# Verizon Communications Inc. (VZ) | Present Value of Free Cash Flow to the Firm (FCFF)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

## Intrinsic Stock Value (Valuation Summery)

Verizon Communications Inc., free cash flow to the firm (FCFF) forecast

USD \$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at %
01 FCFF0
1 FCFF1 = × (1 + %)
2 FCFF2 = × (1 + %)
3 FCFF3 = × (1 + %)
4 FCFF4 = × (1 + %)
5 FCFF5 = × (1 + %)
5 Terminal value (TV5) = × (1 + %) ÷ (% – %)
Intrinsic value of 's capital
Less: Debt (fair value)
Intrinsic value of 's common stock

Intrinsic value of 's common stock (per share) \$
Current share price \$

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

## Weighted Average Cost of Capital (WACC)

Verizon Communications Inc., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) %
Debt (fair value) % = % × (1 – %)

1 USD \$ in millions

2 Required rate of return on debt is after tax (estimated effective tax rate is %)

WACC = %

## FCFF Growth Rate (g)

### FCFF growth rate (g) implied by PRAT model

Verizon Communications Inc., PRAT model

Average Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Selected Financial Data (USD \$ in millions)
(Provision) benefit for income taxes
Net income attributable to Verizon
Tax rate1   % % % % %

Interest expense
Interest expense, after tax2
Interest expense (after tax) and dividends

EBIT(1 – Tax Rate)3

Debt maturing within one year
Long-term debt, excluding maturing within one year
Equity attributable to Verizon
Total capital
Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5   % % % % %
Averages
RR
ROIC %

Growth rate of FCFF (g)6 %

2012 Calculations

1 Tax rate = 100 × (Provision) benefit for income taxes ÷ (Net income attributable to Verizon + (Provision) benefit for income taxes)
= 100 × ÷ ( + ) = %

2 Interest expense, after tax = Interest expense × (1 – Tax rate)
= × (1 – %) =

3 EBIT(1 – Tax Rate) = Net income attributable to Verizon + Interest expense, after tax
= + =

4 RR = [EBIT(1 – Tax Rate) – Interest expense (after tax) and dividends] ÷ EBIT(1 – Tax Rate)
= [] ÷ =

5 ROIC = 100 × EBIT(1 – Tax Rate) ÷ Total capital
= 100 × ÷ = %

6 g = RR × ROIC
= × % = %

### FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × ( × % – ) ÷ ( + ) = %

where:
Total capital, fair value0 = current fair value of 's debt and equity (USD \$ in millions)
FCFF0 = last year 's free cash flow to the firm (USD \$ in millions)
WACC = weighted average cost of 's capital

### FCFF growth rate (g) forecast

Verizon Communications Inc., H-model

Year Value gt
1 g1 %
2 g2 %
3 g3 %
4 g4 %
5 and thereafter g5 %

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= % + (% – %) × (2 – 1) ÷ (5 – 1) = %

g2 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= % + (% – %) × (3 – 1) ÷ (5 – 1) = %

g2 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= % + (% – %) × (4 – 1) ÷ (5 – 1) = %