ACC306 Individual Assignment

Requirement:
Two calculation questions, one is from Chapter 4, the other is from chapter 11, 10 marks each, in
total 20 marks.

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Harvard reference system
Due time is at 5pm on Friday in week 10 26/01/2018, no extension will be given. One day late,
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Nathan Zhang

Chapter 4: A Discounted Cash Flow Valuation: General Mills, Inc. (10 marks)
At the beginning of its fiscal year 2006, an analyst made the following forecast for General
Mills, Inc., the consumer foods company, for 2006-2009 (in millions of dollars):
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 of 9 percent to calculate
both the enterprise value and equity value for General Mills at the beginning of 2006 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 11: Free Cash Flow for Kimberly-Clark Corporation (10 marks)
Below are summary numbers from reformulated balance sheets for 2007 and 2006 for Kimberly-
Clark Corporation, the paper product s company, along with numbers from the reformulated
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 flow statement
and also reported net interest payments of $142.4 million. It reported $898 million in cash spent
on investing activities, but this was after including a net $56 million from liquidating short-term
interest-bearing securities. The firm's statutory tax rate is 36.6 percent. Calculate free cash flow
from these reported numbers.