Internal code: MAS6682
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 flow 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 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.
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