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

	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

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	Forecast Horizon				Terminal
($ millions)		2016	2017	2018	2019	2020	Period
Increase in NOA			Answer	Answer	Answer	Answer	Answer
FCFF (NOPAT - Increase in NOA)			Answer	Answer	Answer	Answer	Answer
Discount factor [1/(1+rw)t]			Answer	Answer	Answer	Answer
Present value of horizon FCFF			Answer	Answer	Answer	Answer
Cum. present value of horizon FCFF		$Answer
Present value of terminal FCFF		Answer
Total firm value		Answer
NNO		Answer
Firm equity value		$Answer
Shares outstanding (millions)		Answer
Stock price per share		$Answer

Answer 1

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