Estimating Share Value Using the DCF Model

Estimating Share Value Using the DCF Model Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 26, 2011, for Best Buy, Inc. 2015 (In millions) Sales NOPAT NOA Assume Reported Horizon Period 2011 2012 2013 2014 $40,023 $44,577 $49,650 $55,300 $61,592 1,448 1,781 1,990 2,240 5,256 5,867 6,544 7,299 8,125 Terminal Period $62,208 2,236 8,194 1,594 Answer the following requirements assuming a discount rate (WACC) of 11%, a terminal period growth rate of 1%, common shares outstanding of 410.5 million, net nonoperating obligations (NNO) of $772 million and noncontrolling interest (NCI) on the balance sheet of $690 million. (a) Estimate the value of a share of Best Buy's common stock using the discounted cash flow (DCF) model as of February 26, 2011. Rounding instructions: Round your answers to the nearest whole number except for the discount factors, shares outstanding, and the stock price per share. Round the discount factors to five decimal places, shares outstanding to one decimal place, and the stock price to two decimal places. Use your rounded answers for subsequent calculations. Horizon Period 2012 2013 0 x 2014 Ox OX Terminal Period 0X 2015 OX 0 X OX 0 x OX Do not use negative signs with any of your answers below. Assume Reported (In millions) 2011 Increase in NOA FCFF (NOPAT - Increase in NOA) Discount factor [1/(1+rw)t] (round 5 decimal places) Present value of horizon FCFF Cum present value of horizon FCFF $ 0 x Present value of terminal FCFF OX Total firm value 0 X NNO 0 X 0.9009 0.8116 x 0.7312 x 0.6587 X 888.58 x 0x 0 x OX NCI OX $ Firm equity value Shares outstanding (millions) Stock price per share 0x 0 x (round one decimal place) x (round two decimal places) $