Estimating Share Value Using the DCF Model

Following are forecasted sales, NOPAT, and NOA for AT\&T for 2019 through 2022.

Note: Complete the entire question in Excel and format each answer to two decimal places. Then enter the answers into the provided spaces below with two decimal places.

a. Forecast the terminal period values assuming the following terminal period growth rate.
\begin{tabular}{|l|}
\hline Assumption \\
\hline Terminal period growth rate [tex]$2 \%$[/tex] \\
\hline
\end{tabular}

\begin{tabular}{|c|c|c|c|c|c|c|}
\hline
[tex]$\[tex]$[/tex]$ millions & \begin{tabular}{l} Reported \\ 2018 \end{tabular} & \begin{tabular}{l} Forecast Horizon Period \\ 2019 \end{tabular} & 2020 & 2021 & 2022 & \begin{tabular}{l} Terminal \\ Period \end{tabular} \\
\hline Sales & [tex]$\$[/tex] 173,681[tex]$ & $[/tex]\[tex]$ 183,926$[/tex] & [tex]$\$[/tex] 194,786[tex]$ & $[/tex]\[tex]$ 206,298$[/tex] & [tex]$\$[/tex] 218,501[tex]$ & $[/tex]\$[/tex] \\
\hline NOPAT & 23,820 & 25,007 & 26,332 & 27,737 & 29,225 & 0 \\
\hline NOA & 371,964 & 393,856 & 417,312 & 442,176 & 468,532 & 0 \\
\hline
\end{tabular}



Answer :

To forecast the terminal period values for Sales, NOPAT, and NOA given a terminal period growth rate of 2%, you'll need to follow these steps:

1. Identify the values for the last year (2022) from the provided table:
- Sales for 2022: \$218,501 million
- NOPAT for 2022: \$29,225 million
- NOA for 2022: \$468,532 million

2. Apply the terminal period growth rate of 2% to these values:
- Terminal Sales: Last year's Sales \(\times\) (1 + growth rate)
[tex]\[ \text{Terminal Sales} = 218,501 \times (1 + 0.02) = 218,501 \times 1.02 = 222,871.02 \][/tex]
- Terminal NOPAT: Last year's NOPAT \(\times\) (1 + growth rate)
[tex]\[ \text{Terminal NOPAT} = 29,225 \times (1 + 0.02) = 29,225 \times 1.02 = 29,809.50 \][/tex]
- Terminal NOA: Last year's NOA \(\times\) (1 + growth rate)
[tex]\[ \text{Terminal NOA} = 468,532 \times (1 + 0.02) = 468,532 \times 1.02 = 477,902.64 \][/tex]

So the values for the terminal period (rounded to two decimal places) are:
- Terminal Sales: \$222,871.02 million
- Terminal NOPAT: \$29,809.50 million
- Terminal NOA: \$477,902.64 million

Thus, the table with the terminal period values filled in looks as follows:

\begin{tabular}{|c|c|c|c|c|c|c|}
\hline
\(\$ \) millions & \begin{tabular}{l}
Reported \\
2018
\end{tabular} & \begin{tabular}{l}
Forecast Horizon Period \\
2019
\end{tabular} & 2020 & 2021 & 2022 & \begin{tabular}{l}
Terminal \\
Period
\end{tabular} \\
\hline
Sales & \[tex]$173,681 & \$[/tex]183,926 & \[tex]$194,786 & \$[/tex]206,298 & \[tex]$218,501 & \$[/tex]222,871.02 \\
\hline
NOPAT & 23,820 & 25,007 & 26,332 & 27,737 & 29,225 & 29,809.50 \\
\hline
NOA & 371,964 & 393,856 & 417,312 & 442,176 & 468,532 & 477,902.64 \\
\hline
\end{tabular}