Question

Estimating Share Value Using the ROPI Model

The following are forecasts of Abercrombie & Fitch's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 29, 2011. Refer to the information in the table to answer the following requirements.

	Reported	Horizon Period
(In millions)	2011	2012	2013	2014	2015	Terminal Period
Sales	$ 3,469	$ 3,989	$ 4,587	$ 5,275	$ 6,066	$ 6,187
NOPAT	152	319	367	422	485	495
NOA	1,032	1,173	1,349	1,551	1,784	1,820

Answer the following requirements assuming a discount rate (WACC) of 10%, a terminal period growth rate of 2%, common shares outstanding of 87.2 million, and net nonoperating obligations (NNO) of $(858) million. (Negative NNO reflects net nonoperating assests such as investments rather than net obligations)

(a) Estimate the value of a share of Abercrombie & Fitch common stock using the residual operating income (ROPI) model as of January 29, 2011.

Rounding instructions:

Round answers to the nearest whole number unless noted otherwise.

Use your rounded answers for subsequent calculations.

Do not use negative signs with any of your answers.

	Reported	Horizon Period
(In millions)	2011	2012	2013	2014	2015	Terminal Period
ROPI (NOPAT - [NOABeg × rw])		Answer	Answer	Answer	Answer	Answer
Discount factor [1 / (1 + rw)t ]	(round 5 decimal places)	Answer	Answer	Answer	Answer
Present value of horizon ROPI		Answer	Answer	Answer	Answer
present value of horizon ROPI	$ Answer
Present value of terminal ROPI	Answer
NOA	Answer
Total firm value	Answer
NNO	Answer
Firm equity value	$Answer
Shares outstanding (millions)	Answer	(round one decimal place)
Stock price per share	$Answer	(round two decimal places)

Answer 1