As of October 24, 2022, Walmart’s stock price is $139.41 per share.

To assess whether the stock is over/undervalued, we aim to estimate the share price using Discounted FreeCash Flow approach.

Following is Walmart’s sales forecast for the next four years along with the current year of 2022.

Year	2022 (Current year)	2023 (year 1)	2024 (year 2)	2025 (year 3)	2026 (year 4)
Sales (Millions)	$606,060	$623,750	$644,210	$657,600	$677,980

In addition, based on Walmart’s past profitability and investment needs, we assume the followings:

•EBIT is 4.7% of sales.
•Tax rate is 28.5% of EBIT.
•Net Working Capital (NWC) is required to be 1.8% of sales.
•Capital expenditure is expected to be 2.4% of sales.
•Depreciation is expected to be 1.9% of sales.

(a) To estimate free cash flows (FCF) for years 1 through 4, fill in the following table.

	Year1	Year 2	Year 3	Year 4
Sales
Depreciation
EBIT
Taxes
CapEx
NWC
NWC
FCF

(b) After year 4 (the year 2026), both sales revenue and free cash flows are expected to grow at a long-run rate of 3% every year forever. The firm-specific discount rate is 7%. What is the enterprise value today?

(c) In the current balance sheet, the firm has $14,760 million in cash, $152,969 million in debt, and 2,761 million shares outstanding. What is the share price?

(d) Suppose that the long-run growth rate in part (b) is 3.5% rather than 3% per year. With this growth rate, how much would a share be worth? (Other than the growth rate, there is no change in the discount rate and balance-sheet items).

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Walmart Inc. (WMT) NYSE - Nasdaq Real Time Price. Currency in USD Summary Company Outlook 139.41 +2.61 (+ 1.91%) 139.93 +0.52 (+0.37%) At close: 04:00PM EDT After hours: 05:04PM EDT Previous Close Open Bid Ask Day's Range 52 Week Range Volume Avg Volume Fair Value →→ XX.XX -19% Est. Retum View details 136.80 137.45 139.39 x 1100 139.26 x 1300 137.13-140.48 117.27-160.77 5,108,980 7,837,843 Overvalued Chart Add to watchlist EPS (TTM) Market Cap Beta (5Y Monthly) PE Ratio (TTM) Conversations Statistics Earnings Date Forward Dividend & Yield Ex Dividend Date 0.51 27.88 5.00 378.3928 1D SD 1M 6M YTD 1Y SY Max w Nov 15, 2022 28 Visitors trend 2W + 10W↑ SM ↑ 2.24 (1.64%) Dec 08, 2022 152.67 1y Target Est Related Research >> Analyst Report: Walmart IncWalmart is the world's largest retailer. In the fist... 19 days ago Argus Research View more Historical Data 10 AM Chart Events Ⓒ Bullish pattern detected Profile 12 PM View all chart patterns Financials Analysis Options Performance Outlook Short Mid Term Term 2W6W **Full screen 141.00 W 9M 139.41 02 PM 04 PM Trade prices are not sourced from all markets 137.67 136.80 136.00 Long Term Walmart Inc. (WMT) NYSE - Nasdaq Real Time Price. Currency in USD Summary Company Outlook 139.41 +2.61 (+ 1.91%) 139.93 +0.52 (+0.37%) At close: 04:00PM EDT After hours: 05:04PM EDT Previous Close Open Bid Ask Day's Range 52 Week Range Volume Avg Volume Fair Value →→ XX.XX -19% Est. Retum View details 136.80 137.45 139.39 x 1100 139.26 x 1300 137.13-140.48 117.27-160.77 5,108,980 7,837,843 Overvalued Chart Add to watchlist EPS (TTM) Market Cap Beta (5Y Monthly) PE Ratio (TTM) Conversations Statistics Earnings Date Forward Dividend & Yield Ex Dividend Date 0.51 27.88 5.00 378.3928 1D SD 1M 6M YTD 1Y SY Max w Nov 15, 2022 28 Visitors trend 2W + 10W↑ SM ↑ 2.24 (1.64%) Dec 08, 2022 152.67 1y Target Est Related Research >> Analyst Report: Walmart IncWalmart is the world's largest retailer. In the fist... 19 days ago Argus Research View more Historical Data 10 AM Chart Events Ⓒ Bullish pattern detected Profile 12 PM View all chart patterns Financials Analysis Options Performance Outlook Short Mid Term Term 2W6W **Full screen 141.00 W 9M 139.41 02 PM 04 PM Trade prices are not sourced from all markets 137.67 136.80 136.00 Long Term

Answer rating: 100% (QA)

a To estimate free cash flows FCF for years 1 through 4 we need to fill in the following table Year1 ... View the full answer