Question
Estimating Share Value Using the DCF Model Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of
Estimating Share Value Using the DCF Model
Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of December 31, 2018, for Humana.
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.
| Reported | Forecast Horizon Period | Terminal | ||||
|---|---|---|---|---|---|---|
| $ millions | 2018 | 2019 | 2020 | 2021 | 2022 | Period |
| Sales | $56,912 | $57,766 | $58,632 | $59,512 | $60,404 | $61,008 |
| NOPAT | 2,492 | 2,542 | 2,580 | 2,619 | 2,658 | 2,684 |
| NOA | 4,032 | 4,097 | 4,158 | 4,221 | 4,284 | 4,327 |
Answer the following requirements with the following assumptions:
| Assumptions | ||
|---|---|---|
| Terminal period growth rate | 1% | |
| Discount rate (WACC) | 7.8% | |
| Common shares outstanding | 135.60 | million |
| Net nonoperating obligations (NNO) | $(6,129) | million |
| Noncontrolling interest | $0 | million |
NNO is negative because Humanas nonoperating assets exceed its nonoperating liabilities.
(a) Estimate the value of a share of Humanas common stock using the discounted cash flow (DCF) model as of December 31, 2018.
| Reported | Forecast Horizon | Terminal | |||||
|---|---|---|---|---|---|---|---|
| ($ millions) | 2018 | 2019 | 2020 | 2021 | 2022 | Period | |
| Increase in NOA | Answer
| Answer
| Answer
| Answer
| Answer
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| FCFF (NOPAT - Increase in NOA) | Answer
| Answer
| Answer
| Answer
| Answer
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| Present value of horizon FCFF | Answer
| Answer
| Answer
| Answer
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| Cum. present value of horizon FCFF | Answer
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| Present value of terminal FCFF | Answer
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| Total firm value | Answer
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| NNO | Answer
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| Firm equity value | Answer
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| Shares outstanding (millions) | Answer
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| Stock price per share | Answer
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Expert Witnessing In Forensic Accounting
Authors: Thomas A. Buckhoff
1st Edition
9781930217140, 1930217145
