financial

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ACC306individualASSIGNMENT-Q.docx

Individual Assignment

Requirement:

Two calculation questions,

Font size is 12, 1.5-line space.

Harvard reference system

Similarity rate must be lower than 20%, otherwise you will receive penalty, over than 40%, you will receive zero mark.

Chapter : A Discounted Cash Flow Valuation: General Mills, Inc. (10 marks)

At the beginning of its fiscal year 2006, an analyst made the following forecastfor GeneralMills, Inc., the consumer foods company, for 2006-2009 (in millions ofdollars):

2005 2006 2007 2008 2009

Cash flow from operations 2,014 2,057 2,095 2,107

Cash investment in operations 300 380 442 470

General Mills reported $6, 192 million in short-term and long-term debt at the end of 2005

but very little in interest-bearing debt assets. Use a required return of9 percent to calculate

both the enterprise value and equity value for General Mills at the beginning of2006 under

two forecasts for long-run cash flows:

a. Free cash flow will remain at 2009 levels after 2009.

b. Free cash flow will grow at 3 percent per year after 2009.

General Mills had 369 million shares outstanding at the end of 2005, trading at $47 per

share. Calculate value per share and a value-to-price ratio under both scenarios.

a. The exercise involves calculating free cash flows, discounting them to present value, then adding the present value of a continuing value. For part (a) of the question, the continuing value has no growth:

Chapter : Free Cash Flow for Kimberly-Clark Corporation (10 marks)

Below are summary numbers from reformulated balance sheets for 2007 and 2006 forKimberly-Clark Corporation, the paper product s company, along with numbers from thereformulated income statement for 2007 (in millions of dollars).

2007

2006

Operating assets

$18, 057.0

$16,796.2

Operating liabilities

6 , 011.8

5,927.2

Financial assets

382.7

270.8

Financial obligations

6,496.4

4,395.4

Operating income (after tax)

$2,740.1

Net financial expense (after tax)

147.1

a. The net payout to shareholders (dividends and share repurchases minus share issues)in 2007 was $3,405.9 million. Calculate free cash flow using Method 1 and Method 2.

b. The firm reported cash flow from operation s of $2,429 million in its 2007 cash flowstatement and also reported net interest payments of $142.4 million. It reported $898million in cash spent on investing activities, but this was after including a net $56 millionfrom liquidating short-term interest-bearing securities. The firm's statutory taxrate is 36.6 percent. Calculate free cash flow from these reported numbers.

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