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