Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model Following are the income statement and balance sheet for Nike Inc.

NIKE INC.

Consolidated Income Statement For Year Ended ($ millions)

May 31, 2016 May 31, 2015 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,376 $30,601 Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,405 16,534 Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,971 14,067 Demand creation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,278 3,213 Operating overhead expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,191 6,679 Total selling and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,469 9,892 Interest expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 28 Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140) (58)

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,623 4,205 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 863 932 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,760 $ 3,273

???????????????? ????????C????
Consolidated Balance Sheets $ millions May 31, 2016 May 31, 2015 Current assets Cash and equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,138 $ 3,852 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,3192,072 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,241 3,358 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,838 4,337 Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 1,489 1,968 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,025 15,587 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,5203,011 Identifiable intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281 281 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 131 Deferred income taxes and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,439 2,587 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,396 $21,597 Current liabilities Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44 $ 107 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 74 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,191 2,131 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,037 3,949 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 71 Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,358 6,332 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,010 1,079 Deferred income taxes and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,770 1,479 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,138 8,890 Shareholders’ equity Class A convertible common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 Class B common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 Capital in excess of stated value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,786 6,773 Accumulated other comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . 318 1,246 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,151 4,685 Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,258 12,707 Total liabilities and shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,396 $21,597 Required

a. Estimate the value of a share of Nike common stock using the residual operating income (ROPI) model as of May 31, 2016. For simplicity, prepare your forecasts in $ millions. Use the following assumptions:
Sales growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%
Net operating profit margin (NOPM). . . . . . . . . . . . . 2016 ratios rounded to three decimal places Net operating asset turnover (NOAT), year-end. . . . . 2016 ratios rounded to three decimal places

b. Nike’s stock closed at $56.99 on July 21, 2016, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results?