Forecasting and Estimating Share Value Using the DCF Model Following are the inc
ID: 2536063 • Letter: F
Question
Forecasting and Estimating Share Value Using the DCF Model
Following are the income statement and balance sheet for Intel Corporation.
*This should be considered as operating income.
** These investments are operating assets as they relate to associated companies.
(a) Compute Intel's net operating assets (NOA) for year-end 2010.
2010 NOA = $Answer
(b) Compute net operating profit after tax (NOPAT) for 2010, assuming a federal and state statutory tax rate of 37%.
HINT: Gains/losses on equity method investments are considered operating income. Round your answer to the nearest whole number.
2010 NOPAT = $Answer
(c) Forecast Intel's sales, NOPAT, and NOA for years 2011 through 2014 using the following assumptions:
Forecast the terminal period value using the assumptions above and assuming a terminal period growth of: 1%.
* Use sales rounded to nearest whole number for this calculation.
(d) Estimate the value of a share of Intel common stock using the discounted cash flow (DCF) model as of December 25, 2010; assume a discount rate (WACC) of 11%, common shares outstanding of 5,511 million, and net nonoperating obligations (NNO) of $(20,778) million (NNO is negative which means that Intel has net nonoperating investments).
Use your rounded answers for subsequent calculations.
Do not use negative signs with any of your answers below.
(rounded 5
decimal places)
(rounded to
nearest whole number)
Consolidated Statements of Income Year Ended (In millions) Dec. 25, 2010 Dec. 26, 2009 Dec. 27, 2008 Net revenue $ 43,623 $ 35,127 $ 37,586 Cost of sales 15,132 15,566 16,742 Gross margin 28,491 19,561 20,844 Research and development 6,576 5,653 5,722 Marketing, general and administrative 6,309 7,931 5,452 Restructuring and asset impairment charges -- 231 710 Amortization of acquisition-related intangibles 18 35 6 Operating expenses 12,903 13,850 11,890 Operating income 15,588 5,711 8,954 Gains (losses) on equity method investments, net* 117 (147) (1,380) Gains (losses) on other equity investments, net 231 (23) (376) Interest and other, net 109 163 488 Income before taxes 16,045 5,704 7,686 Provisions for taxes 4,581 1,335 2,394 Net income $ 11,464 $ 4,369 $ 5,292
Explanation / Answer
(a) Calculation of Net Operating Asset Under 2010 Net Operating Asset= Operating Assets - Operating Liabilities Operating Assets = Total Assets - Cash & Investments Operating Liabilities = Total Liabilities - Long-term Debt(LTD) - Current Portion of LTD Operating Assets = Total Assets - Cash & Investments =63816-5498-11294 47,024.00 Operating Liabilities = Total Liabilities - Long-term Debt(LTD) - Current Portion of LTD =13756-2077-1236 10,443.00 Net Operating Asset= Operating Assets - Operating Liabilities =47024-10433 36,591.00 (b) Calculation of Net Operating Profit Profit After Tax- 2010 Amount Amount Sales 43,623.00 Less: Cost of Goods Sold -15,132.00 Gross Margin 28,491.00 Less: Research and Development Cost -6,576.00 Less: Selling, General and Administrative charges -6,309.00 Less: Operating Expenses -12,903.00 Add: Operating Income 15,588.00 Add: Gains (losses) on equity method investments, net 117.00 -10,083.00 Income before interest and Tax 18,408.00 Less: Interest -109.00 Income before Tax 18,299.00 Less: Tax @37% -6,771.00 Net Operating Profit after Tax 11,528.00 (C) Forecast of Sales, NOPAT & NOA INTC Reported Forecast Horizon Terminal ($ millions) 2010 2011 Est. 2012 Est. 2013 Est. 2014 Est. Period Sales (rounded two decimal places) 43,623.00 47,985.30 52,783.83 58,062.21 63,868.43 64,507.12 Sales (rounded nearest whole number) 43,623.00 47,985.00 52,784.00 58,062.00 63,868.00 64,507.00 NOPAT (rounded nearest whole number)* 11,528.00 12,476.00 13,724.00 15,096.00 16,606.00 16,772.00 NOA (rounded nearest whole number)* 36,591.00 31,990.00 35,189.00 38,708.00 42,579.00 43,005.00 Note- Net operating asset Turnover= Sales/ NOA =1.5 NOA= Sales/NOAT Sales/1.5 (d) Calculation of stock Price INTC Reported Forecast Horizon Terminal ($ millions) 2010 2011 Est. 2012 Est. 2013 Est. 2014 Est. Period DCF Model Increase in NOA -4,601.00 3,199.00 3,519.00 3,871.00 426.00 FCFF (NOPAT - Increase in NOA) 17,077.00 10,525.00 11,577.00 12,735.00 16,346.00 Discount factor 0.9009 0.81162 0.73119 0.65873 0.59345 Present value of horizon FCFF 15,385.00 8,542.00 8,465.00 8,389.00 9,701.00 Present value of horizon FCFF 40,781.00 Present value of terminal FCFF 9,701.00 Total firm value 50,482.00 NNO -20778 Firm equity value 29,704.00 =32919+49430 Shares outstanding (millions) 5511 Stock price per share 5.39 Note- Best effort have been made to answer the question correctly, in case of any discrepencies kindly comment and i will try to resolve it as soon as possible. Please provide positive feedback.
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