FRA Exercise $5$

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 $2\%$

$\backslash$table$[[,$Reported,Forecast Horizon Period,,,,Terminal$],[$$ millions,$2018,2019,2020,2021,2022,$Period$],[$Sales$,$$$173,802,$$$184,047,$$$194,907,$$$206,419,$$$218,622,231,732],[$NOPAT$,23,941,25,128,26,453,27,858,29,346,30,541],[$NOA$,372,085,393,977,417,433,442,297,468,653,496,415]]$

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.

$\backslash$table$[[$Assumptions$,],[$Discount rate $($WACC$),5\mathrm{.}70\%,],[$Common shares outstanding,$7,281\mathrm{.}6,$million$],[$Net nonoperating obligations $($NNO$),$$$178,201,$million$],[$Noncontrolling interest,$$12,841,$million$]]$

$\backslash$table$[[($$ millions$),,\backslash$table$[[$Reported$],[2018]],\backslash$table$[[$Forecast Horizon$],[2019]],2020,2021,2022,\backslash$table$[[$Terminal$],[$Period$]]],[$Increase in NOA,,,$20,892,21,456,22,065,22,725,23,578],[$FCFF $($NOPAT $-$ Increase in NOA$),,,4,634,5,430,6,258,7,106,22,973],[$Present value of horizon FCFF$,,,4,135,4,821,5,550,6,312,],[$Cum$.$ present value of horizon FCFF$,$$$,55,377,,,,,],[$Present value of terminal FCFF$,,7,679,,,,,],[$Total firm value,,$63,056,,,,,],[$Less $($plus$)$ NNO,,$(177,838),,,,,],[$Less $NCl,,(12,478),,,,,],[$Firm equity value,$$,372,622,,,,,],[$Shares outstanding $($millions$),,7,281\mathrm{.}6,,,,,],[$Stock price per share,$$,51\mathrm{.}3,,,,,]]$

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?

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

$\backslash$table$[[,$Value$],[$$$,,348,878]]$

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

$\backslash$table$[[,$Value$],[$$$,402,093]]$