Question

Estimating Share Value Using the DCF Model

Following are the income statement and balance sheet for Texas Roadhouse for the year ended December 29, 2015.

a. Assume the following forecasts for TXRH’s sales, NOPAT, and NOA for 2016 through 2019. Forecast the terminal period values assuming a 1% terminal period growth rate for all three model inputs: Sales, NOPAT, and NOA.

Round your answers to the nearest dollar.

	Reported	Forecast Horizon				Terminal
$ thousands	2015	2016	2017	2018	2019	Period
Sales	$1,807,368	$2,078,473	$2,390,244	$2,581,464	$2,787,981	Answer
NOPAT	102,495	170,435	196,000	211,680	228,614	Answer
NOA	662,502	761,904	876,189	946,284	1,021,987	Answer

b. Estimate the value of a share of TXRH common stock using the discounted cash flow (DCF) model as of December 29, 2015; assume a discount rate (WACC) of 7%, common shares outstanding of 70,091 thousand, net nonoperating obligations (NNO) of $(14,680) thousand, and noncontrolling interest (NCI) from the balance sheet of $7,520 thousand. Note that NNO is negative because the company’s cash exceeds its nonoperating liabilities.

Rounding instructions:

• Use rounded answers for subsequent computations.

• Round answers to the nearest whole number unless otherwise noted.
• Round discount factor to 5 decimal places and stock price per share to two decimal places.

Do not use negative signs with any of your answers below.

TXRH	Reported			Forecast Horizon		Terminal
$ thousands	2015	2016	2017	2018	2019	Period
Increase in NOA
FCFF (NOPAT - Increase in NOA)
Discount factor [1 / (1 + rw)t ]
Present value of horizon FCFF
Cumul. PV of horizon FCFF
Present value of terminal FCFF
Total firm value
NNO
NCI
Firm equity value
Shares outstanding (thousands)
Stock price per share

Answer 1

Terminal Value = FCFFn * ( 1+ g) / ( r - g)
g = growth rate
r = cost of capital
Debt = NNO + NOA
Equity = Total value of firm - Debt