Question

Following are the income statement and balance sheet for Cisco Sytems for the year ended July...

Following are the income statement and balance sheet for Cisco Sytems for the year ended July 30, 2016.

Cisco Sytems
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 Sytems 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 shaes 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 $1

(a) Compute net operating assets (NOA) for 2016.
(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.)
(c) Forecast Cisco's sales, NOPAT, and NOA for years 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 Answer Answer Answer Answer Answer
Sales (rounded nearest whole number) Answer Answer Answer Answer Answer Answer
NOPAT (rounded nearest whole number)* Answer Answer Answer Answer Answer Answer
NOA (rounded nearest whole number)* Answer Answer Answer Answer Answer Answer

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

(d) Estimate the value of a share of Cisco common stock using the residual operating income (ROPI) 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).

  • Use your rounded answers for subsequent calculations.

  • Do not use negative signs with any of your answers below.

  • CSCO Reported Forecast Horizon Terminal
    ($ millions) 2016 2017 Est. 2018 Est. 2019 Est. 2020 Est. Period
    ROPI Model
    ROPI [NOPAT - (NOA beg x WACC)]

    (rounded to

    nearest whole number)

    Answer Answer Answer Answer Answer
    Discount factor

    (rounded to 5

    decimal places)

    Answer Answer Answer Answer
    Present value of horizon ROPI

    (rounded to

    nearest whole number)

    Answer Answer Answer Answer
    Cumulative present value of horizon ROPI Answer

    (rounded to nearest

    whole number)

    Present value of terminal ROPI Answer

    (rounded to nearest

    whole number)

    NOA Answer

    (rounded to nearest

    whole number)

    Total firm value Answer

    (rounded to nearest

    whole number)

    NNO Answer
    NCI Answer
    Firm equity value Answer

    (rounded to nearest

    whole number)

    Shares outstanding (millions) Answer

    (rounded to nearest

    whole number)

    Stock value per share Answer

    (rounded to two

    decimal places)

Homework Answers

Answer #1

A)Net Operating Assets for 2016

Net operating assets of the company is the value of it's operating assets less operating liabilities. Operating Assets are the assets that are used in companies' operations to generate revenue whereas operating liabilities are short term debt resulting from business operations.

Operating Assets July 30, 2016($)
Cash and cash equivalents 7631
Account receivable 5847
Inventories 1217
Financing receivables 4272
other current assets 1627
Property & Equipment 3506
Financing receivables 4158
Goodwill 26625
Intangible assets 2501
Other assets 1844
Deferred tax assets 4299
Total 63527
Operating Liabilities July 30, 2016($)
Short term debt 4160
Accounts Payable 1056
Income Tax payable 517
Accrued Compensation 2951
Deferred revenue 10155
Other current Liabilities 6072
Total 24911

NOA=Operating Assets - Operating Liability i.e, 63527-24911=$38616

b)NOPAT for 2016

Operating Income $12660
Less: Tax @37% 4684.20
NOPAT 7975.80
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