Question

Question text

Valuation Using Income Statement Multiples

The following table provides summary data for Target and its competitors, Kohl's and Wal-Mart.

(in millions)	Target	Kohl's	Wal-Mart
Company assumed value	--	$23,098	$237,306
Equity assumed value	--	$22,470	$198,288
NOPAT	$3,159	$1,152	$13,354
Net income	$2,787	$1,109	$12,178
Net nonoperating obligations (assets)	$10,109	$628	$39,018
Common shares outstanding	860 shares	321 shares	41 shares

(a) Compute the price to NOPAT ratio for both Kohl's and Wal-Mart.

Round your answers to two decimal places.
Kohl's Answer

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Wal-Mart Answer

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(b) Use Kohl's and Wal-Mart as comparables, along with the company value to NOPAT ratios from part (a), and then estimate for Target its company intrinsic value, its equity intrinsic value, and its equity intrinsic value per share. (Round the intrinsic value and equity intrinsic value to the nearest million and the value per share to the nearest cent.)

Average of the two rounded ratios in (a) above
Answer

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(Round to two decimal places.)

Use your rounded answer above to calculate the following:

Intrinsic value $Answer

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million
Equity intrinsic value $Answer

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million
Equity intrinsic value per share $Answer

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(c) Compute the price to net income ratio for both Kohl's and Wal-Mart.

Round your answers to two decimal places.
Kohl's Answer

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Wal-Mart Answer

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(d) Use Kohl's and Wal-Mart as comparables, along with the equity to net income ratios from part (c), and then estimate for Target its equity intrinsic value and its equity intrinsic value per share. (Round the equity intrinsic value to the nearest million and the value per share to the nearest cent.)

Average of the two rounded ratios in (c) above
Answer

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(Round to two decimal places.)

Use the rounded average calculated above to calculate the following:
Equity intrinsic value $Answer

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Equity intrinsic value per share $Answer

Answer 1

Answer :-

a) Price to NOPAT (Kohl) = $23,098 / $1152 = 20.05

Price to NOPAT (Wal-mart) = $237,306 / $13,354 =17.77

b) Avg. Price to NOPAT = (20.05 + 17.77)/2 = 18.91

company Intrinsic Value (Target) = 18.91*$3159 = $59,737.00

Equity Intrinsic Value = Company Intrinsic Value - Net Non Operating Obligations

Target :-

Equity Intrinsic Value = ($59,737- $10,109) = $49,628

Equity Intrinsic Value per Share = $49,628/ 860 = $57.71

c) Equity Value to Net income :-

Kohl = Equity Assumed Value / Net Income

= $22,470 / $1,152

= 19.50

Wal Mart = $198,288 / $12,178 = 16.28

Avg. Equity value to Net Income = (19.50+ 16.28)/2 = 17.89

d) Equity Value for Target :-

= $2,787*17.89

= $49,859.43

Equity Value Per Share of Target :-

= $49,859.43 / 860

= $57.98