Following are forecasts of Target Corporation's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 30, 2016 Reported Horizon Period Terminal $ millions 2016 2017 2018 2019 2020 Period Sales $73,785 $75,261 $76,766 $78,301 $79,867 $80,666 NOPAT 3,312 3,387 3,454 3,524 3,594 3,630 NOA 21,445 21,872 22,309 22,755 23,210 23,443 Answer the following requirements assuming a terminal period growth rate of 1%, a discount rate (WACC) of 6%, common shares outstanding of 602 million, and net nonoperating obligations (NNO) of $8,488 million. a. Estimate the value of a share of Target common stock using the discounted cash flow (DCF) model as of January 30, 2016. Instructions: Round all answers to the nearest whole number, except for discount factors and stock price per share. Round discount factors to 5 decimal places. Round stock price per share to two decimal places. Do not use negative signs with any of your answers.

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Answer:

The estimate value of Target common stock is $ 93.71  

Explanation:

Find attached computation of estimate value of common stock using DCF approach.

First of all determine Free Cash Flow in each which is the NOPAT minus the increase in NOA.

I discounted the FCF to present using the WACC of 6% as discount rate.

The terminal value formula is in the attached as well.

Kindly note that the discount factor for the terminal value is the preceding year discount factor.

The present value of all free cash flows including terminal value gives the estimate of the entire firm value.

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