ACC306: A Discounted Cash Flow Valuation: General Mills, Inc. - Accounting Assignment

Accounting Assignment:

Part 1 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. Part 2: 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 the 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            $2,740.1 Net financial expense      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. Question: 1) Calculate value per share and a value-to-price ratio under both scenarios. 2) Calculate free cash flow from these reported numbers.