d. IF WACC has been 6.2%, what would the valuation estimate have been? What about il WACC has been 5.2%? 1, 2 P13-16. Forecasting with Parsimonious Method and Estimating Share Value Using the DCF Model Following are income statements and balance sheets for Nike Inc. NIKE INC Consolidated Income Statements May 31, 2019 May 31, 2018 $39,117 21,643 17,474 3,753 8.949 For Year Ended (5 millions) Revenues Cost of sales Gross profit Demand creation expense Operating overhead expense. Total selling and administrative expense Interest expense (income), net Other (income) expense, net Income before income taxes Income tax expense Net income.. $36,397 20,441 15,956 3.577 7,934 11,511 54 66 4,325 2,392 12,702 49 (78) 4,801 772 $ 4,029 $ 1,933 NIKE INC. Consolidated Balance Sheets May 31, 2019 May 31, 2018 S millions Current assets Cash and equivalents Short-term investments. Accounts receivable, net. Inventories ......... Prepaid expenses and other current assets Total current assets ....... Property, plant and equipment, net. Identifiable intangible assets, net Goodwill.... Deferred Income taxes and other assets $ 4,466 197 4,272 5,622 1,968 16,525 4,744 283 154 2.011 $ 4.249 996 3,498 5,261 1,130 15,134 4.454 285 154 2,509 $23,717 $22,536 Total assets $ $ 6 9 2,612 5,010 229 Current liabilities Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities. Long-term debt Deferred income taxes and other liabilities. Commitments and contingencies (Note 18) Shareholders' equity 6 336 2,279 3,269 150 6,040 3,468 3,216 7,866 3,464 3,347 continued $ millions May 31, 2019 May 31, 2018 Common stock at stated value: Class A convertible-315 and 329 shares outstanding. Class B-1,253 and 1,272 shares outstanding Capital in excess of stated value ........ Accumulated other comprehensive income (loss) Retained earings. Total shareholders' equity Total liabilities and shareholders' equity. 3 7,163 231 1.643 9,040 3 6,384 (92) 3,517 9.812 $22,536 $23,717 Required a. Compute net operating assets (NOA) and net nonoperating obligations (NNO) for 2019. The com- pany's NNO is negative because cash exceeds debt. b. Compute net operating profit after tax (NOPAT) for 2019 assuming a federal and state statutory tax rate of 22%. c. Use the parsimonious forecast method, as shown in the Analysis Insight box in Exhibit 13.2. to fore- cast sales, NOPAT, and NOA for 2020 through 2023 using the following assumptions. Sales growth..... Net operating profit margin (NOPM)..... Net operating asset turnover (NOAT), year-end... 8% 2019 ratios rounded to three decimal places 2019 ratios rounded to three decimal places Forecast the terminal period value assuming a 2% terminal period growth and using the NOPM and NOAT assumptions above. d. Estimate the value of a share of Nike's common stock using the discounted cash flow (DCF) model as of May 31, 2019; assume a discount rate (WACC) of 6.8% and common shares outstanding of 1,682 million. e. Nike's stock closed at $86.70 on July 23, 2019, 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? LO2 d. IF WACC has been 6.2%, what would the valuation estimate have been? What about il WACC has been 5.2%? 1, 2 P13-16. Forecasting with Parsimonious Method and Estimating Share Value Using the DCF Model Following are income statements and balance sheets for Nike Inc. NIKE INC Consolidated Income Statements May 31, 2019 May 31, 2018 $39,117 21,643 17,474 3,753 8.949 For Year Ended (5 millions) Revenues Cost of sales Gross profit Demand creation expense Operating overhead expense. Total selling and administrative expense Interest expense (income), net Other (income) expense, net Income before income taxes Income tax expense Net income.. $36,397 20,441 15,956 3.577 7,934 11,511 54 66 4,325 2,392 12,702 49 (78) 4,801 772 $ 4,029 $ 1,933 NIKE INC. Consolidated Balance Sheets May 31, 2019 May 31, 2018 S millions Current assets Cash and equivalents Short-term investments. Accounts receivable, net. Inventories ......... Prepaid expenses and other current assets Total current assets ....... Property, plant and equipment, net. Identifiable intangible assets, net Goodwill.... Deferred Income taxes and other assets $ 4,466 197 4,272 5,622 1,968 16,525 4,744 283 154 2.011 $ 4.249 996 3,498 5,261 1,130 15,134 4.454 285 154 2,509 $23,717 $22,536 Total assets $ $ 6 9 2,612 5,010 229 Current liabilities Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities. Long-term debt Deferred income taxes and other liabilities. Commitments and contingencies (Note 18) Shareholders' equity 6 336 2,279 3,269 150 6,040 3,468 3,216 7,866 3,464 3,347 continued $ millions May 31, 2019 May 31, 2018 Common stock at stated value: Class A convertible-315 and 329 shares outstanding. Class B-1,253 and 1,272 shares outstanding Capital in excess of stated value ........ Accumulated other comprehensive income (loss) Retained earings. Total shareholders' equity Total liabilities and shareholders' equity. 3 7,163 231 1.643 9,040 3 6,384 (92) 3,517 9.812 $22,536 $23,717 Required a. Compute net operating assets (NOA) and net nonoperating obligations (NNO) for 2019. The com- pany's NNO is negative because cash exceeds debt. b. Compute net operating profit after tax (NOPAT) for 2019 assuming a federal and state statutory tax rate of 22%. c. Use the parsimonious forecast method, as shown in the Analysis Insight box in Exhibit 13.2. to fore- cast sales, NOPAT, and NOA for 2020 through 2023 using the following assumptions. Sales growth..... Net operating profit margin (NOPM)..... Net operating asset turnover (NOAT), year-end... 8% 2019 ratios rounded to three decimal places 2019 ratios rounded to three decimal places Forecast the terminal period value assuming a 2% terminal period growth and using the NOPM and NOAT assumptions above. d. Estimate the value of a share of Nike's common stock using the discounted cash flow (DCF) model as of May 31, 2019; assume a discount rate (WACC) of 6.8% and common shares outstanding of 1,682 million. e. Nike's stock closed at $86.70 on July 23, 2019, 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? LO2