Estimating Share Value Using the DCF Model

Following are forecasted sales, NOPAT, and NOA for AT&T for $2019$ through $2022$

Note: Complete the entire question in Excel and format each answer to two decimal places. Then enter the answers into the provided spaces below with two decimal places.

a$.$ Forecast the terminal period values assuming the following terminal period growth rate.

Assumption

Terminal period growth rate $2\%$

Reported Forecast Horizon Period Terminal

$ millions $20182019202020212022$ Period

Sales $$173,681$ $$183,926$ $$194,786$ $$206,298$ $$218,501$ Answer $1$

$222,871\mathrm{.}02$

NOPAT $23,82025,00726,33227,73729,225$ Answer $2$

$29,809\mathrm{.}5$

NOA $371,964393,856417,312442,176468,532$ Answer $3$

$477,902\mathrm{.}64$

b$.$ Estimate the value of a share of AT&T common stock using the discounted cash flow $($DCF$)$ model as of December $31,2018$ using the following assumptions and the information above.

Assumptions

Discount rate $($WACC$)5\mathrm{.}70\%$

Common shares outstanding $7,281\mathrm{.}6$ million

Net nonoperating obligations $($NNO$)$ $$178,080$ million

Noncontrolling interest $$12,720$ million

Reported Forecast Horizon Terminal

$($$ millions$)20182019202020212022$ Period

Increase in NOA Answer $4$

$21,892$

Answer $5$

$23,456$

Answer $6$

$24,864$

Answer $7$

$26,356$

Answer $8$

$9,370\mathrm{.}64$

FCFF $($NOPAT $-$ Increase in NOA$)$ Answer $9$

$3,115$

Answer $10$

$2,876$

Answer $11$

$2,873$

Answer $12$

$2,869$

Answer $13$

$20,438\mathrm{.}86$

Present value of horizon FCFF Answer $14$

$2,947\mathrm{.}11$

Answer $15$

$2,573\mathrm{.}8$

Answer $16$

$2,431\mathrm{.}34$

Answer $17$

$2,306\mathrm{.}19$

Cum. present value of horizon FCFF Answer $18$

Present value of terminal FCFF Answer $19$

Total firm value Answer $20$

Less $($plus$)$ NNO Answer $21$

$0$

Less NCI Answer $22$

$0$

Firm equity value Answer $23$

$0$

Shares outstanding $($millions$)$ Answer $24$

$0$

Stock price per share Answer $25$

c$.$ AT&T closed at $$30\mathrm{.}85$ on February $20,2019,$ the date the Form $10-$K was filed with the SEC. How does your valuation estimate compare with this closing price?

Answer $26$

Higher

d$.$ If WACC has been $6\mathrm{.}2\%,$ what would the valuation estimate have been?

Value

Answer $27$

What about if WACC has been $5\mathrm{.}2\%?$

Value

Answer $28$