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Present Value of Free Cash Flow to the Firm (FCFF)

Difficulty: Intermediate


Intrinsic Stock Value (Valuation Summary)

Abbott Laboratories, 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 Abbott's capital
Less: Debt (fair value)
Intrinsic value of Abbott's common stock
Intrinsic value of Abbott'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.

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Weighted Average Cost of Capital (WACC)

Abbott Laboratories, cost of capital

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

1 USD $ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= × $ = $

   Debt (fair value). See Details »

2 Required rate of return on equity is estimated by using CAPM. See Details »

   Required rate of return on debt. See Details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (% + % + % + % + %) ÷ 5 = %

WACC = %

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FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Abbott Laboratories, PRAT model

 
Average Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Interest expense
Net earnings from discontinued operations, net of taxes
Net earnings
Effective income tax rate (EITR)1 % % % % %
Interest expense, after tax2
Add: Cash dividends declared on common shares
Interest expense (after tax) and dividends
EBIT(1 – EITR)3
Short-term borrowings
Current portion of long-term debt
Long-term debt, excluding current portion
Total Abbott shareholders' investment
Total capital
Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5 % % % % %
Averages
RR
ROIC %
Growth rate of FCFF (g)6 %

2017 Calculations

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

3 EBIT(1 – EITR) = Net earnings – Net earnings from discontinued operations, net of taxes + Interest expense, after tax
= + =

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

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

6 g = RR × ROIC
= × % = %

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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 Abbott's debt and equity (USD $ in millions)
FCFF0 = last year Abbott's free cash flow to the firm (USD $ in millions)
WACC = weighted average cost of Abbott's capital

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FCFF growth rate (g) forecast

Abbott Laboratories, 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) = %

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= % + (% – %) × (3 – 1) ÷ (5 – 1) = %

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= % + (% – %) × (4 – 1) ÷ (5 – 1) = %

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