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Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF Model Following are income statements and balance sheets for Cisco Systems. Note: Complete
Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF Model 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. Cisco Systems Consolidated Statements of Income Years Ended December $ millions July July Revenue Product $ $ Service Total revenue Cost of sales Product Service Total cost of sales Gross margin Operating expenses Research and development Sales and marketing General and administrative Amortization of purchased intangible assets Restructuring and other charges Total operating expenses Operating income Interest income Interest expense Other income loss net Interest and other income loss net Income before provision for income taxes Provision for income taxes Net income $ $ Cisco Systems Inc. Consolidated Balance Sheets In millions, except par value July July Assets Current assets Cash and cash equivalents $ $ Investments Accounts receivable, net of allowance for doubtful accounts Inventories Financing receivables, net Other current assets Total current assets Property and equipment, net Financing receivables, net Goodwill Purchased intangible assets, net Deferred tax assets Other assets Total assets $ $ Liabilities and equity Current liabilities Shortterm debt $ $ Accounts payable Income taxes payable Accrued compensation Deferred revenue Other current liabilities Total current liabilities Longterm debt Income taxes payable Deferred revenue Other longterm liabilities Total liabilities Equity: Cisco shareholders equity Preferred stock, no par value: shares authorized; none issued and outstanding Common stock and additional paidin capital, $ par value: shares authorized; and shares issued and outstanding at July and July respectively Accumulated deficit Retained earnings Accumulated other comprehensive income loss Total Cisco shareholders' equity Total equity Total liabilities and equity $ $ Feceral and state statutory tax rate a Compute net operating assets NOA for Hint: Treat Financing receivable as operating assets. NOA Answer b Compute net operating profit after tax NOPAT for assuming a federal and state statutory tax rate of Assume that all items on the income statement will persist. NOPAT Answer c Use the parsimonious forecast method, as shown in Analysis Insight box on page to forecast Ciscos sales, NOPAT, and NOA for through 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, ie don't type the NOPM number when making a calculation, refer to the cell. Assumptions Sales growth Terminal growth Net operating profit margin NOPM rate Net operating asset turnover NOAT rate Hint: Use NOA, not average NOA, to compute the rate for NOAT. CSCO Reported Forecast Horizon Terminal $ millions Est. Est. Est. Est. Period Sales Answer Answer Answer Answer Answer Answer NOPAT Forecasted sales x NOPM assumption Answer Answer Answer Answer Answer Answer NOA Forecasted sales NOAT assumption Answer Answer Answer Answer Answer Answer d Estimate the value of a share of Cisco common stock using the discounted cash flow DCF model as of July using the following assumptions Assumptions Discount rate WACC Common shares outstanding million Net nonoperating obligations NNO $ million NNO is negative, which means that Cisco has net nonoperating investments CSCO Reported Forecast Horizon Terminal $ millions Est. Est. Est. Est. Period DCF Model Increase in NOA Answer Answer Answer Answer Answer FCFF NOPAT Increase in NOA Answer Answer Answer Answer
Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF Model
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.
Cisco Systems
Consolidated Statements of Income
Years Ended December $ millions July July
Revenue
Product $ $
Service
Total revenue
Cost of sales
Product
Service
Total cost of sales
Gross margin
Operating expenses
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangible assets
Restructuring and other charges
Total operating expenses
Operating income
Interest income
Interest expense
Other income loss net
Interest and other income loss net
Income before provision for income taxes
Provision for income taxes
Net income $ $
Cisco Systems Inc.
Consolidated Balance Sheets
In millions, except par value July July
Assets
Current assets
Cash and cash equivalents $ $
Investments
Accounts receivable, net of allowance for doubtful accounts
Inventories
Financing receivables, net
Other current assets
Total current assets
Property and equipment, net
Financing receivables, net
Goodwill
Purchased intangible assets, net
Deferred tax assets
Other assets
Total assets $ $
Liabilities and equity
Current liabilities
Shortterm debt $ $
Accounts payable
Income taxes payable
Accrued compensation
Deferred revenue
Other current liabilities
Total current liabilities
Longterm debt
Income taxes payable
Deferred revenue
Other longterm liabilities
Total liabilities
Equity:
Cisco shareholders equity
Preferred stock, no par value: shares authorized; none issued and outstanding
Common stock and additional paidin capital, $ par value: shares authorized;
and shares issued and outstanding at July and July respectively
Accumulated deficit Retained earnings
Accumulated other comprehensive income loss
Total Cisco shareholders' equity
Total equity
Total liabilities and equity $ $
Feceral and state statutory tax rate
a Compute net operating assets NOA for
Hint: Treat Financing receivable as operating assets.
NOA
Answer
b Compute net operating profit after tax NOPAT for assuming a federal and state statutory tax rate of Assume that all items on the income statement will persist.
NOPAT
Answer
c Use the parsimonious forecast method, as shown in Analysis Insight box on page to forecast Ciscos sales, NOPAT, and NOA for through 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, ie don't type the NOPM number when making a calculation, refer to the cell.
Assumptions
Sales growth
Terminal growth
Net operating profit margin NOPM rate
Net operating asset turnover NOAT rate
Hint: Use NOA, not average NOA, to compute the rate for NOAT.
CSCO Reported Forecast Horizon Terminal
$ millions Est. Est. Est. Est. Period
Sales
Answer
Answer
Answer
Answer
Answer
Answer
NOPAT Forecasted sales x NOPM assumption
Answer
Answer
Answer
Answer
Answer
Answer
NOA Forecasted sales NOAT assumption
Answer
Answer
Answer
Answer
Answer
Answer
d Estimate the value of a share of Cisco common stock using the discounted cash flow DCF model as of July using the following assumptions
Assumptions
Discount rate WACC
Common shares outstanding million
Net nonoperating obligations NNO $ million
NNO is negative, which means that Cisco has net nonoperating investments
CSCO Reported Forecast Horizon Terminal
$ millions Est. Est. Est. Est. Period
DCF Model
Increase in NOA
Answer
Answer
Answer
Answer
Answer
FCFF NOPAT Increase in NOA
Answer
Answer
Answer
Answer
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