Question 2 Partially correct Mark 4.00 out of 55.00 p Flag question Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF Model Following are income statements and balance sheets for Cisco Systems. Cisco Systems Consolidated Statements of Income Years Ended December ($ millions) July 27, 2019 July 28, 2018 Revenue Product $39,005 $36,709 Service 12,899 12,621 Total revenue 51,904 49,330 Cost of sales Product 14,863 14,427 4,297 4,375 19,238 18,724 32,666 30,606 6,332 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 6,577 9,571 1,827 9,242 2,144 221 150 322 358 18,447 18,297 12,309 14,219 1,308 1,508 (859) (943) (97) 165 Interest expense Other income (loss), net Interest and other income (loss), net Income before provision for income taxes Provision for income taxes 352 730 13,039 14,571 2,950 12,929 Net income $11,621 $110 2,940 Cisco Systems Inc. Consolidated Balance Sheets In millions, except par value July 27, 2019 July 28, 2018 Assets Current assets Cash and cash equivalents $11,750 $8,934 Investments 21,663 37,614 Accounts receivable, net of allowance for doubtful accounts 5,491 5,554 Inventories 1,383 1,846 Financing receivables, net 5,095 4,949 Other current assets 2,373 Total current assets 47,755 61,837 Property and equipment, net 2,789 3,006 Financing receivables, net 4,958 4,882 Goodwill 33,529 31,706 Purchased intangible assets, net 2,201 2,552 Deferred tax assets 4,065 3,219 Other assets 2,496 1,582 Total assets $97,793 $108,784 Liabilities and equity Current liabilities Short-term debt $10,191 $5,238 Accounts payable 2,059 1,904 Income taxes payable 1,149 1,004 Accrued compensation 3,221 2,986 Deferred revenue 10,668 11,490 Other current liabilities 4,424 4,413 Total current liabilities 31,712 27,035 Long-term debt 14,475 20,331 Income taxes payable 8,927 8,585 Deferred revenue 7,799 8,195 Other long-term liabilities 1,309 1,434 Total liabilities 64,222 65,580 Equity: 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; 4,250 and 4,614 shares issued and outstanding at July 27, 2019, and July 28, 2018, respectively 40,266 42,820 (Accumulated deficit) Retained earnings (5,903) 1,233 Accumulated other comprehensive income (loss) (792) (849) Total Cisco shareholders' equity 33,571 43,204 Total equity 33,571 43,204 Total liabilities and equity $97,793 $108,784 (a) Compute net operating assets (NOA) for 2019. Hint: Treat Financing receivable as operating assets. NOA = $ 0.68756 x (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. (Round your answer to the nearest whole number.) 2019 NOPAT = $ 0.60685 X (c) Use the parsimonious forecast method, as shown in Analysis Insight box on page 13-4, to forecast Cisco's sales, NOPAT, and NOA for 2020 through 2023 and the terminal period using the following assumptions. Sales growth 2020-2023 5% Terminal growth 1% Net operating profit margin 2019 rate rounded to three decimal places Net operating asset turnover 2019 rate rounded to three decimal places Reported 2019 2020 Est. Ox $ 2023 Est. 0 x $ Terminal Period OX $ CSCO ($ millions) Sales (rounded two decimal places) Sales (rounded nearest whole number) NOPAT (rounded nearest whole number)* NOA (rounded nearest whole number)* Ox $ Forecast Horizon 2021 Est. 2022 Est. Ox $ 0x $ OX 0 X OX 0 X OX 0 X OX OX OX OX OX OX OX OX * 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 27, 2019; assume a discount rate (WACC) of 7.6%, common shares outstanding of 5,029 million, and net nonoperating obligations (NNO) of $(8,747) million (NNO is negative, which means that Cisco has net nonoperating investments) Instructions: Use your rounded answers for subsequent calculations. Round all answers to the nearest whole number, except for discount factors and stock price per share. Round discount factors to 5 decimal places, Round stock price per share to two decimal places. Use a negative sign with your NNO answer. Question 2 Partially correct Mark 4.00 out of 55.00 p Flag question Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF Model Following are income statements and balance sheets for Cisco Systems. Cisco Systems Consolidated Statements of Income Years Ended December ($ millions) July 27, 2019 July 28, 2018 Revenue Product $39,005 $36,709 Service 12,899 12,621 Total revenue 51,904 49,330 Cost of sales Product 14,863 14,427 4,297 4,375 19,238 18,724 32,666 30,606 6,332 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 6,577 9,571 1,827 9,242 2,144 221 150 322 358 18,447 18,297 12,309 14,219 1,308 1,508 (859) (943) (97) 165 Interest expense Other income (loss), net Interest and other income (loss), net Income before provision for income taxes Provision for income taxes 352 730 13,039 14,571 2,950 12,929 Net income $11,621 $110 2,940 Cisco Systems Inc. Consolidated Balance Sheets In millions, except par value July 27, 2019 July 28, 2018 Assets Current assets Cash and cash equivalents $11,750 $8,934 Investments 21,663 37,614 Accounts receivable, net of allowance for doubtful accounts 5,491 5,554 Inventories 1,383 1,846 Financing receivables, net 5,095 4,949 Other current assets 2,373 Total current assets 47,755 61,837 Property and equipment, net 2,789 3,006 Financing receivables, net 4,958 4,882 Goodwill 33,529 31,706 Purchased intangible assets, net 2,201 2,552 Deferred tax assets 4,065 3,219 Other assets 2,496 1,582 Total assets $97,793 $108,784 Liabilities and equity Current liabilities Short-term debt $10,191 $5,238 Accounts payable 2,059 1,904 Income taxes payable 1,149 1,004 Accrued compensation 3,221 2,986 Deferred revenue 10,668 11,490 Other current liabilities 4,424 4,413 Total current liabilities 31,712 27,035 Long-term debt 14,475 20,331 Income taxes payable 8,927 8,585 Deferred revenue 7,799 8,195 Other long-term liabilities 1,309 1,434 Total liabilities 64,222 65,580 Equity: 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; 4,250 and 4,614 shares issued and outstanding at July 27, 2019, and July 28, 2018, respectively 40,266 42,820 (Accumulated deficit) Retained earnings (5,903) 1,233 Accumulated other comprehensive income (loss) (792) (849) Total Cisco shareholders' equity 33,571 43,204 Total equity 33,571 43,204 Total liabilities and equity $97,793 $108,784 (a) Compute net operating assets (NOA) for 2019. Hint: Treat Financing receivable as operating assets. NOA = $ 0.68756 x (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. (Round your answer to the nearest whole number.) 2019 NOPAT = $ 0.60685 X (c) Use the parsimonious forecast method, as shown in Analysis Insight box on page 13-4, to forecast Cisco's sales, NOPAT, and NOA for 2020 through 2023 and the terminal period using the following assumptions. Sales growth 2020-2023 5% Terminal growth 1% Net operating profit margin 2019 rate rounded to three decimal places Net operating asset turnover 2019 rate rounded to three decimal places Reported 2019 2020 Est. Ox $ 2023 Est. 0 x $ Terminal Period OX $ CSCO ($ millions) Sales (rounded two decimal places) Sales (rounded nearest whole number) NOPAT (rounded nearest whole number)* NOA (rounded nearest whole number)* Ox $ Forecast Horizon 2021 Est. 2022 Est. Ox $ 0x $ OX 0 X OX 0 X OX 0 X OX OX OX OX OX OX OX OX * 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 27, 2019; assume a discount rate (WACC) of 7.6%, 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) 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