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 | $0 | million |
NNO is negative because Humana's nonoperating assets exceed its nonoperating liabilities.
(a) Estimate the value of a share of Humana's common stock using the discounted cash flow (DCF) model as of December 31, 2018.
| Reported | Forecast Horizon | Terminal | |||||
|---|---|---|---|---|---|---|---|
| ($ millions) | 2018 | 2019 | 2020 | 2021 | 2022 | Period | |
| Increase in NOA | Answer 1
| Answer 2
| Answer 3
| Answer 4
| Answer 5
| ||
| FCFF (NOPAT - Increase in NOA) | Answer 6
| Answer 7
| Answer 8
| Answer 9
| Answer 10
| ||
| Present value of horizon FCFF | Answer 11
| Answer 12
| Answer 13
| Answer 14
| |||
| Cum. present value of horizon FCFF | Answer 15
| ||||||
| Present value of terminal FCFF | Answer 16
| ||||||
| Total firm value | Answer 17
| ||||||
| NNO | Answer 18
| ||||||
| Firm equity value | Answer 19
| ||||||
| Shares outstanding (millions) | Answer 20
| ||||||
| Stock price per share | Answer 21
|
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Fundamentals of Investments Valuation and Management
Authors: Bradford Jordan, Thomas Miller
7th edition
978-0078096785, 78096782, 978-0077861636, 77861639, 978-0078115660
