Estimating Share Value Using the ROPI Model Assume the following are the income statement and balance sheet for Intel Corporation. INTEL CORPORATION Consolidated Statements of Income Years Ended December (In Millions, Except Per Share Amounts) 2012 2011 2010 Net revenue $53,341 $ 53,999 $ 46,623 Cost of sales 20,190 20,242 15,132 Gross margin 33,151 33,757 28,491 Research and development 10,148 8,350 6,576 Marketing, general and adminstrative 8,057 7,670 6,309 Amortization of acquisition-related intangibles 308 260 18 Operating expenses 18,513 16,280 12,903 Operating income 14,638 17,477 15,588 Gains (losses) on other equity investments, net 141 112 348 Interest and other, net 94 192 109 Income before taxes 14,873 17,781 16,045 Provisions for taxes 3,868 4,839 4,581 Net income $ 11,005 $ 12,942 $ 11,464 INTEL CORPORATION Consolidated Balance Sheets As of Year-Ended (in millions, except par value) Dec. 29, 2012 Dec INTEL CORPORATION Consolidated Balance Sheets As of Year-Ended (in millions, except par value) Dec. 29, 2012 Dec. 31, 2 $ 5 5 5 4 3 $ 8,478 3,999 5,685 3,833 4,734 2,117 2,512 31,358 4 1 1 25 Assets Current assets Cash and cash equivalents Short-term investments Trading assets Accounts receivables, net Inventories Deferred tax assets Other current assets Total current assets Property, plant and equipment, net Marketable equity securities Other long-term investments** Goodwill Identified intangible assets Other long-term assets Total assets Liabilities Currnet liabilities Short-term debt 23 27,983 4,424 493 9 9,710 6,235 6 4 4 4,148 $84,351 $71 $312 (a) Compute Intel's net operating assets (NOA) for year-end 2012. 2012 NOA = $ 42,065 (b) Compute net operating profit after tax (NOPAT) for 2012, assuming a federal and state statutory tax rate of 37%.(Round your answer to the nearest whol number.) 2012 NOPAT = $ 9,807 X (C) Forecast Intel's sales, NOPAT, and NOA for years 2013 through 2016 using the following assumptions: Sales growth Net operating profit margin (NOPM) Net operating asset turnover (NOAT) at year-end 10% 20.4% 1.27 Forecast the terminal period value using a terminal period growth of: 1% and the NOPM and NOAT assumptions above. INTC Reported Forecast Horizon ($ millions) 2012 2013 Est. 2014 Est. 2015 Est. 2016 Est. Sales (rounded two decimal places) $ 53,341 $ 58,675.1 $ 64,542.61 $ $ 70,996.87 $ 78,096.56 $ Sales (rounded nearest whole number) 53,341 58,675 64,543 70,997 78,097 NOPAT (rounded nearest whole number)* OX OX Ox OX 0 x NOA (rounded nearest whole number)* 42,065 46,272 x 0x * Use sales rounded to nearest whole number for this calculation. Terminal Period 78,877.53 78,878 OX OX x * Use sales rounded to nearest whole number for this calculation. (d) Estimate the value of a share of Intel common stock using the residual operating income (ROPI) model as of December 29, 2012; assume a discount rate (WACC) of 11%, common shares outstanding of 4,944 million, and net nonoperating obligations (NNO) of $(9,138) million (NNO is negative which means that Intel has net nonoperating investments). Instructions: Use your rounded answers for subsequent calculations. Round all answers to the nearest whole number, except for discount factors and stock price per share. Round discount factors to 5 decimal places. Round stock price per share to two decimal places. Use a negative sign with your NNO answer. Reported 2012 Forecast Horizon 2014 Est. 2015 Est. Terminal Period 2013 Est. 2016 Est. OX 0X 0 x 0x 0 X INTC ($ millions) ROPI Model ROPI [NOPAT - (NOA beg x WACC)] (rounded to nearest whole number) Discount factor (rounded to 5 decimal places) Present value of horizon ROPI (rounded to nearest whole number) Cum present value of horizon ROPI Present value of terminal ROPI NOA 0x OX OX OX OX 0 X OX OX $ 0 x $ OX 0 x OX Total firm value Plus negative NNO OX Terminal Period 2016 Est. OX OX OX x HTTP- Round discount factors to 5 decimal places. Round stock price per share to two decimal places. Use a negative sign with your NNO answer. INTC Reported Forecast Horizon ($ millions) 2012 2013 Est. 2014 Est. . 2015 Est. ROPI Model ROPI [NOPAT - (NOA beg x WACC)) (rounded to nearest whole number) OX OX 0x Discount factor (rounded to 5 decimal places) OX OX OX Present value of horizon ROPI (rounded to nearest whole number) OX 0X OX Cum present value of horizon ROPI $ OX Present value of terminal ROPI $ OX NOA OX Total firm value Plus negative NNO OX Firm equity value $ 0x Shares outstanding (millions) OX Stock value per share $ OX OX (e) Intel (INTC) stock closed at $21.09 on February 19, 2013, 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? (Select all that apply) L 10 1 Estimating Share Value Using the ROPI Model Assume the following are the income statement and balance sheet for Intel Corporation. INTEL CORPORATION Consolidated Statements of Income Years Ended December (In Millions, Except Per Share Amounts) 2012 2011 2010 Net revenue $53,341 $ 53,999 $ 46,623 Cost of sales 20,190 20,242 15,132 Gross margin 33,151 33,757 28,491 Research and development 10,148 8,350 6,576 Marketing, general and adminstrative 8,057 7,670 6,309 Amortization of acquisition-related intangibles 308 260 18 Operating expenses 18,513 16,280 12,903 Operating income 14,638 17,477 15,588 Gains (losses) on other equity investments, net 141 112 348 Interest and other, net 94 192 109 Income before taxes 14,873 17,781 16,045 Provisions for taxes 3,868 4,839 4,581 Net income $ 11,005 $ 12,942 $ 11,464 INTEL CORPORATION Consolidated Balance Sheets As of Year-Ended (in millions, except par value) Dec. 29, 2012 Dec INTEL CORPORATION Consolidated Balance Sheets As of Year-Ended (in millions, except par value) Dec. 29, 2012 Dec. 31, 2 $ 5 5 5 4 3 $ 8,478 3,999 5,685 3,833 4,734 2,117 2,512 31,358 4 1 1 25 Assets Current assets Cash and cash equivalents Short-term investments Trading assets Accounts receivables, net Inventories Deferred tax assets Other current assets Total current assets Property, plant and equipment, net Marketable equity securities Other long-term investments** Goodwill Identified intangible assets Other long-term assets Total assets Liabilities Currnet liabilities Short-term debt 23 27,983 4,424 493 9 9,710 6,235 6 4 4 4,148 $84,351 $71 $312 (a) Compute Intel's net operating assets (NOA) for year-end 2012. 2012 NOA = $ 42,065 (b) Compute net operating profit after tax (NOPAT) for 2012, assuming a federal and state statutory tax rate of 37%.(Round your answer to the nearest whol number.) 2012 NOPAT = $ 9,807 X (C) Forecast Intel's sales, NOPAT, and NOA for years 2013 through 2016 using the following assumptions: Sales growth Net operating profit margin (NOPM) Net operating asset turnover (NOAT) at year-end 10% 20.4% 1.27 Forecast the terminal period value using a terminal period growth of: 1% and the NOPM and NOAT assumptions above. INTC Reported Forecast Horizon ($ millions) 2012 2013 Est. 2014 Est. 2015 Est. 2016 Est. Sales (rounded two decimal places) $ 53,341 $ 58,675.1 $ 64,542.61 $ $ 70,996.87 $ 78,096.56 $ Sales (rounded nearest whole number) 53,341 58,675 64,543 70,997 78,097 NOPAT (rounded nearest whole number)* OX OX Ox OX 0 x NOA (rounded nearest whole number)* 42,065 46,272 x 0x * Use sales rounded to nearest whole number for this calculation. Terminal Period 78,877.53 78,878 OX OX x * Use sales rounded to nearest whole number for this calculation. (d) Estimate the value of a share of Intel common stock using the residual operating income (ROPI) model as of December 29, 2012; assume a discount rate (WACC) of 11%, common shares outstanding of 4,944 million, and net nonoperating obligations (NNO) of $(9,138) million (NNO is negative which means that Intel has net nonoperating investments). Instructions: Use your rounded answers for subsequent calculations. Round all answers to the nearest whole number, except for discount factors and stock price per share. Round discount factors to 5 decimal places. Round stock price per share to two decimal places. Use a negative sign with your NNO answer. Reported 2012 Forecast Horizon 2014 Est. 2015 Est. Terminal Period 2013 Est. 2016 Est. OX 0X 0 x 0x 0 X INTC ($ millions) ROPI Model ROPI [NOPAT - (NOA beg x WACC)] (rounded to nearest whole number) Discount factor (rounded to 5 decimal places) Present value of horizon ROPI (rounded to nearest whole number) Cum present value of horizon ROPI Present value of terminal ROPI NOA 0x OX OX OX OX 0 X OX OX $ 0 x $ OX 0 x OX Total firm value Plus negative NNO OX Terminal Period 2016 Est. OX OX OX x HTTP- Round discount factors to 5 decimal places. Round stock price per share to two decimal places. Use a negative sign with your NNO answer. INTC Reported Forecast Horizon ($ millions) 2012 2013 Est. 2014 Est. . 2015 Est. ROPI Model ROPI [NOPAT - (NOA beg x WACC)) (rounded to nearest whole number) OX OX 0x Discount factor (rounded to 5 decimal places) OX OX OX Present value of horizon ROPI (rounded to nearest whole number) OX 0X OX Cum present value of horizon ROPI $ OX Present value of terminal ROPI $ OX NOA OX Total firm value Plus negative NNO OX Firm equity value $ 0x Shares outstanding (millions) OX Stock value per share $ OX OX (e) Intel (INTC) stock closed at $21.09 on February 19, 2013, 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? (Select all that apply) L 10 1