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QUESTION Partially correct 0.86 points out of 1.00 Flag question Estimating Share Value Using the ROPI Model Assume following are forecasts of Abercrombie & Fitch's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 29. 2011. Refer to the information in the table to answer the following requirements. Reported Horizon Period (In millions) 2011 2012 2013 2014 2015 Terminal Period 3,750 $4,500 5,400 6490 $7,776 464 539 654 79 982 320 1,602 1,933 2,332 2,791 Sales NOPAT NOA 7,853 960 2,802 Answer the following requirements assuming a discount rate (WACC) of 13.3%, a terminal period growth rate of 1%, common shares outstanding of 86.2 million, and net nonoperating obligations (NNO) of $(261) million (negative NNO reflects net nonoperating assets such as investments rather than net obligations). (a) Estimate the value of a share of Abercromble & Fitch common stock using the residual operating income (ROPI) model as of january 29, 2011 Rounding instructions: . Round answers to the nearest whole number unless noted otherwise. e Use your rounded answers for subsequent calculations. Do not use negative signs with any of your answers. Reported Horizon Period IIn millions) 2011 2012 2013 2014 2015 Terminal Period 672 441 0.779 344 ROPI INOPAT INOABeg rwj) 537 589 363 places 0.88261 320 Discount factor [11 +rw)c] Round 5 decimal 0.68755X 0.60684X Present value of horizon ROP 369 409 X Cum present value of horizon ROPI 1,442 Present value of terminal ROP 2,906 NOA 1,320 Total firm value 5,668 NNO 261 Firm equity value 5,929 round one decimal place) round two Shares outstanding (millions) 86.2 Stock price per share 568.78 decimal places) (b) Assume Abercrombie & Fitch (ANF) stock closed at $77.56 on March 2, 2011. How does your valuation estimate compare with this closing price? What do you believe are some reasons for the difference? Our stock price estimate is lower than the ANF market price, indicating that we believe that ANF stock is undervalued. Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Our lower stock price estimate might be due to more optimistic forecasts or a lower discount rate compared to other investors' and analysts' model assumptions. Stock prices are a function of many factors. It is impossible to speculate on the reasons for the difference. Our stock price estimate is lower than the ANF market price, indicating that we believe that ANF stock is overvalued. Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Our lower stock price estimate might be due to more pessimistic forecasts or a higher
