E4.9. A Discounted Cash Flow Valuation: General Mills, Inc. (Medium) At the beginning of its fiscal year 2006, an analyst made the following forecast for General Mills, Inc., the consumer foods company, for 2006-2009 (in millions of dollars): 2006 2007 2008 Cash flow from operations Cash investment in operations $2.014 300 $2,057 $2,095 2009 52,107 380 442 470 General Mills reported $6,192 million in short-term and long-term debt at the end of 2005 but very little in interest-bearing debt assets. Use a required return of 9% to calculate both the enterprise value and equity value for General Mills at the beginning of 2006 under two forecasts for long-run cash flows:

a. Free cash flow will remain at 2009 levels after 2009. Free cash flow will grow at 3 percent per year after 2009. General Mills had 369 million shares outstanding at the end of 2005, trading at $47 per share. Calculate value per share and a value-to-price ratio under both scenarios. Real World Connection See Exercises E1.5, E2.9, E3.9, E6.8, E10.9, E13.15, E14.8, and E15.10.