Question

Estimating Share Value Using the DCF Model

Following are forecasts of Abercrombie & Fitch's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 29, 2011. (Current-year NOPAT is lower due to transitory items; we use a longer term estimate for NOPM of 8%.)

	Reported	Horizon Period
(In millions)	2011	2012	2013	2014	2015	Terminal Period
Sales	$ 3,469	$ 3,989	$ 4,587	$ 5,275	$ 6,066	$ 6,187
NOPAT	152	319	367	422	485	495
NOA	1,032	1,173	1,349	1,551	1,784	1,820

Answer the following requirements assuming a discount rate (WACC) of 10%, a terminal period growth rate of 2%, common shares outstanding of 87.2 million, and net nonoperating obligations (NNO) of $(858) million. (Negative NNO reflects net nonoperating assets such as investments rather than net obligations)

(a) Estimate the value of a share of Abercrombie & Fitch common stock using the discounted cash flow (DCF) model as of January 29, 2011.

Rounding instructions:

Round answers to the nearest whole number unless noted otherwise.

Use your rounded answers for subsequent calculations.

Do not use negative signs with any of your answers.

	Reported	Horizon Period
(In millions)	2011	2012	2013	2014	2015	Terminal 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 ]	(Round to 5 decimal places)	Answer	Answer	Answer	Answer
Present value of horizon FCFF		Answer	Answer	Answer	Answer
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	(round one decimal place)
Stock price per share	$Answer	(round two decimal places)

Answer 1