Question 1: Suppose that AT&T is forecasting its EBIT for next year and the company estimates that its EBIT will be $50.5 million. Depreciation expense is estimated to be $7.85 million. The company is divesting its WarnerMedia division for an estimated $4.50 million in Cap. Ex. Meanwhile, net working capital is expected to increase by $1.25 million. Currently, AT&T's tax rate is 28%. Assume that the company will grow at a constant rate of 3.5% for a foreseeable future and the required rate of return for investing in AT&T is 12.5%, answer the following: (1) What is AT&T's free cash flow? (2) Explain in plain English what your calculated number in (1) means (3) If applicable, value AT&T using the Free Cash Flow model. (4) If applicable, explain in plain English what your calculated number in (3) means | AT&T INC. NYSE-T 28.75 TO 9.2 (Hodine 198) DE ARTE 0.44 7.4% 45 SI PE , RELATIVE DIVD VALUE YLD 0 LINE TIMELINESS 3 Loveted 120319 High 29.5 29.6 319 386 390 375 49.9 430 393 39.7 396 LOW 21.4 23.81 272 29.0 32.8 317 310 33.4 32.6 25.8 28.3 26.1 Target Price Range SAFETY 1 Raised 32909 LEGENDS 2023 2024 2025 85 Chow 120 TECHNICAL 4 Lowited 12420 2. Alativo Price Strength -100 Options You BETA (1.00Mark Shaded an indicated in BO 18-Month Target Price Range -48 Low-High Midpoint to Mid $24-$48 $35 (20%) TI -32 2023-25 PROJECTIONS Ann'l Total Price Gain Return -16 High 65 (+125%) 27% LOW 55 (+90 -12 22% Institutional Decisions % TOT RETURN 11/20 LS THIS 908819 10,000 202000 VL ARTH Porcent 12 STOCK INDEX 1350 1181 -180 to sol 1 y 1227 157 1008 3y 62 235 Hd 200401806438803103743475 Syr 120 640 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 VALUE LINE PUB. LLCT23-25 12.38 11.31 16.24 19.83 21.05 20.84 2105 21.38 2288 24.64 25.53 23.89 2568 26.15 23.45 2498 21.00 24.70 Revenues per sh 28.90 3.77 3.42 4.63 5.36 5.56 5:46 5.60 5.31 5.70 6.10 6:04 6.05 702 704 7.19 7.52 7.15 7.40 "Cash Flow per sh 9.00 1.47 1.72 234 2.78 2.16 2.12 220 2.39 2.50 250 254 3.05 3.52 3.58 3.20 3.35 Earnings per shA 4065 1.25 1.29 1.33 1.42 1.60 1.64 1.68 1.72 176 1.80 1.84 19 192 1.96 2.00 2.04 2.08 2.12 Divds Decl'd per sh B. 2.60 1.54 14 214 293 3334 281 3130 359 749 209 150 3151 271 2.75 2.85 Cap Spending per sh 3.25 12.29 14.11 29.76 19.09 16.35 1734 1894 17.85 16.61 17.50 16.75 1996 2008 22.94 2528 25.39 2735 29.20 Book Value per she 32.05 3300938769383206043.558930580195911.15926.555814 522635186961449 613906139.47281.6725467125.07125.0 Common Shs Outsig 6750.0 172 1319 12,6 142 154 121 11.7 1974 145 142 138 127 9.5 95 Bold we are Avg Anni PE Ratio 13.0 91 .74 .68 1.75 93 .81 74 84 92 .80 73 63 72 64 51 52 Vine Relative PIE Ratio .70 5.4% 4.5% 3.6% 4.8% 6.4% 6.3% estes 58% 52% 53% 56% 5.1% 6.0% 6.0% Avg Ann Divd Yield 43% 1120 shares 1190 traded 229 259 38 83 2 . NRSRSR 5 5.0% 5.15 40 Pension Assets-12/19 $53530 mill Oblig. 85987354555.7% 417% 43.182 483 405 228% 40% 20% Long Term Debt Ratio mil 65.5 63.3% 58,3% 56.9% 53.3% 50.79 51.3% 526% 51.1% 522% 55.0% 58.0% Common Equity Ratio 61.5% 170921 167097150053 180772 15299522155 237791 257979360134 358243 348000 58000 Total Capital (Smill) 351500 Pid Stock None 10319107097109787 110982 112998124450 299 125222131473130128137000 132000 Net Plant (Smill) 135000 Common Stock 7,126 mil shares 8.8% 8.9% 9.7% 9.6% 9.1% 72% 8.5% 8.0% 0.1% 7.5% 7.5% Return on Total Capl 10.05 as of 10/31/20 122 124 148 147 15:05 124 1439 13.45 1308743% 1155 11.5% Return on Shr. Equity 14.5% 122 124 14% 147 15.0 12.5 13 13.5 13.0% 14% 11.5% 11.59 Return on Com Equity 14.5% MARKET CAP: 5205 billion (Large Cap) 3.3% 28% 27% 41% 40% % 48% 57% 62% 40% 40% Retained to Com Eq 6.5% CURRENT POSITION 2018 2019 9/30/20 73 789 75% 72% 73% 67% 67% 56% 57% 65% SMLL) 63% All Divds to Net Prof 56% Cash Assets 5204 12130 9758 BUSINESS: AT&T Inc., formerly SBC Communications, is one of Cingular). Acquired AT&T Corp., 11/05, BellSouth, 12/06 DirecTV. Other 46223 42631 40213 the world's largest telecom camers and is the largest in the US. Its 75. Time Warner, 6/18 19 sales mie : Service, 90% Equipment, Current Assets 51427 54761 49071 traditional (SBC only) wireline subsidiaries provide services in 13 10%. Has about 234 630 employees. Black Rock, 7.0% of common Accts Payable 431B445056 Debt Due 10255 11838 42728 states, including Califomis. Texas, nos, Michigan Ohio. Mis stock Officers & directors own less than 1% (320 Proxy), CEO 5898 Other 10981 11117 10939 sour. Connecticut Indiana Wisconsin. Odlahoma, Kansas, John Starkey. Inc.: DE, Addr: 208 S. Akard St, Dallas, Texas, Current Liab 64420 68911 59565 Arkansas and Nevada Also owns AT&T Wireless previously 75202. Tel: 210-821-4105. Internet: www.aft.com Fix Chg. Cov. 355% 332% 3114 Recent results at beleaguered telecom content (e.g., the "Wonder Woman 1984" ANNUAL RATES Past Past Estd 17-19 carrier AT&T have been better than film) on the way, and a distribution agree- of change pers 10 Yrs 5 Yrs. to 23-25 Revenues 2.0% .5% anticipated. Third-quarter share net of ment with the popular Roku platform 2.5% "Cash Flow 3.0% 4.0% 3.5% $0.76 fell short of our $0.83 call, mainly rumored to be in the works. This traction Camings 3.5% 6.5% 5.5% because of high coronavirus-related ex- should lend needed support to the top and Dividends 2.5% 2.0% 4.5% Book Value 3.5% 7.5% penses that weighed on margins. But the bottom lines, and enable AT&T to better 4.5% top-line performance revenues clocked in compete for the attractive streaming pie Cal- QUARTERLY REVENUES S mill.) Full at $42.3 billion) edged past our estimate with the likes of Disney and Netflix endar Mar 31 Jun 30 Sep.30 Dec 31 Year and Wall Street's consensus view, thanks Free cash flow remains ample. This is 2017 39366 39837 39668 41676 160546 to a good showing from the core wireless critical, since it's allowing the company to 2018 38088 38956 45739 47993 70756 business. Indeed, the Dallas-based compa- pare its heavy debt burden and keep in. 2020 42779 40950 42340 44931 71000 scribers during the September stanza, far technologies. It also means that the gener 2019 4482744857 4588 46821 18110 ny added 645,000 postpaid phone sub-vesting in streaming content and new 5G 2021 43000 43250 43500 46250 76000 more than rival Verizon. This helped to ous dividend payout (the vield is over 7%