Question
Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model Following are income statements and balance sheets for Nike Inc. NIKE INC.
Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model Following are income statements and balance sheets for Nike Inc.
NIKE INC. | ||
---|---|---|
Consolidated Income Statements | ||
May 31, | May 31, | |
For Year Ended ($ millions) | 2019 | 2018 |
Revenues | $39,117 | $36,397 |
Cost of sales | 21,643 | 20,441 |
Gross profit | 17,474 | 15,956 |
Demand creation expense | 3,753 | 3,577 |
Operating overhead expense | 8,949 | 7,934 |
Total selling and administrative expense | 12,702 | 11,511 |
Interest expense (income), net | 49 | 54 |
Other (income) expense, net | (78) | 66 |
Income before income taxes | 4,801 | 4,325 |
Income tax expense | 772 | 2,392 |
Net income | $4,029 | $1,933 |
NIKE INC. | ||
---|---|---|
Consolidated Balance Sheets | ||
May 31, | May 31, | |
$ millions | 2019 | 2018 |
Current assets | ||
Cash and equivalents | $4,466 | $4,249 |
Short-term investments | 197 | 996 |
Accounts receivable, net | 4,272 | 3,498 |
Inventories | 5,622 | 5,261 |
Prepaid expenses and other current assets | 1,968 | 1,130 |
Total current assets | 16,525 | 15,134 |
Property, plant and equipment, net | 4,744 | 4,454 |
Identifiable intangible assets, net | 283 | 285 |
Goodwill | 154 | 154 |
Deferred income taxes and other assets | 2,011 | 2,509 |
Total assets | $23,717 | $22,536 |
Current liabilities | ||
Current portion of long-term debt | $6 | $6 |
Notes payable | 9 | 336 |
Accounts payable | 2,612 | 2,279 |
Accrued liabilities | 5,010 | 3,269 |
Income taxes payable | 229 | 150 |
Total current liabilities | 7,866 | 6,040 |
Long-term debt | 3,464 | 3,468 |
Deferred income taxes and other liabilities | 3,347 | 3,216 |
Commitments and contingencies (Note 18) | ||
Shareholders equity | ||
Common stock at stated value: | ||
Class A convertible315 and 329 shares outstanding | - | - |
Class B1,253 and 1,272 shares outstanding | 3 | 3 |
Capital in excess of stated value | 7,163 | 6,384 |
Accumulated other comprehensive income (loss) | 231 | (92) |
Retained earnings | 1,643 | 3,517 |
Total shareholders equity | 9,040 | 9,812 |
Total liabilities and shareholders equity | $23,717 | $22,536 |
Required a. Compute net operating assets (NOA) and net nonoperating obligations (NNO) for 2019. The companys NNO is negative because cash exceeds debt. NOA: $7,856 CORRECT
NNO: $-1,184 CORRECT
b. Compute net operating profit after tax (NOPAT) for 2019 assuming a federal and state statutory tax rate of 22%. Note: Round your answer to the nearest whole dollar. NOPAT: $Answer
c. Use the parsimonious forecast method, as shown in the Analysis Insight box on page 14-5, to forecast sales, NOPAT, and NOA for 2020 through 2023 using the following assumptions.
Sales growth | 8% |
Net operating profit margin (NOPM) | 2019 ratios rounded to three decimal places |
Net operating asset turnover (NOAT), year-end | 2019 ratios rounded to three decimal places |
Forecast the terminal period value assuming a 2% terminal period growth and using the NOPM and NOAT assumptions above. Note: Round your final answers to the nearest whole dollar.
Nike (NKE) | Forecast Horizon | |||||
---|---|---|---|---|---|---|
Reported | Terminal | |||||
($ millions) | 2019 | 2020 | 2021 | 2022 | 2023 | Period |
Sales | Answer
| Answer
| Answer
| Answer
| Answer
| Answer
|
NOPAT | Answer
| Answer
| Answer
| Answer
| Answer
| Answer
|
NOA | Answer
| Answer
| Answer
| Answer
| Answer
| Answer
|
d. Estimate the value of a share of Nikes common stock using the residual operating income (ROPI) model as of May 31, 2019; assume a discount rate (WACC) of 6.8% and common shares outstanding of 1,682 million. Note: Round your final answer to two decimal places (for example, round $15.555 to $15.56). Stock price per share: $Answer
PLEASE ANSWER QUESTIONS B, C, D!!
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