1- Suppose you are valuing a healthy, growing, profitable firm and you project that the firm will generate negative free cash flows for equity shareholders in each of the next five years. Can you use the free cash flows valuation approach when cash flows are negative? If so, explain how the free cash flows approach can produce positive valuations of firms when they are expected to generate negative free cash flows over the next five years.

2 - Why can't we leave the Cash/Sales ratio at 5/31/2018 at 14% and just make it 5% in 2018 and beyond?

($000s) Actual Fiscal Year End (MM/DD/YYYY) Actual Actual Actual Actual 05/31/2018 ALL AMOUNTS AS ARE ORIGINALLY REPORTED BY NIKE 05/31/2017 05/31/2016 05/31/2015 05/31/2014 Sales (Net) $36,397,000 $34,350,000 $32,376,000 Operating Cash and Market. Sec. $30,601,000 $27,799,000 $5,245,000 $6, 179,000 $5,457,000 $5,924,000 $5, 142,000 CASH/SALES (calculated from as original amounts) 14% 18% 17% 19% 18% NET COMMON STOCK $6,387,000 $8,641,000 $7,789,000 $6,776,000 $5,868,000 ($000s) Actual Actual Actual Actual Actual Fiscal Year End (MM/DD/YYYY) 05/31/2018 05/31/2017 05/31/2016 05/31/2015 05/31/2014 "RED" MEANS ADJUSTED FOR EXCESS CASH AT 5/31/2018 Sales (Net) (as reported amounts) $36, 397,000 $34, 350,000 $32,376,000 $30,601,000 $27,799,000 Operating Cash and Market. Sec. (SALES \\ 5% AT 5/31/2018) AMOUNT ADJUSTED AT 5/31/2018 ONLY $1,819,850 $6, 179,000 $5,457,000 $5,924,000 $5, 142,000 CASH/SALES (SET TO 5% AT 5/31/2018 ONLY) 18% 17% 19% 18% "NET COMMON STOCK" (AS REPORTED AMOUNT MINUS THE EXCESS CASH AT 5/31/2018 ONLY)" $2,931,850 $8, 641,000 $7,789,000 $6,776,000 $5,868,000 EXCESS CASH = AMOUNT ORIGINALLY REPORTED LESS REVISED AMOUNT SET TO 5% OF SALES AT 5/31/2018 $3,425, 150 "NOTE: WE ONLY ADJUST THE AMOUNTS AT 5/31/2018 BECAUSE THAT IS OUR VALUATION DATE. "NOTE: WE CAN REDUCE THE "NET COMMON" STOCK ACCOUNT OR THE RETAINED EARNINGS ACCOUNT