Following are the income statement and balance sheet for Cisco Systems for the year ended July 30, 2016 July 25, 2015 $37,750 11.411 49.161 15.377 4,103 19.480 29,681 Cisco Systems Inc. Consolidated Statements of Income Years Ended December (8 millions) July 30, 2016 Revenue Product $37,254 Service 11.993 Total revenue 49,247 Cost of sales Product 14,161 Service 4,126 Total cost of sales 18,287 Gross margin 30,960 Operating expenses Research and development 6,296 Sales and marketing 9,619 General and administrative 1,814 Amortization of purchased intangible assets 303 Restructuring and other charges 268 Total operating expenses 18.300 Operating income 12.660 Interest income 1.005 Interest expense (676) Other income (loss), net Interest and other income floss), net 260 Income before provision for income taxes 12.920 Provision for income taxes 2181 Net income S10,739 6,207 9.821 2,040 339 484 18.911 10,770 769 (566) 228 131 11,201 2.220 $8.981 Assets $7,631 58,125 $6,877 53,539 5,344 5,847 Cument assets Cash and cash equivalents Investments Accounts receivable, net of allowance for doubtful accounts of $249 at July 30, 2016 and $302 at July 25, 2015 Inventories Financing receivables, net Other current assets Total current assets Property and equipment, net Financing receivables, net Goodwill Purchased intangible assets, net Deferred tax assets Other assets Total assets 1,217 4,272 1.627 78,719 1,627 4,491 1.490 73,368 3.506 4,158 26,625 2,501 4.299 1.844 $121,652 3.332 3,858 24,469 2,376 4,454 1.516 $113,373 Liabilities Eurrent liabilities Short-term debt Accounts payable Income taxes payable Accrued compensation Deferred revenue Other current liabilities $4,160 1,056 517 2,951 10.155 6,072 $3.897 1.104 62 3,049 9.824 5.476 24.911 23,412 Total current liabilities Long-term debt Income taxes payable Deferred revenue Dther long-term liabilities Total liabilities 925 6,317 1.431 58,067 21,457 1.876 5.359 1,562 53,666 44,516 43,592 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 Retained earnings Accumulated other comprehensive income (loss) Total Cisco shareholders' equity Noncontrolling interests Total equity 19,396 (326) 63,586 16,045 61 59.698 9 (1) 63.585 59,707 Total liabilities and equity $121,652 $113,373 Required (a) compute the return on assets (ROA) and return on equity (ROE) for 2016 (b) Complete the DuPont disaggregation of return on equity (ROE) for 2016. Analyze the DuPont financial ratios and discuss how Cisco Systems Inc. can achieve a high ROE. (e) Compute net operating assets (NOA) for 2016. (d) 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.) (e) Forecast Cisco's sales, NOPAT, and NOA for years 2017 through 2020 and the terminal period using the following assumptions: Sales growth 2017 2% Sales growth 2018-2020 3% Terminal growth 1% Net operating profit margin 2016 rate rounded to three decimal places Net operating asset turnover 2016 rate rounded to three decimal places Assume a discount rate (WACC) of 10%, common shares outstanding of 5,029 million, and net nodoperating obligations (NNO) of $(37,113) million (NNO is negative which means that Cisco has net nonoperating investments). (1) Estimate the value of a share of Cisco common stock as of July 30, 2016 using the discounted cash flow (DCF) model and sales, NOPAT and NOA forecast in (e); (g) If Cisco's top management were optimistic about CISCO's market growth opportunities and revised their sales growth rates up by 2%, please forecast Cisco's sales, NOPAT, and NOA for years 2017 through 2020 and the terminal period using the following assumptions: 5% Sales growth 2017 Sales growth 2018-2020 Terminal growth Net operating profit margin Net operating asset turnover 19 2016 rate rounded to three decimal places 2016 rate rounded to three decimal places (h) Estimate the value of a share of Cisco common stock as of July 30, 2016 using the discounted cash flow (DCF) model and the sales forecast in (g): Note, we still assume a discount rate (WACC) of 10%, common shares outstanding of 5.029 million, and net nonoperating obligations (NNO) of S(37,113) million. (i) 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 valuation estimates compare with this elosing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results? ) Are there other equity valuation models? Please discuss the advantages and disadvantages of different equity valuation models