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# DowDuPont Inc. (DWDP)

## 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

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 DowDuPont Inc.’s capital
Less: Preferred stock, series A, \$1.00 par (book value)
Less: Debt (fair value)
Intrinsic value of DowDuPont Inc.’s common stock
Intrinsic value of DowDuPont Inc.’s common stock (per share) \$
Current share price \$

Based on: 10-K (filing date: 2019-02-11).

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

Value1 Weight Required rate of return2 Calculation
Equity (fair value)
Preferred stock, series A, \$1.00 par (book value)
Debt (fair value) = × (1 – )

Based on: 10-K (filing date: 2019-02-11).

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 =

### FCFF Growth Rate (g)

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

DowDuPont Inc., PRAT model

Average Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (USD \$ in millions)
Interest expense and amortization of debt discount
Loss from discontinued operations, net of tax
Net income attributable to DowDuPont Inc.
Effective income tax rate (EITR)1
Interest expense and amortization of debt discount, after tax2
Add: Dividends declared on common stock
Interest expense (after tax) and dividends
EBIT(1 – EITR)3
Notes payable
Long-term debt due within one year
Long-term debt, excluding debt due within one year
Total DowDuPont’s stockholders’ equity
Total capital
Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5
Averages
RR
ROIC
Growth rate of FCFF (g)6

Based on: 10-K (filing date: 2019-02-11), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

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

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
= + =

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
= × =

#### 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 DowDuPont Inc.’s debt and equity (USD \$ in millions)
FCFF0 = last year DowDuPont Inc.’s free cash flow to the firm (USD \$ in millions)
WACC = weighted average cost of DowDuPont Inc.’s capital

#### FCFF growth rate (g) forecast

DowDuPont 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) =

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

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