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Please show work for rating... Forecasting and Estimating Share Value Using the DCF Model Assume the following are the income statement and balance sheet for
Please show work for rating...
Forecasting and Estimating Share Value Using the DCF Model Assume the following are the income statement and balance sheet for CVS Caremark.
CVS CAREMARK INC. Consolidated Statements of Income | |||
---|---|---|---|
(In millions) | Dec. 31, 2012 | Dec. 31, 2011 | Dec. 31, 2010 |
Net revenues | $ 123,133 | $ 107,100 | $ 95,778 |
Cost of revenues | 100,627 | 86,539 | 75,559 |
Gross profit | 22,506 | 20,561 | 20,219 |
Operating expenses | 15,278 | 14,231 | 14,082 |
Operating profit | 7,228 | 6,330 | 6,137 |
Interest expense, net | 557 | 584 | 536 |
Loss on early extinguishment of debt | 348 | -- | -- |
Income before income tax provision | 6,323 | 5,746 | 5,601 |
Income tax provision | 2,441 | 2,258 | 2,179 |
Income from continuing operations | 3,882 | 3,488 | 3,422 |
Income (loss) from discontinued operations, net of tax | (7) | (31) | 2 |
Net income | 3,875 | 3,457 | 3,424 |
Net loss attributable to noncontrolling interest | 2 | 4 | 3 |
Net income attributable to CVS Caremark | $ 3,877 | $ 3,461 | $ 3,427 |
CVS CAREMARK INC. Balance Sheets | ||
---|---|---|
(In millions, except per share amounts) | Dec. 31, 2012 | Dec. 31, 2011 |
Assets | ||
Cash and cash equivalents | $ 1,375 | $ 1,413 |
Short-term investments | 5 | 5 |
Accounts receivables, net | 6,473 | 6,047 |
Inventories | 10,759 | 10,046 |
Deferred tax assets | 663 | 503 |
Other current assets | 577 | 580 |
Total current assets | 19,852 | 18,594 |
Propertyand equipment, net | 8,632 | 8,467 |
Goodwill | 26,395 | 26,458 |
Intangible assets, net | 9,753 | 9,869 |
Other assets | 1,280 | 1,155 |
Total assets | $65,912 | $64,543 |
Liabilities | ||
Accounts payable | $ 5,070 | $ 4,370 |
Claims and discounts payable | 3,974 | 3,487 |
Accrued expenses | 4,051 | 3,293 |
Short-term debt | 690 | 750 |
Current portion of long-term debt | 5 | 56 |
Total current liabilities | 13,790 | 11,956 |
Long-term debt | 9,133 | 9,208 |
Deferred income taxes | 3,784 | 3,853 |
Other long-term liabilities | 1,501 | 1,445 |
Redeemable noncontrolling interest | -- | 30 |
Shareholders' equity: | ||
Preferred stock, par value $0.01:0.1 shares authorized; none issued or outstanding | -- | -- |
Common stock, $0.01 par value, 3,200 shares authorized; 1,667 issued and 1,231 shares outstanding at December 31, 2012 and 1,640 shares issued and 1,298 shares outstanding at December 31, 2011 | 17 | 16 |
Treasury stock at cost: 435 shares at December 31, 2012 and 340 shares at December 31, 2011 | (16,270) | (11,953) |
Shares held in trust: 1 share at December 31, 2012 and 2 shares at December 31, 2011 | (31) | (56) |
Capital surplus | 29,120 | 28,126 |
Retained earnings | 25,049 | 22,090 |
Accumulated other comprehensive loss | (181) | (172) |
Total shareholders' equity | 37,704 | 38,051 |
Total liabilities and shareholders' equity | $65,912 | $64,543 |
(a) Compute CVS's net operating assets (NOA) as of December 31, 2012. 2012 NOA = $Answer (b) Compute net operating profit after tax (NOPAT) for fiscal year ended December 31, 2012, assuming a federal and state statutory tax rate of 37%.(Round your answer to the nearest whole number.) 2012 NOPAT = $Answer (c) Forecast CVS's sales, NOPAT, and NOA for 2013 through 2016 using the following assumptions:
Sales growth | 10% |
Net operating profit margin (NOPM) | 3.6% |
Net operating asset turnover (NOAT) at fiscal year-end | 2.67 |
Forecast the terminal period value assuming a 1% terminal period growth and using the NOPM and NOAT assumptions above.
CVS | Reported | Forecast Horizon | Terminal | |||
---|---|---|---|---|---|---|
($ millions) | 2012 | 2013 Est. | 2014 Est. | 2015 Est. | 2016 Est. | Period |
Sales (rounded two decimal places) | $Answer | $Answer | $Answer | $Answer | $Answer | $Answer |
Sales (rounded nearest whole number) | $Answer | $Answer | $Answer | $Answer | $Answer | $Answer |
NOPAT (rounded nearest whole number)* | Answer | Answer | Answer | Answer | Answer | Answer |
NOA (rounded nearest whole number)* | Answer | Answer | Answer | Answer | Answer | Answer |
* Use sales rounded to nearest whole number for this calculation.
(d) Estimate the value of a share of CVS common stock using the discounted cash flow (DCF) model as of December 31, 2012; assume a discount rate (WACC) of 7%, common shares outstanding of 1,231 million, and net nonoperating obligations (NNO) of $8,448 million. Use your rounded answers for subsequent calculations.
CVS | Reported | Forecast Horizon | Terminal | |||
---|---|---|---|---|---|---|
($ millions) | 2012 | 2013 Est. | 2014 Est. | 2015 Est. | 2016 Est. | Period |
DCF Model | ||||||
Increase in NOA (rounded to nearest whole number) | Answer | Answer | Answer | Answer | Answer | |
FCFF (NOPAT - Increase in NOA) | Answer | Answer | Answer | Answer | Answer | |
Discount factor (rounded to 5 decimal places) | Answer | Answer | Answer | Answer | ||
Present value of horizon FCFF (rounded to nearest whole number) | Answer | Answer | Answer | Answer | ||
Cum present value of horizon FCFF | $Answer | (rounded to nearest whole number) | ||||
Present value of terminal FCFF | Answer | (rounded to nearest whole number) | ||||
Total firm value | Answer | (rounded to nearest whole number) | ||||
Less NNO | Answer | (rounded to nearest whole number) | ||||
Firm equity value | $Answer | (rounded to nearest whole number) | ||||
Shares outstanding (millions) | Answer | (rounded to nearest whole number) | ||||
Stock price per share | $Answer | (rounded to two decimal places) |
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