Answered: Estimating Share Value Using the DCF…

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter3: Financial Statements, Cash Flow, And Taxes

Section: Chapter Questions

Problem 19SP

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Estimating Share Value Using the DCF Model
Following are forecasts of Home Depot’s sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 3, 2019, which the company labels fiscal 2018.

		Forecast Horizon Period
	Reported					Terminal
$ millions	2018	2019	2020	2021	2022	Period
Sales	$103,875	$111,146	$118,927	$127,251	$136,159	$138,882
NOPAT	11,590	12,448	13,320	14,252	15,250	15,555
NOA	24,524	26,239	28,075	30,040	32,144	32,786

Answer the following requirements assuming a discount rate (WACC) of 7.85%, a terminal period growth rate of 2%, common shares outstanding of 1,105 million, net nonoperating obligations (NNO) of $26,327 million.

Required

a. Estimate the value of a share of Home Depot’s common stock using the discounted cash flow (DCF) model as of February 3, 2019.
Note: Do not round until your final answer; round your final answer to two decimal places.

Stock price per share: $Answer

b. Home Depot stock closed at $182.46 on March 28, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price?
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