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%

		Reported	Forecast Horizon Period				Terminal
	$ millions	2018	2019	2020	2021	2022	Period
	Sales	$170,756	$181,001	$191,861	$203,373	$215,576	Answer
	NOPAT	20,895	22,082	23,407	24,812	26,300	Answer
	NOA	369,039	390,931	414,387	439,251	465,607	Answer

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.

Assumptions
Discount rate (WACC)	5.70%
Common shares outstanding	7,281.6	million
Net nonoperating obligations (NNO)	$175,155	million
Noncontrolling interest	$9,795	million

		Reported	Forecast Horizon				Terminal
	($ millions)	2018	2019	2020	2021	2022	Period
	Increase in NOA		Answer	Answer	Answer	Answer	Answer
	FCFF (NOPAT - Increase in NOA)		Answer	Answer	Answer	Answer	Answer
	Present value of horizon FCFF		Answer	Answer	Answer	Answer
	Cum. present value of horizon FCFF	Answer
	Present value of terminal FCFF	Answer
	Total firm value	Answer
	Less (plus) NNO	Answer
	Less NCI	Answer
	Firm equity value	Answer
	Shares outstanding (millions)	Answer
	Stock price per share	Answer

c. AT&T closed at $30.85 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?

AnswerHigherLower

d. If WACC has been 6.2%, what would the valuation estimate have been?

	Value
	Answer

What about if WACC has been 5.2%?

	Value
	Answer