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Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF Model Following are the income statement and balance sheet for Cisco Sytems for

Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF Model Following are the income statement and balance sheet for Cisco Sytems for the year ended July 30, 2016.

Cisco Systems Consolidated Statements of Income
Years Ended December ($ millions) July 30, 2016 July 25, 2015
Revenue
Product $37,254 $37,750
Service 11,993 11,411
Total revenue 49,247 49,161
Cost of sales
Product 14,161 15,377
Service 4,126 4,103
Total cost of sales 18,287 19,480
Gross margin 30,960 29,681
Operating expenses
Research and development 6,296 6,207
Sales and marketing 9,619 9,821
General and administrative 1,814 2,040
Amortization of purchased intangible assets 303 359
Restructuring and other charges 268 484
Total operating expenses 18,300 18,911
Operating income 12,660 10,770
Interest income 1,005 769
Interest expense (676) (566)
Other income (loss), net (69) 228
Interest and other income (loss), net 260 431
Income before provision for income taxes 12,920 11,201
Provision for income taxes 2,181 2,220
Net income $10,739 $8,981

Cisco Systems Inc. Consolidated Balance Sheets
In millions, except par value July 30, 2016 July 25, 2015
Assets
Current assets
Cash and cash equivalents $7,631 $6,877
Investments 58,125 53,539
Accounts receivable, net of allowance for doubtful accounts of $249 at July 30, 2016 and $302 at July 25, 2015 5,847 5,344
Inventories 1,217 1,627
Financing receivables, net 4,272 4,491
Other current assets 1,627 1,490
Total current assets 78,719 73,368
Property and equipment, net 3,506 3,332
Financing receivables, net 4,158 3,858
Goodwill 26,625 24,469
Purchased intangible assets, net 2,501 2,376
Deferred tax assets 4,299 4,454
Other assets 1,844 1,516
Total assets $121,652 $113,373
Liabilities
Current liabilities
Short-term debt $4,160 $3,897
Accounts payable 1,056 1,104
Income taxes payable 517 62
Accrued compensation 2,951 3,049
Deferred revenue 10,155 9,824
Other current liabilities 6,072 5,476
Total current liabilities 24,911 23,412
Long-term debt 24,483 21,457
Income taxes payable 925 1,876
Deferred revenue 6,317 5,359
Other long-term liabilities 1,431 1,562
Total liabilities 58,067 53,666
Cisco shareholders' equity Preferred stock, no par value: 5 shares authorized; none issued and outstanding -- --
Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 5,029 and 5,085 shares issued and outstanding at July 30, 2016 and July 25, 2015, respectively 44,516 43,592
Retained earnings 19,396 16,045
Accumulated other comprehensive income (loss) (326) 61
Total Cisco shareholders' equity 63,586 59,698
Noncontrolling interests (1) 9
Total equity 63,585 59,707
Total liabilities and equity $121,652 $113,373

(a) Compute net operating assets (NOA) for 2016. Hint: Treat Financing receivable as operating assets. NOA = $Answer

(b) Compute net operating profit after tax (NOPAT) for 2016, assuming a federal and state statutory tax rate of 37%.(Round your answer to the nearest whole number.) 2016 NOPAT = $Answer

(c) Use the parsimonious forecast method, as shown in Analysis Insight box on page 13-4, to forecast Ciscos sales, NOPAT, and NOA for 2017 through 2020 and the terminal period using the following assumptions.

Sales growth 2017 1%
Sales growth 2018-2020 2%
Terminal growth 1%
Net operating profit margin 21.5%
Net operating asset turnover 1.86

CSCO Reported Forecast Horizon Terminal
($ millions) 2016 2017 Est. 2018 Est. 2019 Est. 2020 Est. Period
Sales (rounded two decimal places) Answer

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Sales (rounded nearest whole number) Answer

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NOPAT (rounded nearest whole number)* Answer

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NOA (rounded nearest whole number)* Answer

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* Use sales rounded to nearest whole number for this calculation.

(d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 30, 2016; assume a discount rate (WACC) of 10%, common shares outstanding of 5,029 million, and net nonoperating obligations (NNO) of $(37,113) million (NNO is negative which means that Cisco has net nonoperating investments).

Instructions:

Use your rounded answers for subsequent calculations.

Round all answers to the nearest whole number, except for discount factors and stock price per share.

Round discount factors to 5 decimal places.

Round stock price per share to two decimal places.

Use a negative sign with your NNO answer.

CSCO Reported Forecast Horizon Terminal
($ millions) 2016 2017 Est. 2018 Est. 2019 Est. 2020 Est. Period
DCF Model
Increase in NOA Answer

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FCFF (NOPAT - Increase in NOA) Answer

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Discount factor Answer

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Present value of horizon FCFF Answer

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Cummulative present value of horizon FCFF Answer

Present value of terminal FCFF Answer

Total firm value Answer

NNO Answer

NCI Answer

Firm equity value Answer

Shares outstanding (millions) Answer

Stock price per share Answer

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