Shown below are the income statement and balance sheet for Cisco Systems for its fiscal year ended July 30, 2016 CISCO SYSTEMS Consolidated Statements of Operations July 30,July 25, Year Ended ($ millions) 2016 2015 Revenue $37,254 $37,750 11,993 49,247 11,411 49,161 Cost of sales 14,161 4,126 18,287 15,377 4,103 19,480 29,681 30,960 Gross margin Operating expenses 6,296 6,207 9,619 1,814 303 268 9,821 2,040 359 484 18,300 18,911 12,660 1,005 (676) (69) 260 10,770 769 (566) 228 431 Interest and other income (loss), net . . . . . . Income before provision for income taxes.... . . . . . .. 12,920 2,181 11,201 2,220 $10,739 8,981 CISCO SYSTEMS INC Consolidated Balance Sheets July 30, 2016 July 25 2015 In milions, except par value Assets Current assets Cash and cash equivalents Investments Accounts receivable, net of allowance for doubtful accounts of S 7,631 6,877 53.539 58,125 S249 at July 30, 2016 and $302 at July 25, 2015.. Inventories 5,847 1.217 4 272 1,627 .. 5,344 1,627 4,491 1.490 73,368 3.332 3,858 24,469 2,376 4,454 1.516 Financing receivables, net. Other current assets. . Total current assets 78,719 3,506 Goodwit Purchased intangible assets, net Deferred tax assets. . . . 2,501 4299 1,844 Other assets.. Total assets. Liabilities and equity Current labilities S121,652 $113,373 .S 4,160 s 3,897 Accounts payable. Income taxes payable 1,056 2,951 10,155 6,072 62 3,049 9,824 5,476 Deferred revenue. 24,911 24,483 925 6,317 1.431 23,412 21,457 Long-term debt Income taxes payable Deferred revenue 1,876 5,359 1,562 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 19,396 326) 43,592 16,045 61 Retained earnings . Accumulated other comprehensive income (loss) 63,586 59,698 63,585 59.707 Total equity. . . Total liabilities and equity $121,652 $113,373 Cisco projects sales growth of 1% for 2107, 2% for each of the years 2018 through 2020 and a terminal period growth rate of 1%. Its WACC is 10% and has a statutory tax rate of 37% for 2017 and thereafter at the time of this valuation. Common shares outstanding at the end of fiscal year 2016 were 5,029 million. Required Part A. Using the parsimonious forecast method, estimate the value of a share of Cisco common stock as of July 30, 2016 using the DCF model. Be sure to show all your work. C. CSCO (Smillions) Sales growth. Sales, unrounded Sales, rounded NOPAT NOA Forecast Horizon Reported 2016 Terminal 2017 2018 2019 2020 Period FCFF.... Discount facter.. Present value of horizon FCFF. Cum PV of horizon FCFF.... Present value of terminal FCFF Total firm value... Less (plus) NNO.. Less (plus) NCI. Firm equity value Shares outstanding millions). Stock price per share Part B Given the U.S. Federal corporate rate for 2018 and thereafter is 21%, suppose that Cisco's statutory tax rate is 23% for 2018 and thereafter. Based on your analysis in Part A, determine the effect of the change in the statutory tax rate on your valuation of Cisco's common stock. (That is, suppose that Cisco was thinking that the tax rate might change based on the campaigning going on in the summer of 2016. Amount of the change: Forecast Horizon Terminal cSco (Smillions) Sales growth.. Sales, unrounded... Sales, rounded. NOPAT . Reported 2016 2017 2018 2019 2020 Period Increase in NOA FCFF. Present value of Cum PV of horizon Present value of horizon FCFF.... FCF. terminal FCFF Less (plus) NNO.. Less (plus) NC. Firm equity value Shares outstanding (millions).. Stock price per share
