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# DuPont de Nemours Inc. (DD)

## 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)

DuPont de Nemours Inc., free cash flow to the firm (FCFF) forecast

US\$ 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 DuPont de Nemours Inc.’s capital
Less: Preferred stock, series A, \$1.00 par (book value)
Less: Debt (fair value)
Intrinsic value of DuPont de Nemours Inc.’s common stock

Intrinsic value of DuPont de Nemours 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)

DuPont de Nemours 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 US\$ 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

DuPont de Nemours Inc., PRAT model

Average Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US\$ in millions)
Interest expense and amortization of debt discount
Loss from discontinued operations, net of tax
Net income attributable to DuPont

Effective income tax rate (EITR)1

Interest expense and amortization of debt discount, after tax2
Add: Preferred stock dividends
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 within one year
Total DuPont’s stockholders’ equity
Total capital
Financial Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5
Averages
RR
ROIC

FCFF growth rate (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 DuPont – 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 DuPont de Nemours Inc.’s debt and equity (US\$ in millions)
FCFF0 = the last year DuPont de Nemours Inc.’s free cash flow to the firm (US\$ in millions)
WACC = weighted average cost of DuPont de Nemours Inc.’s capital

#### FCFF growth rate (g) forecast

DuPont de Nemours 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) =