Question
Estimating Share Value Using the DCF Model Following are forecasts of Illinois Tool Works Inc. sales, net operating profit after tax (NOPAT), and net operating
Estimating Share Value Using the DCF Model
Following are forecasts of Illinois Tool Works Inc. sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of December 31, 2018.
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 | $9,599 | $10,175 | $10,785 | $11,433 | $12,119 | $12,361 |
| NOPAT | 1,762 | 1,872 | 1,984 | 2,103 | 2,230 | 2,274 |
| NOA | 6,150 | 6,518 | 6,910 | 7,324 | 7,764 | 7,919 |
Answer the following requirements with the following assumptions:
| Assumptions | ||
|---|---|---|
| Terminal period growth rate | 2% | |
| Discount rate (WACC) | 7.35% | |
| Common shares outstanding | 213.00 | million |
| Net nonoperating obligations (NNO) | $4,033 | million |
(a) Estimate the value of a share of ITWs common stock using the discounted cash flow (DCF) model as of December 31, 2018.
| Reported | Forecast Horizon | Terminal | |||||
|---|---|---|---|---|---|---|---|
| ($ millions) | 2018 | 2019 | 2020 | 2021 | 2022 | Period | |
| Increase in NOA | Answer | Answer | Answer | Answer | Answer | ||
| FCFF (NOPAT - Increase in NOA) | Answer | Answer | Answer | Answer | Answer | ||
| Present value of horizon FCFF | Answer | Answer | Answer | Answer | |||
| Cum. 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 | ||||||
| Stock price per share | Answer | ||||||
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