Cisco Sytems Consolidated Statements of Income
Years Ended December ($ millions)	July 30, 2016	July 25, 2015
Revenue
Product	$37,254	$37,750
Service	11,993	11,411
Total revenue	49,247	49,161
Cost of sales
Product	14,161	15,377
Service	4,126	4,103
Total cost of sales	18,287	19,480
Gross margin	30,960	29,681
Operating expenses
Research and development	6,296	6,207
Sales and marketing	9,619	9,821
General and administrative	1,814	2,040
Amortization of purchased intangible assets	303	359
Restructuring and other charges	268	484
Total operating expenses	18,300	18,911
Operating income	12,660	10,770
Interest income	1,005	769
Interest expense	(676)	(566)
Other income (loss), net	(69)	228
Interest and other income (loss), net	260	431
Income before provision for income taxes	12,920	11,201
Provision for income taxes	2,181	2,220
Net income	$10,739	$8,981

Cisco Sytems Inc. Consolidated Balance Sheets
In millions, except par value	July 30, 2016	July 25, 2015
Assets
Current assets
Cash and cash equivalents	$7,631	$6,877
Investments	58,125	53,539
Accounts receivable, net of allowance for doubtful accounts of $249 at July 30, 2016 and $302 at July 25, 2015	5,847	5,344
Inventories	1,217	1,627
Financing receivables, net	4,272	4,491
Other current assets	1,627	1,490
Total current assets	78,719	73,368
Property and equipment, net	3,506	3,332
Financing receivables, net	4,158	3,858
Goodwill	26,625	24,469
Purchased intangible assets, net	2,501	2,376
Deferred tax assets	4,299	4,454
Other assets	1,844	1,516
Total assets	$121,652	$113,373
Liabilities
Current liabilities
Short-term debt	$4,160	$3,897
Accounts payable	1,056	1,104
Income taxes payable	517	62
Accrued compensation	2,951	3,049
Deferred revenue	10,155	9,824
Other current liabilities	6,072	5,476
Total current liabilities	24,911	23,412
Long-term debt	24,483	21,457
Income taxes payable	925	1,876
Deferred revenue	6,317	5,359
Other long-term liabilities	1,431	1,562
Total liabilities	58,067	53,666
Cisco shareholders' equity Preferred stock, no par value: 5 shaes authorized; none issued and outstanding	--	--
Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 5,029 and 5,085 shares issued and outstanding at July 30, 2016 and July 25, 2015, respectively	44,516	43,592
Retained earnings	19,396	16,045
Accumulated other comprehensive income (loss)	(326)	61
Total Cisco shareholders' equity	63,586	59,698
Noncontrolling interests	(1)	9
Total equity	63,585	59,707
Total liabilities and equity	$121,652	$113,373

(a) Compute net operating assets (NOA) for 2016.

(b) Compute net operating profit after tax (NOPAT) for 2016, assuming a federal and state statutory tax rate of 37%. (Round your answer to the nearest whole number.)

(c) Forecast Cisco's sales, NOPAT, and NOA for years 2017 through 2020 and the terminal period using the following assumptions:

Sales growth 2017 1%

Sales growth 2018-2020 2%

Terminal growth 1%

Net operating profit margin 2016 rate rounded to two decimal places

Net operating asset turnover 2016 rate rounded to two decimal places

3

Assume a discount rate (WACC) of 10%, common shares outstanding of 5,029 million, and net nonoperating obligations (NNO) of $(37,113) million (NNO is negative which means that Cisco has net nonoperating investments).

(d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 30, 2016;

(e) Estimate the value of a share of Cisco common stock using the residual operating income (ROPI) model as of July, 30, 2016.

(f) Cisco stock closed at $31.47 on September 8, 2016, the date the Form 10-K was filed with the SEC. How does your DCF and ROPI valuation estimates compare with this closing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results?