Acc306 individual assignment questions a discounted cash


Assignment Questions -

Question 1: A Discounted Cash Flow Valuation: General Mills, Inc.

At the beginning of its fiscal year 2006, an analyst made the following forecast for General Mills, Inc., the consumer foods company, for 2006-2009 (in millions of dollars):

 

2006

2007

2008

2009

Cash flow from operations

2,014

2,057

2,095

2,107

Cash investment in operations

300

380

442

470

General Mills reported $6, 192 million in short-term and long-term debt at the end of 2005 but very little in interest-bearing debt assets. Use a required return of 9 percent to calculate both the enterprise value and equity value for General Mills at the beginning of 2006 under two forecasts for long-run cash flows:

a. Free cash flow will remain at 2009 levels after 2009.

b. Free cash flow will grow at 3 percent per year after 2009.

General Mills had 369 million shares outstanding at the end of 2005, trading at $47 per share. Calculate value per share and a value-to-price ratio under both scenarios.

a. The exercise involves calculating free cash flows, discounting them to present value, then adding the present value of a continuing value. For part (a) of the question, the continuing value has no growth.

Question 2: Free Cash Flow for Kimberly-Clark Corporation

Below are summary numbers from reformulated balance sheets for 2007 and 2006 for Kimberly-Clark Corporation, the paper product s company, along with numbers from the reformulated income statement for 2007 (in millions of dollars).

 

2007

2006

Operating assets

$18, 057.0

$16,796.2

Operating liabilities

6 , 011.8

5,927.2

Financial assets

382.7

270.8

Financial obligations

6,496.4

4,395.4

Operating income (after tax)

$2,740.1

 

Net financial expense (after tax)

147.1

 

a. The net payout to shareholders (dividends and share repurchases minus share issues) in 2007 was $3,405.9 million. Calculate free cash flow using Method 1 and Method 2.

b. The firm reported cash flow from operation s of $2,429 million in its 2007 cash flow statement and also reported net interest payments of $142.4 million. It reported $898 million in cash spent on investing activities, but this was after including a net $56 million from liquidating short-term interest-bearing securities. The firm's statutory tax rate is 36.6 percent. Calculate free cash flow from these reported numbers.

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Financial Accounting: Acc306 individual assignment questions a discounted cash
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