Selected company is 3M Company (MMM). Using the facilities of ValuePro (http://w

Question

Selected company is 3M Company (MMM). Using the facilities of ValuePro (http://www.valuepro.net) for the company that you have selected to study conduct a discounted cash flow valuation. The analysis should explain each variable used in the analysis, why you accepted the given input, or how and why you changed a variable. The analysis should also examine the relevant cash flows, compare the final valuation to the stock’s current price and explain any differences. (Note: Remember to adjust the equity risk premium to between 5% and 6%; also, adjust the growth rate to an appropriate long-term growth rate.)

Intrinsic Stock Value 145.06 Excess Return Period (yrs) 10 Depreciation Rate (% of Rev) 4.31 Revenues ($mil) 30052 Investment Rate (% of Rev) 4.96 Growth Rate (%) 7.5 Working Capital (% of Rev) 20.52 Net Oper. Profit Margin (%) 20.92 Short-Term Assets ($mil) 13855 Tax Rate (%) 28.972 Short-Term Liab ($mil) 6041 Stock Price ($) 156.73 Equity Risk Premium (%) 3 Shares Outstanding (mil) 690.2 Company Beta 0.8925 10-Yr Treasury Yield (%) 5 Value Debt Out. ($mil) 4864 Bond Spread Treasury (%) 1.5 Value Pref. Stock Out. ($mil) 0 Preferred Stock Yield (%) 7.5 Company WACC(%) 7.55

Explanation / Answer

From the Valuepro we have taken the initial revenue of the company as = 30052 The growth rate in the revenues = 7.50% which is also company's growth rate. Taxes= 28.97% Depreciation = 4.31% of revenue Net operating profit margin = 20.92% Rate of investment = 4.96% Change in working capital = 20.52% Change in investment = 13.11% WACC = 7.55% Period Revenues NOP Adj. NOPAT Invest. Deprec. Change in Change in FCFF Discount Discounted Taxes Working Invest. Working Factor FCFF Capital Capital at 7.55% 0 30052 6166.67 1 32305.9 6758.394 1958.04 4800.352 1602.37 6629.17 1392.38429 209.9909 462.5 4127.861 $0.93 $3,838.09 2 34728.8 7265.274 2104.9 5160.379 1722.55 7126.36 1496.813112 225.7403 497.188 4437.451 $0.86 $3,836.30 3 37333.5 7810.169 2262.76 5547.407 1851.74 7660.84 1609.074095 242.6708 534.477 4770.259 $0.80 $3,834.52 4 40133.5 8395.932 2432.47 5963.463 1990.62 8235.4 1729.754652 260.8711 574.563 5128.029 $0.75 $3,832.74 5 43143.5 9025.627 2614.9 6410.722 2139.92 8853.05 1859.486251 280.4364 617.655 5512.631 $0.69 $3,830.95 6 46379.3 9702.549 2811.02 6891.527 2300.41 9517.03 1998.94772 301.4691 663.979 5926.078 $0.65 $3,829.17 7 49857.7 10430.240 3021.85 7408.391 2472.94 10230.8 2148.868799 324.0793 713.777 6370.534 $0.60 $3,827.39 8 53597.1 11212.508 3248.49 7964.020 2658.41 10998.1 2310.033959 348.3853 767.311 6848.324 $0.56 $3,825.61 9 57616.9 12053.446 3492.12 8561.322 2857.8 11823 2483.286506 374.5142 824.859 7361.949 $0.52 $3,823.83 10 61938.1 12957.455 3754.03 9203.421 3072.13 12709.7 2669.532994 402.6027 886.723 7914.095 $0.48 $3,822.06 Residual 121967 58544.37 Discounted Excess Return Period FCFF 38312.5 Total Corporate Value 110712 Discounted Corporate Residual Value 58544.4 Less Debt -4864 Short-Term Assets 13855 Less Preferred Stock 0 Total Corporate Value 110712 Less Short-Term Liabilities -6041 Total Value to Common Equity 99806.9 Intrinsic Stock Value 144.61 which is higher than the current market price of the stock.

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