Question

# Estimating Share Value Using the DCF Model Following are the income statement and balance sheet for...

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.

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.

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

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