Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model

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Following are income statements and balance sheets for Cisco Systems.

Note: Complete the entire question in Excel and format each answer to two decimal places. Then enter the answers into the provided spaces below with two decimal places.

$($a$)$ Compute net operating assets $($NOA$)$ for $2019.$

Hint: Treat Financing receivable as operating assets.

$($b$)$ Compute net operating profit after tax $($NOPAT$)$ for $2019,$ assuming a federal and state statutory tax rate of $22\%.$ Assume that all items on the $2019$ income statement will persist.

$($c$)$ Use the parsimonious forecast method, as shown in Analysis Insight box on page $14-5$ and in Exhibit $14\mathrm{.}2,$ to forecast Cisco$$s sales, NOPAT, and NOA for $2020$ through $2023$ and the terminal period using the following assumptions.

Note: When completing the question in Excel, refer directly to the cells containing calculated assumptions for NOPM and NOAT, i$.$e$.,$ don't type the NOPM number when making a calculation, refer to the cell.

Assumptions

Sales growth $202020235\%$

Terminal growth $1\%$

Net operating profit margin $($NOPM$)$ XX $2019$ rate

Net operating asset turnover $($NOAT$)$ XX $2019$ rate

Hint: Use $2019$ NOA, not average NOA, to compute the $2019$ rate for NOAT.

SALES $2019-2023$ and terminal period

NOPAT $($Forecasted sales x NOPM assumption$)2019-2023$ and terminal period

NOA $($ Forecasted sales $/$ NOAT assumption $)2019-2023$ and terminal period

$($d$)$ Estimate the value of a share of Cisco common stock using the residual operating income $($ROPI$)$ model as of July $27,2019$; assume a discount rate $($WACC$)$ of $7\mathrm{.}6\%,$ common shares outstanding of $5,029$ million, and net nonoperating obligations $($NNO$)$ of $$(8,747)$ million $($NNO is negative, which means that Cisco has net nonoperating investments$).$

Assumptions

Discount rate $($WACC$)7\mathrm{.}60\%$

Common shares outstanding $5,029$ million

Net nonoperating obligations $($NNO$)$ $$(8,747)$ million

NNO is negative, which means that Cisco has net nonoperating investments

ROPI $($NOPAT $-[$NOABeg x rw$])2019-2022$ and terminal period

Present value of horizon ROPI $2019-2022$ and terminal period

Cum present value of horizon ROPI Answer

Present value of terminal ROPI Answer

NOA Answer

Total firm value Answer

Less NNO Answer

Firm equity value Answer

Shares outstanding $($millions$)$ Answer

stock price per share