Question: 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

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 December 31, 2018, for Humana.

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.

Reported Forecast Horizon Period Terminal
$ millions 2018 2019 2020 2021 2022 Period
Sales $57,512 $58,366 $59,232 $60,112 $61,004 $61,608
NOPAT 3,092 3,142 3,180 3,219 3,258 3,284
NOA 4,632 4,697 4,758 4,821 4,884 4,927

Answer the following requirements with the following assumptions:

Assumptions
Terminal period growth rate 1%
Discount rate (WACC) 7.8%
Common shares outstanding 135.60 million
Net nonoperating obligations (NNO) $(5,529) million
Noncontrolling interest $0 million

NNO is negative because Humanas nonoperating assets exceed its nonoperating liabilities.

(a) Estimate the value of a share of Humanas common stock using the discounted cash flow (DCF) model as of December 31, 2018.

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
NNO Answer
Firm equity value Answer
Shares outstanding (millions) Answer
Stock price per share Answer

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