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	$173,802	$184,047	$194,907	$206,419	$218,622
	NOPAT	23,941	25,128	26,453	27,858	29,346
	NOA	372,085	393,977	417,433	442,297	468,653

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)	$178,201	million
Noncontrolling interest	$12,841	million

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

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?

Answer 26HigherLower

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

	Value

What about if WACC has been 5.2%?

	Value