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 $37,552 $34,941 Cost of sales 20.777 19,623 Gross profit 16.775 15,318 Demand creation expense 3,603 3,434 Operating overhead expense 8,591 7.617 Total selling and administrative expense 12,194 11,051 Interest expense (income), net 47 52 Other (income) expense, net (75) 63 Income before income taxes 4,609 4,152 Income tax expense 741 2,296 Net income $3,868 $1,856 NIKE INC. Consolidated Balance Sheets May 31, May 31, 2019 2018 $4,288 $4,078 189 956 4,101 3,358 5,397 5,051 1,889 1,085 15,864 4,554 272 14,528 4,276 274 148 148 1.931 2,409 $22,769 $21,635 $6 $6 9 323 $ millions Current assets Cash and equivalents Short-term investments Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Identifiable intangible assets, net Goodwill Deferred income taxes and other assets Total assets Current liabilities Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes and other liabilities Commitments and contingencies (Note 18) Shareholders' equity Common stock at stated value: Class A convertible-315 and 329 shares outstanding Class B,1,253 and 1,272 shares outstanding Capital in excess of stated value Accumulated other comprehensive income (loss) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 2,508 4,810 220 2,188 3,138 144 7,553 3,325 5,799 3,329 3,087 3,213 3 3 6,876 6,129 222 (88) 1,577 3,376 8,678 9,420 $22,769 $21,635 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: $ X NNO: $ X 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: $ 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 896 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 answers to the nearest whole dollar. Nike (NKE) Forecast Horizon Reported Terminal ($ millions) 2019 2020 2021 2022 2023 Period Sales $ 0 X $ Ox $ 0X $ Ox $ Ox $ NOPAT OX 0 X OX NOA 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. Stock price per share: $ X 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 $37,552 $34,941 Cost of sales 20.777 19,623 Gross profit 16.775 15,318 Demand creation expense 3,603 3,434 Operating overhead expense 8,591 7.617 Total selling and administrative expense 12,194 11,051 Interest expense (income), net 47 52 Other (income) expense, net (75) 63 Income before income taxes 4,609 4,152 Income tax expense 741 2,296 Net income $3,868 $1,856 NIKE INC. Consolidated Balance Sheets May 31, May 31, 2019 2018 $4,288 $4,078 189 956 4,101 3,358 5,397 5,051 1,889 1,085 15,864 4,554 272 14,528 4,276 274 148 148 1.931 2,409 $22,769 $21,635 $6 $6 9 323 $ millions Current assets Cash and equivalents Short-term investments Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Identifiable intangible assets, net Goodwill Deferred income taxes and other assets Total assets Current liabilities Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes and other liabilities Commitments and contingencies (Note 18) Shareholders' equity Common stock at stated value: Class A convertible-315 and 329 shares outstanding Class B,1,253 and 1,272 shares outstanding Capital in excess of stated value Accumulated other comprehensive income (loss) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 2,508 4,810 220 2,188 3,138 144 7,553 3,325 5,799 3,329 3,087 3,213 3 3 6,876 6,129 222 (88) 1,577 3,376 8,678 9,420 $22,769 $21,635 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: $ X NNO: $ X 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: $ 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 896 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 answers to the nearest whole dollar. Nike (NKE) Forecast Horizon Reported Terminal ($ millions) 2019 2020 2021 2022 2023 Period Sales $ 0 X $ Ox $ 0X $ Ox $ Ox $ NOPAT OX 0 X OX NOA 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. Stock price per share: $ X