Estimating Share Value Using the DCF Model

Following are forecasted sales, NOPAT, and NOA for Colgate$-$Palmolive Company 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 $1\%$

Reported Forecast Horizon Period Terminal

$ millions $20182019202020212022$ Period

Sales $$7,772$ $$8,005$ $$8,246$ $$8,493$ $$8,748$ Answer

$0$

NOPAT $1,3691,4091,4511,4951,540$ Answer

$0$

NOA $2,9193,0063,0973,1893,285$ Answer

$0$

b$.$ Estimate the value of a share of Colgate$-$Palmolive common stock using the discounted cash flow $($DCF$)$ model using the following assumptions and the information above.

Assumptions

Discount rate $($WACC$)5\mathrm{.}70\%$

Common shares outstanding $431\mathrm{.}0$ million

Net nonoperating obligations $($NNO$)$ $$2,820$ million

Noncontrolling interest $($NCI$)$ $$150$ million

Reported Forecast Horizon Terminal

$($$ millions$)20182019202020212022$ Period

Increase in NOA Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

FCFF $($NOPAT $-$ Increase in NOA$)$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

Present value of horizon FCFF Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

Cum. present value of horizon FCFF Answer

$0$

Present value of terminal FCFF Answer

$0$

Total firm value Answer

$0$

Less $($plus$)$ NNO Answer

$0$

Less NCI Answer

$0$

Firm equity value Answer

$0$

Shares outstanding $($millions$)$ Answer

$0$

Stock price per share Answer

$0$

c$.$ Colgate$-$Palmolive$$s stock closed at $$66\mathrm{.}70$ on February $21,2019,$ the date the Form $10-$K was filed with the SEC. How does your valuation estimate compare with this closing price?

Answer

d$.$ The forecasts you completed assumed a terminal growth rate of $1\%.$ What if the terminal rate had been $2\%.$ What would your estimated stock price have been?

Value

Answer

$0$

e$.$ What would WACC have to be to warrant the actual stock price on February $21,2019?$

WACC

Answer

$0$