Following are forecasts of Abercrombie & Fitch's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 29, 2011. (Current-year NOPAT is lower due to transitory items; we use a longer term estimate for NOPM of 8%.) Reported Horizon Period (In millions) Sales NOPAT NOA 2011 2012 2013 2014 2015 Terminal Period $3,469 $3,989 $4,587 $5,275 $6,066 $6,187 152 319 367 422 485 495 1,032 1,173 1,349 1,551 1,784 1,820 Answer the following requirements assuming a discount rate (WACC) of 10%, a terminal period growth rate of 2%, common shares outstanding of 87.2 million, and net nonoperating obligations (NNO) of $(858) million. (Negative NNO reflects net nonoperating assets such as investments rather than net obligations) (a) Estimate the value of a share of Abercrombie & Fitch common stock using the discounted cash flow (DCF) model as of January 29, 2011. Rounding instructions: Round answers to the nearest whole number unless noted otherwise. Use your rounded answers for subsequent calculations. Do not use negative signs with any of your answers. (In millions) Increase in NOA FCFF (NOPAT - Increase in NOA) Discount factor [1/(1+ (w)"] Present value of horizon FCFF Cum present value of horizon FCFF $ Reported 2011 (Round to 5 decimal places) Horizon Period 2012 2013 2014 2015 Terminal Period 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 NNO 0 Firm equity value $ 0 Shares outstanding (millions) 0 (round one decimal place) Stock price per share $ (round two decimal places) Present value of terminal FCFF Total firm value (b) Assume Abercrombie & Fitch (ANF) stock closed at $56.71 on March 29, 2011. How does your valuation estimate compare with this closing price? What do you believe are some reasons for the difference? Stock prices are a function of many factors. It is impossible to speculate on the reasons for the difference. Our stock price estimate is lower than the ANF market price, indicating that we believe that ANF stock is undervalued. Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Our lower stock price estimate might be due to more optimistic forecasts or a lower discount rate compared to other investors' and analysts' model assumptions. Our stock price estimate is lower than the ANF market price, indicating that we believe that ANF stock is overvalued. Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Our lower stock price estimate might be due to more optimistic forecasts or a lower discount rate compared to other investors' and analysts' model assumptions. Our stock price estimate is higher than the ANF market price, indicating that we believe that ANF stock is undervalued. Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Our higher stock price estimate might be due to more optimistic forecasts or a lower discount rate compared to other investors' and analysts' model assumptions