Question

21. Valuation of Walmart's International Business In addition to its stores in the United States, Walmart Stores, Inc., has 107 retail units in Argen- tina, 359 in Brazil, 395 in Canada, 412 in China, 2,296 in Mexico, and 604 in the United Kingdom. Overall, it has 6,100 retail units in foreign countries. Consider that the value of Walmart is composed of two parts, a U.S. part (due to business in the United States) and a non-U.S. part (due to business in other countries). Explain how to determine the present value (in dol- lars) of the non-U.S. part assuming that you had access to all the details of Walmart businesses outside the United States.

Answer 1

To value Wal-Mart’s international business we can use the DCF (discounted cash flow) method. Since all the details and information with regards to Walmart’s businesses outside the United States is available we can compute the free cash flows of Walmart that is attributable to its international business. We know that free cash flow (FCF) = cash from operations – capital expenditures. Thus to compute the FCF of Walmart’s international business we will have to compute its cash from operations from international business and its capital expenses incurred outside USA. This can be done easily as these numbers are provided on an overall basis and its numbers for international business can be determined through information provided in annual reports or press releases or management’s discussion of its operations and business.

Once the FCF of international business is computed we will have to determine the weighted average cost of capital for the international business of Walmart. Again this can be easily done through the company’s annual reports and management’s discussion.

We can now compute the value of Wal-Mart’s international business and this can be done by discounting the FCF with the weighted average cost of capital. This will give us the present value of Wal-Mart’s international operations.