E13.17. Residual Operating Income Valuation, Nike, Inc., 2004 (Medium) At the end of its 2004 fiscal year, the 263.1 million outstanding shares of Nike, Inc., traded at $75 each. The following summary numbers are from the 2004 financial report (in millions of dollars) Balance Sheet Income Statement 2004 2003 2004 Net operating assets 4,551 4,330 Net financial assets 289 (302) Operating income Net financial expense 961 16

a. Calculate the levered and unlevered (enterprise) price-to-book ratios at which Nike traded at the end of fiscal year 2004.

b. Calculate residual operating income for 2004 using beginning-of-year balance sheet amounts.

c. Calculate return on net operating (RNOA) assets for 2004.

d. With this RNOA, forecast operating income and residual operating income for 2005. Use a required return of 8.6 percent for operations.

e. Calculate the value of a Nike share if the residual operating income you forecasted for 2005 is expected to grow at a 4 percent annual rate after 2005.