P14-29. Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model Following are the income statement and balance sheet for Nike Inc. NIKE INC. Consolidated Balance Sheets May 31, 2016 May 31, 2015 NIKE INC. Consolidated Income Statement May 31, 2016 May 31, 2015 $32,376 $30,601 . 17,405 16,534 $ 3,138 S 3,862 2.3192,072 3,2413.358 4,8384,337 1.489 1.968 15.025 15,587 3,5203.011 281 281 131 131 2,439 2,587 $21.396 S21,597 14,971 14,067 3,278 3,213 .....7.191 For Year Ended ($ millions) Revenues Cost of sales........ Gross profit. Demand creation expense.. Operating overhead expense Total selling and administrative expense Interest expense (income), net... Other (income) expense, net... Income before income taxes. Income tax expense....... Net income.. 79 10,469 9,892 . 1928 (140) ... 4,623 4,205 .... 863 $ 3,760 $ 3,273 $ milliona Current assets Cash and equivalenta....... Short-term investments ... Accounts receivable, net ... Inventories ........ Prepaid expenses and other current assets... Total current assets .............. Property, plant and equipment, net .... nd equipment, not ..................... Identifiable intangible assets, not.. Goodwill..... Deferred income taxes and other assets... Total assets... Current liabilities Current portion of long-term debt Notes payable ... Accounts payable... Acorued liabilitiea ...... Income taxes payable ...... Total current liabilities......... Long-term debt ..... Deferred income taxes and other liabilities Total liabilities ........ Shareholders' equity Class A convertible common stock ...... Class B common stock ........ Capital in excess of stated value... Accumulated other comprehensive income......... Retained earnings ........... Total shareholders' equity ...... Total liabilities and shareholders' equity. ...... $ 44 S 107 174 2,191 2.131 3,037 3,949 85 5,358 6.332 2,010 1,079 1.770 9,138 8.890 1.479 00 . ...33 7.786 6,773 318 1,246 4.151 4.685 12,258 12,707 $21,306 $21,697 Required a. Estimate the value of a share of Nike common stock using the residual operating income (ROPI) model as of May 31, 2016. For simplicity, prepare your forecasts in S millions. Use the following assumptions: Sales growth. .... Net operating profit margin (NOPM)............. 2016 ratios rounded to three decimal places Net operating asset turnover (NOAT) year-end. .. .. 2016 ratios rounded to three decimal places b Nike's stock closed at $56.99 on July 21, 2016, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results? P14-29. Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model Following are the income statement and balance sheet for Nike Inc. NIKE INC. Consolidated Balance Sheets May 31, 2016 May 31, 2015 NIKE INC. Consolidated Income Statement May 31, 2016 May 31, 2015 $32,376 $30,601 . 17,405 16,534 $ 3,138 S 3,862 2.3192,072 3,2413.358 4,8384,337 1.489 1.968 15.025 15,587 3,5203.011 281 281 131 131 2,439 2,587 $21.396 S21,597 14,971 14,067 3,278 3,213 .....7.191 For Year Ended ($ millions) Revenues Cost of sales........ Gross profit. Demand creation expense.. Operating overhead expense Total selling and administrative expense Interest expense (income), net... Other (income) expense, net... Income before income taxes. Income tax expense....... Net income.. 79 10,469 9,892 . 1928 (140) ... 4,623 4,205 .... 863 $ 3,760 $ 3,273 $ milliona Current assets Cash and equivalenta....... Short-term investments ... Accounts receivable, net ... Inventories ........ Prepaid expenses and other current assets... Total current assets .............. Property, plant and equipment, net .... nd equipment, not ..................... Identifiable intangible assets, not.. Goodwill..... Deferred income taxes and other assets... Total assets... Current liabilities Current portion of long-term debt Notes payable ... Accounts payable... Acorued liabilitiea ...... Income taxes payable ...... Total current liabilities......... Long-term debt ..... Deferred income taxes and other liabilities Total liabilities ........ Shareholders' equity Class A convertible common stock ...... Class B common stock ........ Capital in excess of stated value... Accumulated other comprehensive income......... Retained earnings ........... Total shareholders' equity ...... Total liabilities and shareholders' equity. ...... $ 44 S 107 174 2,191 2.131 3,037 3,949 85 5,358 6.332 2,010 1,079 1.770 9,138 8.890 1.479 00 . ...33 7.786 6,773 318 1,246 4.151 4.685 12,258 12,707 $21,306 $21,697 Required a. Estimate the value of a share of Nike common stock using the residual operating income (ROPI) model as of May 31, 2016. For simplicity, prepare your forecasts in S millions. Use the following assumptions: Sales growth. .... Net operating profit margin (NOPM)............. 2016 ratios rounded to three decimal places Net operating asset turnover (NOAT) year-end. .. .. 2016 ratios rounded to three decimal places b Nike's stock closed at $56.99 on July 21, 2016, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results