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 $20182019202020212022$ Period

Sales $$170,756$ $$181,001$ $$191,861$ $$203,373$ $$215,576$ Answer

$219,887\mathrm{.}52$

NOPAT $20,89522,08223,40724,81226,300$ Answer

$26,826$

NOA $369,039390,931414,387439,251465,607$ Answer

$474,919\mathrm{.}14$

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$)5\mathrm{.}70\%$

Common shares outstanding $7,281\mathrm{.}6$ million

Net nonoperating obligations $($NNO$)$ $$175,155$ million

Noncontrolling interest $$9,795$ million

Reported Forecast Horizon Terminal

$($$ millions$)20182019202020212022$ Period

Increase in NOA Answer

$21,892$

Answer

$23,456$

Answer

$24,864$

Answer

$26,356$

Answer

$9,312\mathrm{.}14$

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

$190$

Answer

$(49)$

Answer

$(52)$

Answer

$(56)$

Answer

$17,513\mathrm{.}86$

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$.$ AT&T closed at $$30\mathrm{.}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

Higher

d$.$ If WACC has been $6\mathrm{.}2\%,$ what would the valuation estimate have been?

Value

Answer

$137,406$

What about if WACC has been $5\mathrm{.}2\%?$

Value

Answer

$153,031$