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 Operating overhead expense 7,934 Total selling and administrative expense Interest expense (income), net Other (income) expense, net Income before income taxes 4,801 4,325 Income tax expense 772 2,392 $4,029 $1,933 3,753 3,577 8,949 12,702 11,511 49 54 (78) 66 Net income 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 B-1,253 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 company's NNO is negative because cash exceeds debt. NOA: $ 7,856 NNO: $ (1,184) 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: $ 4,006 8% 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 Net operating profit margin (NOPM) 2019 ratlos 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 2023 Reported 2019 39,117$ 4,006 ($ millions) Sales NOPAT NOA $ Terminal Period 54,283 2020 42,246 $ 4,326.5 x 8,484.48 x 2021 45,626 $ 4,673 x 2022 49,276 $ 0 X 53,218$ OX OX 7,856 OX OX OX OX d. Estimate the value of a share of Nike's 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: $ 0 X e. Nike's stock closed at $86.70 on July 23, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? Stock price is overvalued Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model Following are income statements and balance sheets for Nike Inc. NIKE INC. Consolidated Income Statements May 31, May 31, For Year Ended ($ millions) 2019 2018 Revenues $39,117 $36,397 Cost of sales 21,643 20,441 Gross profit 17,474 15,956 Demand creation expense Operating overhead expense 7,934 Total selling and administrative expense Interest expense (income), net Other (income) expense, net Income before income taxes 4,801 4,325 Income tax expense 772 2,392 $4,029 $1,933 3,753 3,577 8,949 12,702 11,511 49 54 (78) 66 Net income 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 B-1,253 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 company's NNO is negative because cash exceeds debt. NOA: $ 7,856 NNO: $ (1,184) 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: $ 4,006 8% 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 Net operating profit margin (NOPM) 2019 ratlos 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 2023 Reported 2019 39,117$ 4,006 ($ millions) Sales NOPAT NOA $ Terminal Period 54,283 2020 42,246 $ 4,326.5 x 8,484.48 x 2021 45,626 $ 4,673 x 2022 49,276 $ 0 X 53,218$ OX OX 7,856 OX OX OX OX d. Estimate the value of a share of Nike's 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: $ 0 X 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? Stock price is overvalued