Question

# Following are Cisco Systems’ sales, net operating profit after tax (NOPAT), and net operating assets (NOA)...

Following are Cisco Systems’ sales, net operating profit after tax (NOPAT), and net operating assets (NOA) for its year ended July 31, 2016 (\$ millions).

 Sales \$48,136 Net operating profit after tax (NOPAT) 10,349 Net operating assets (NOA) 25,880

Use the parsimonious method to forecast Cisco’s sales, NOPAT, and NOA for years 2017 through 2020 using the following assumptions.

 Sales growth per year 1.0% for 2017 and 2.0% thereafter Net operating profit margin (NOPM) 21.5% Net operating asset turnover (NOAT), based on NOA at July 31, 2016 1.86

Rounding instructions:

• Round total revenue "unrounded" to two decimal places.

• Round total revenue "rounded", NOPAT and NOA answers to the nearest whole number.

• For NOPAT and NOA computations, use total revenue "rounded"

SOLUTION:

 Net operating profit margin = NOPAT/sales Net operating profit margin = 10349/48136 = 21% Net operating assets turnover = sale/net operating assets net operating assets turnover = 48136/25880 = 1.86 Next year sales = sale of current year*(100%+growth rate%) Particulars 2017 2018 2019 2020 total revenue (unrounded) 48136*101% 48617.36*102% 49589.7072*102% 50581.501344*102% 48617.36 49589.7072 50581.501344 51593.13137088 total revenue (rounded) 48617 49590 50582 51593 NOPAT =Total revenue*21.5% 48617*21.5% =10453 49590*21.5% =10662 50582*21.5% =10875 51593*21.5% =11092 NOA= total revenue/1.86 26138.17 26661.29 27194.62 27738.17

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