NOPAT 3,345 3,412 3,480 3,550 3,621 3,657 NOA 22,302 22,748 23,203 23,667 24,141 24,382

Explanation / Answer

Particulars

Reported

Forecast Horizon

Terminal

($ Millions)

2016

2017

2018

2019

2020

Period

Increase in NOA

446

455

464

474

241

FCFF(NOPAT-Inc in NOA)

2,966

3,025

3,086

3,147

3,416

Discount Factor[(1/(1+rw)t]

.94340

.89000

.83962

.79209

PV of Horizon FCFF

2,798

2,692

2,591

2,493

Cumulative PV Of FCFF

10,571

PV of Terminal FCFF

[FCFF/(.06-.01)]*Disc Factor

54,116

Total Firm Value

64,687

NNO

8,488

Firm Equity Value

56,199

Shares O/S (Millions)

602

Stock Price Per Share

93.35

Note

Calculation Of PV Of Terminal Value

So, Cashflow = 3416

Growth =1%

WACC= 6%

SO, Pv @ 2020 = [3146/(0.06-0.01)]= $68,320

Pv @ 2016 = $62,920*.79209= $ 54,116