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Microsoft Excel LibreOffice Calc


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

Difficulty: Intermediate

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 Summary)

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

USD $ in millions, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFFt or Terminal value (TVt) Calculation Present value at hidden%
01 FCFF0 hidden
1 FCFF1 hidden = hidden × (1 + hidden%) hidden
2 FCFF2 hidden = hidden × (1 + hidden%) hidden
3 FCFF3 hidden = hidden × (1 + hidden%) hidden
4 FCFF4 hidden = hidden × (1 + hidden%) hidden
5 FCFF5 hidden = hidden × (1 + hidden%) hidden
5 Terminal value (TV5) hidden = hidden × (1 + hidden%) ÷ (hidden% – hidden%) hidden
Intrinsic value of DowDuPont's capital hidden
Less: Preferred stock, series A, $1.00 par (book value) hidden
Less: Debt (fair value) hidden
Intrinsic value of DowDuPont's common stock hidden
Intrinsic value of DowDuPont's common stock (per share) $hidden
Current share price $hidden

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)

DowDuPont Inc., cost of capital

Microsoft Excel LibreOffice Calc
Value1 Weight Required rate of return2 Calculation
Equity (fair value) hidden hidden hidden%
Preferred stock, series A, $1.00 par (book value) hidden hidden hidden%
Debt (fair value) hidden hidden hidden% = hidden% × (1 – hidden%)

1 USD $ in millions

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

   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
= (hidden% + hidden% + hidden% + hidden% + hidden%) ÷ 5 = hidden%

WACC = hidden%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

DowDuPont Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Interest expense and amortization of debt discount hidden hidden hidden hidden hidden
Loss from discontinued operations, net of tax hidden hidden hidden hidden hidden
Net income attributable to DowDuPont Inc. hidden hidden hidden hidden hidden
Effective income tax rate (EITR)1 hidden% hidden% hidden% hidden% hidden%
Interest expense and amortization of debt discount, after tax2 hidden hidden hidden hidden hidden
Add: Preferred stock dividends hidden hidden hidden hidden hidden
Add: Dividends declared on common stock hidden hidden hidden hidden hidden
Interest expense (after tax) and dividends hidden hidden hidden hidden hidden
EBIT(1 – EITR)3 hidden hidden hidden hidden hidden
Notes payable hidden hidden hidden hidden hidden
Long-term debt due within one year hidden hidden hidden hidden hidden
Long-term debt, excluding debt due within one year hidden hidden hidden hidden hidden
DowDuPont's stockholders' equity hidden hidden hidden hidden hidden
Total capital hidden hidden hidden hidden hidden
Ratios
Retention rate (RR)4 hidden hidden hidden hidden hidden
Return on invested capital (ROIC)5 hidden% hidden% hidden% hidden% hidden%
Averages
RR hidden
ROIC hidden%
Growth rate of FCFF (g)6 hidden%

2017 Calculations

2 Interest expense and amortization of debt discount, after tax = Interest expense and amortization of debt discount × (1 – EITR)
= hidden × (1 – hidden%) = hidden

3 EBIT(1 – EITR) = Net income attributable to DowDuPont Inc. – Loss from discontinued operations, net of tax + Interest expense and amortization of debt discount, after tax
= hiddenhidden + hidden = hidden

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

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

6 g = RR × ROIC
= hidden × hidden% = hidden%


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

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

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


FCFF growth rate (g) forecast

DowDuPont Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 hidden%
2 g2 hidden%
3 g3 hidden%
4 g4 hidden%
5 and thereafter g5 hidden%

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)
= hidden% + (hidden% – hidden%) × (2 – 1) ÷ (5 – 1) = hidden%

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

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