DuPont Analysis. Please include explanations and calculations for each question (A-J).

DuPont Analysis. Forecasting with the Parsimonious Method and Estimating Share Value of Cisco Systems Ine Using the DCF Model Cisco Systems, Inc. is a multinational information technology company headquartered in San Jose, California, that produces and sells networking hardware, telecommunications equipment and other high-technology services. Cisco Systems was founded in December 1984 by Leonard Bosack and Sandy Lemer, two Stanford University computer scientists, who pioneered the concept of a local area network (LAN). In 1990, Cisco Systems went public with a market capitalization of $224 million. By 2000. Cisco had become the most valuable company in the world with a more than $500 billion market capitalization. The stock was initially listed on the NASDAQ in 1990, and then was added to the Dow Jones Industrial Average on Jus 8. 2009. Cisco is currently included in the S&P 500 Index, the Russell 1000 Index, NASDAQ-100 Index and the Russell 1000 Growth Stock Index. As Figure 1 shows, the stock price of Cisco Systems peaked in 1999-2000 before the burst of internet bubble. However, its stock price has been fluctuating in the range of $10-$30 since 2001 Figure 1. Stock Price of Cisco Systems Inc. 70 5 8 8 8 8 8 8 8 re 0 166/1/1 E66/ 1992 S/ SEULE 26/ 306 11/1999 11/2000 TOUT 12/2002 ROUE Oz 1/2/2003 1.2006 RO Torbe See less Following are the income statement and balance sheet for Cisco Systems for the year ended July 30, 2016, July 25, 2015 Cisco Systems Ine. Consolidated Statements of Income Years Ended December (8 millions) July 30, 2016 Revenue Product $37,254 Service 11.993 Total revenue 49242 $37.750 49.161 14,161 4.126 18,287 30,960 15,377 4.103 19,480 29,681 Cost of sales Product 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 Interest expense Other income (loss), net Interest and other income (loss), net Income before provision for income taxes Provision for income taxes Net income 6.207 9.821 2,040 359 484 18911 10,770 6.296 9,619 1.814 303 268 18,300 12,660 1,005 (676) (69) 260 12.920 2.181 S10,739 769 (566) 431 110201 2.220 $8.981 Cisco Systems Inc. Consolidated Balance Sheets In millions, except par value July 30, 2016 July 25, 2015 Assets $6,877 53.539 5.344 Current assets Cash and cash equivalents $7.631 Investments 38,125 Accounts receivable, net of allowance for doubtful accounts of S249 6,847 at July 30, 2016 and 8302 at July 25, 2015 Inventories 1.217 Financing receivables, net 4.272 Other current assets 1.627 Total current assets 78,719 Property and equipment, net 3.506 Financing receivables, net 4,158 Goodwill 26,625 Purchased intangible assets niet 2,501 Deferred tax asset 4,299 1.844 Total assets $125,652 1.627 4.491 1.490 73.368 3.332 3.858 24,469 2.376 4,454 1.516 $113,373 Other assets Liabilities Current liabilities Short-term debt Accounts payable Income taxes payable Accrued compensation Deferred revenue Other current liabilities Total current liabilities Long-term debt Income taxes payable Deferred revenue Other long-term liabilities Total liabilities 54.160 1,056 517 2.951 10.135 6,072 24.911 24.483 925 631 1431 58.042 $3,897 1,104 62 3.049 9.824 52426 23.412 21.432 1876 3,339 TASCA 33.656 Cisco Systems Inc. Consolidated Balance Sheets In millions, except par value July 30, 2016 July 25, 2015 Kisco shareholders' equity Preferred stock, no par value: shaes authorized: none issued and outstanding Common stock and additional prid-in capital. 50.001 par value: 20,000 shares authorized: 5,029 and 5.085 shares issued and outstanding at July 30, 2016 and July 25, 2015. respectively Retained eaming Accumulated other comprehensive income (los) Total Cisco shareholders' equity Noncontrolling interests 44.316 431592 19,396 026) 63,586 (0) 16.045 61 59.698 9 Total equity 63.585 39.707 Total liabilities and equity SI21.652 $113,373 Required (a) compute the return on assets (ROA) and retum on equity (ROE) for 2016 (b) Complete the DuPont disaggregation of return on equity (ROE) for 2016. Analyze the DuPont financial ratios and discuss how Cisco Systems Ine can achieve a high ROE. (c) Compute net operating assets (NOA) for 2016. (d) 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 numbet.) (e) Forecast Cisco's sales, NOPAT, and NOA for years 2017 through 2020 and the terminal period using the following assumptions: Sales growth 2017 Sales growth 2018-2020 396 | Terminal growth 196 Net openting profit margin 2016 rate rounded to three decimal places Net operating uchumover 2016 rate rounded to three decal places Assume a discount rate (WACC) of 12%, 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) (1) Estimate the value of a share of Cisco common stock as of July 30, 2016 using the discounted cash flow (DCF) model and sales. NOPAT and NOA forecast in (e); gh If Cisco's top management were optimistic about CISCO's market growth opportunities and revised their sales growth rates up by 5%, please forecast Cisco's sales, NOPAT, and NOA for years 2017 through 2020 and the terminal period using the following assumptions: 99 Sales growth 2017 Sales growth 2018-2020 Terminal growth Net operating profit margin Net operating asset turnover 8% IR 2016 rate rounded to three decimal places 2016 rate rounded to the decimal places (h) Estimate the value of a share of Cisco common stock as of July 30, 2016 using the discounted cash flow (DCF) model and the sales forecast in (g): Note, we still assume a discount rate (WACC) of 12%, common shares outstanding of 5.029 million, and net nonoperating obligations (NNO) of S(37,113) million Cisco stock closed at $31.47 on September 8, 2016, the date the Form 10-K was filed with the SEC. How does your DCF valuation estimates compare with this closing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results? G) Are there other equity valuation models? Please discuss the advantages and disadvantages of different equity valuation models 9:45 learn-us-east-1-prod-fleet01-xythos.content.blackboardcdn.com DuPont Analysis, Forecasting with the Paris Meted and Estimating Share Value of lace Systems Inc Uslag the DCF Model HeCalleri, palamaak likewi the 500 bitched For Stock Price of Osco Systems w Yours de ser mit Se Til 4.13 S. Tales Rencantant de General Other 9:45 learn-us-east-1-prod-fleet01-xythos.content.blackboardcdn.com 2 of 5 Mily, 2016 Chew Calitant Nended December Svi Co Sene Tube SAN Stew Generalne An of purchased them Rowing the chur Taal en Operating.com SLE Net Chicco ) 2015 9:45 learn-us-east-1-prod-fleet01-xythos.content.blackboardcdn.com 3 of 5 Ctral Balaram 2016 2015 Obec Www Accompie A De De them 22. - a 2.000 Total 9:45 learn-us-east-1-prod-fleet01-xythos.content.blackboardcdn.com 4 of 5 Changes Pendant Climali .. | Male | Tule Tuesday Repair Dudela me Cape (NOPATA yenyewe COPATINO poriad sing the Se Tum New Finale de valeasure med NATO xahilippe SONO you 2017 het Salut! Temu male DuPont Analysis. Forecasting with the Parsimonious Method and Estimating Share Value of Cisco Systems Ine Using the DCF Model Cisco Systems, Inc. is a multinational information technology company headquartered in San Jose, California, that produces and sells networking hardware, telecommunications equipment and other high-technology services. Cisco Systems was founded in December 1984 by Leonard Bosack and Sandy Lemer, two Stanford University computer scientists, who pioneered the concept of a local area network (LAN). In 1990, Cisco Systems went public with a market capitalization of $224 million. By 2000. Cisco had become the most valuable company in the world with a more than $500 billion market capitalization. The stock was initially listed on the NASDAQ in 1990, and then was added to the Dow Jones Industrial Average on Jus 8. 2009. Cisco is currently included in the S&P 500 Index, the Russell 1000 Index, NASDAQ-100 Index and the Russell 1000 Growth Stock Index. As Figure 1 shows, the stock price of Cisco Systems peaked in 1999-2000 before the burst of internet bubble. However, its stock price has been fluctuating in the range of $10-$30 since 2001 Figure 1. Stock Price of Cisco Systems Inc. 70 5 8 8 8 8 8 8 8 re 0 166/1/1 E66/ 1992 S/ SEULE 26/ 306 11/1999 11/2000 TOUT 12/2002 ROUE Oz 1/2/2003 1.2006 RO Torbe See less Following are the income statement and balance sheet for Cisco Systems for the year ended July 30, 2016, July 25, 2015 Cisco Systems Ine. Consolidated Statements of Income Years Ended December (8 millions) July 30, 2016 Revenue Product $37,254 Service 11.993 Total revenue 49242 $37.750 49.161 14,161 4.126 18,287 30,960 15,377 4.103 19,480 29,681 Cost of sales Product 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 Interest expense Other income (loss), net Interest and other income (loss), net Income before provision for income taxes Provision for income taxes Net income 6.207 9.821 2,040 359 484 18911 10,770 6.296 9,619 1.814 303 268 18,300 12,660 1,005 (676) (69) 260 12.920 2.181 S10,739 769 (566) 431 110201 2.220 $8.981 Cisco Systems Inc. Consolidated Balance Sheets In millions, except par value July 30, 2016 July 25, 2015 Assets $6,877 53.539 5.344 Current assets Cash and cash equivalents $7.631 Investments 38,125 Accounts receivable, net of allowance for doubtful accounts of S249 6,847 at July 30, 2016 and 8302 at July 25, 2015 Inventories 1.217 Financing receivables, net 4.272 Other current assets 1.627 Total current assets 78,719 Property and equipment, net 3.506 Financing receivables, net 4,158 Goodwill 26,625 Purchased intangible assets niet 2,501 Deferred tax asset 4,299 1.844 Total assets $125,652 1.627 4.491 1.490 73.368 3.332 3.858 24,469 2.376 4,454 1.516 $113,373 Other assets Liabilities Current liabilities Short-term debt Accounts payable Income taxes payable Accrued compensation Deferred revenue Other current liabilities Total current liabilities Long-term debt Income taxes payable Deferred revenue Other long-term liabilities Total liabilities 54.160 1,056 517 2.951 10.135 6,072 24.911 24.483 925 631 1431 58.042 $3,897 1,104 62 3.049 9.824 52426 23.412 21.432 1876 3,339 TASCA 33.656 Cisco Systems Inc. Consolidated Balance Sheets In millions, except par value July 30, 2016 July 25, 2015 Kisco shareholders' equity Preferred stock, no par value: shaes authorized: none issued and outstanding Common stock and additional prid-in capital. 50.001 par value: 20,000 shares authorized: 5,029 and 5.085 shares issued and outstanding at July 30, 2016 and July 25, 2015. respectively Retained eaming Accumulated other comprehensive income (los) Total Cisco shareholders' equity Noncontrolling interests 44.316 431592 19,396 026) 63,586 (0) 16.045 61 59.698 9 Total equity 63.585 39.707 Total liabilities and equity SI21.652 $113,373 Required (a) compute the return on assets (ROA) and retum on equity (ROE) for 2016 (b) Complete the DuPont disaggregation of return on equity (ROE) for 2016. Analyze the DuPont financial ratios and discuss how Cisco Systems Ine can achieve a high ROE. (c) Compute net operating assets (NOA) for 2016. (d) 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 numbet.) (e) Forecast Cisco's sales, NOPAT, and NOA for years 2017 through 2020 and the terminal period using the following assumptions: Sales growth 2017 Sales growth 2018-2020 396 | Terminal growth 196 Net openting profit margin 2016 rate rounded to three decimal places Net operating uchumover 2016 rate rounded to three decal places Assume a discount rate (WACC) of 12%, 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) (1) Estimate the value of a share of Cisco common stock as of July 30, 2016 using the discounted cash flow (DCF) model and sales. NOPAT and NOA forecast in (e); gh If Cisco's top management were optimistic about CISCO's market growth opportunities and revised their sales growth rates up by 5%, please forecast Cisco's sales, NOPAT, and NOA for years 2017 through 2020 and the terminal period using the following assumptions: 99 Sales growth 2017 Sales growth 2018-2020 Terminal growth Net operating profit margin Net operating asset turnover 8% IR 2016 rate rounded to three decimal places 2016 rate rounded to the decimal places (h) Estimate the value of a share of Cisco common stock as of July 30, 2016 using the discounted cash flow (DCF) model and the sales forecast in (g): Note, we still assume a discount rate (WACC) of 12%, common shares outstanding of 5.029 million, and net nonoperating obligations (NNO) of S(37,113) million Cisco stock closed at $31.47 on September 8, 2016, the date the Form 10-K was filed with the SEC. How does your DCF valuation estimates compare with this closing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results? G) Are there other equity valuation models? Please discuss the advantages and disadvantages of different equity valuation models 9:45 learn-us-east-1-prod-fleet01-xythos.content.blackboardcdn.com DuPont Analysis, Forecasting with the Paris Meted and Estimating Share Value of lace Systems Inc Uslag the DCF Model HeCalleri, palamaak likewi the 500 bitched For Stock Price of Osco Systems w Yours de ser mit Se Til 4.13 S. Tales Rencantant de General Other 9:45 learn-us-east-1-prod-fleet01-xythos.content.blackboardcdn.com 2 of 5 Mily, 2016 Chew Calitant Nended December Svi Co Sene Tube SAN Stew Generalne An of purchased them Rowing the chur Taal en Operating.com SLE Net Chicco ) 2015 9:45 learn-us-east-1-prod-fleet01-xythos.content.blackboardcdn.com 3 of 5 Ctral Balaram 2016 2015 Obec Www Accompie A De De them 22. - a 2.000 Total 9:45 learn-us-east-1-prod-fleet01-xythos.content.blackboardcdn.com 4 of 5 Changes Pendant Climali .. | Male | Tule Tuesday Repair Dudela me Cape (NOPATA yenyewe COPATINO poriad sing the Se Tum New Finale de valeasure med NATO xahilippe SONO you 2017 het Salut! Temu male