Estimating Share Value Using the ROPI Model Assume the following are the income statement and balance sheet for Intel Corporation. INTEL CORPORATION Consolidated Statements of Income Years Ended December (In Millions. Except Per Share Amounts) 2012 2011 2010 Net revenue $ 53,341 $ 53,999 $ 46,623 Cost of sales 20.190 20,242 15,132 Gross margin 33,151 33,757 28,491 Research and development 10.148 8,350 6,576 Marketing, general and adminstrative 8,057 7,670 6.309 Amortization of acquisition-related intangibles 308 260 18 Operating expenses 18,513 16,280 12.903 Operating income 14,638 17,477 15,588 Gains (losses) on other equity investments, net 141 112 348 Interest and other, net 94 192 109 Income before taxes 14,873 17,781 16.045 Provisions for taxes 3,868 4,839 4,581 Net income $ 11,005 $12.942 $ 11,464 INTEL CORPORATION Consolidated Balance Sheets As of Year-Ended (In millions, except par value) Dec. 29, 2012 Dec. 31, 2011 Assets Current assets Cash and cash equivalents $ 8,478 $ 5,065 Short-term investments 3,999 5,181 Trading assets 5,685 4,591 Accounts receivables, net 3.833 3,650 Inventories 4.734 4,096 Deferred tax assets 2,117 1,700 Other current assets 2,512 1,589 Total current assets 31,358 25.872 Property, plant and equipment, net 27,983 23,627 Marketable equity securities 4,424 562 Other long-term investments** 493 889 Goodwill 9,710 9,254 Identified intangible assets 6,235 6,267 Other long-term assets 4,148 4,648 Total assets 584,351 $71,119 Liabilities Currnet liabilities Short-term debt $312 $247 Accounts payable 3,023 2,956 Accrued compensation and benefits 2.972 2.948 Accrued advertising 1,015 1,134 Deferred income 1,932 1,929 Other accrued liabilities 3,644 2,814 Total current liabilities 12,898 12,028 Long-term debt 13,136 7.084 Long-term deferred tax liabilities 3,412 2.617 Other long-term liabilities 3,702 3,479 Stockholders' equity Preferred stock, $0.001 par value, 50 shares authorized: none issued Common stock, $0.001 par value, 10,000 shares authorized: 4,944 issued and outstanding (5,000 issued and outstanding in 2011) and capital in excess of par value 19,464 17.036 Accumulated other comprehensive income (loss) (399) (781) Retained earnings 32,138 29,656 Total stockholders' equity 51,203 45,911 Total liabilities and stockholders' equity $ 84,351 $ 71,119 ** These investments are operating assets as they relate to associated companies. (a) Compute Intel's net operating assets (NOA) for year-end 2012. 2012 NOA = $ 63,030 X (b) Compute net operating profit after tax (NOPAT) for 2012, assuming a federal and state statutory tax rate of 3796. (Round your answer to the nearest whole number.) 2012 NOPAT = $ 63,030 X (c) Forecast Intel's sales, NOPAT, and NOA for years 2013 through 2016 using the following assumptions: Sales growth Net operating profit margin (NOPM) Net operating asset turnover (NOAT) at year-end 1096 20.4% 1.27 Forecast the terminal period value using a terminal period growth of: 19 and the NOPM and NOAT assumptions above. INTC Reported Forecast Horizon Terminal ($ millions) 2012 2013 Est. 2014 Est. 2015 Est. 2016 Est. Period Sales (rounded two decimal places) $ 0 x $ Ox 0 x $ 0 x $ Ox 0 x $ Ox $ OX Sales (rounded nearest whole number) OX OX OX OX OX OX NOPAT (rounded nearest whole number) 0 x OX OX OX 0X NOA (rounded nearest whole number)* OX OX OX OX OX OX * Use sales rounded to nearest whole number for this calculation. (d) Estimate the value of a share of Intel common stock using the residual operating income (ROPI) model as of December 29, 2012; assume a discount rate (WACC) of 1196, common shares outstanding of 4,944 million, and net nonoperating obligations (NNO) of $(9,138) million (NNO is negative which means that Intel has net nonoperating investments). Instructions: Use your rounded answers for subsequent calculations. Round all answers to the nearest whole number, except for discount factors and stock price per share. Round discount factors to 5 decimal places. Round stock price per share to two decimal places, Use a negative sign with your NNO answer. INTC ($ millions) Reported 2012 Forecast Horizon 2014 Est. 2015 Est. Terminal Period 2013 Est. 2016 Est. ROPI Model OX OX OX OX OX 0 x Ox OX 0 X OX OX OX Ox ROPI [NOPAT - (NOA beg x WACC)] (rounded to nearest whole number) Discount factor (rounded to 5 decimal places) Present value of horizon ROPI (rounded to nearest whole number) Cum present value of horizon ROPI Present value of terminal ROPI NOA $ S 0 x S OX Total firm value Plus negative NNO Firm equity value Shares outstanding (millions) Stock value per share OX OX OX 5 0 X 5 OX Estimating Share Value Using the ROPI Model Assume the following are the income statement and balance sheet for Intel Corporation. INTEL CORPORATION Consolidated Statements of Income Years Ended December (In Millions. Except Per Share Amounts) 2012 2011 2010 Net revenue $ 53,341 $ 53,999 $ 46,623 Cost of sales 20.190 20,242 15,132 Gross margin 33,151 33,757 28,491 Research and development 10.148 8,350 6,576 Marketing, general and adminstrative 8,057 7,670 6.309 Amortization of acquisition-related intangibles 308 260 18 Operating expenses 18,513 16,280 12.903 Operating income 14,638 17,477 15,588 Gains (losses) on other equity investments, net 141 112 348 Interest and other, net 94 192 109 Income before taxes 14,873 17,781 16.045 Provisions for taxes 3,868 4,839 4,581 Net income $ 11,005 $12.942 $ 11,464 INTEL CORPORATION Consolidated Balance Sheets As of Year-Ended (In millions, except par value) Dec. 29, 2012 Dec. 31, 2011 Assets Current assets Cash and cash equivalents $ 8,478 $ 5,065 Short-term investments 3,999 5,181 Trading assets 5,685 4,591 Accounts receivables, net 3.833 3,650 Inventories 4.734 4,096 Deferred tax assets 2,117 1,700 Other current assets 2,512 1,589 Total current assets 31,358 25.872 Property, plant and equipment, net 27,983 23,627 Marketable equity securities 4,424 562 Other long-term investments** 493 889 Goodwill 9,710 9,254 Identified intangible assets 6,235 6,267 Other long-term assets 4,148 4,648 Total assets 584,351 $71,119 Liabilities Currnet liabilities Short-term debt $312 $247 Accounts payable 3,023 2,956 Accrued compensation and benefits 2.972 2.948 Accrued advertising 1,015 1,134 Deferred income 1,932 1,929 Other accrued liabilities 3,644 2,814 Total current liabilities 12,898 12,028 Long-term debt 13,136 7.084 Long-term deferred tax liabilities 3,412 2.617 Other long-term liabilities 3,702 3,479 Stockholders' equity Preferred stock, $0.001 par value, 50 shares authorized: none issued Common stock, $0.001 par value, 10,000 shares authorized: 4,944 issued and outstanding (5,000 issued and outstanding in 2011) and capital in excess of par value 19,464 17.036 Accumulated other comprehensive income (loss) (399) (781) Retained earnings 32,138 29,656 Total stockholders' equity 51,203 45,911 Total liabilities and stockholders' equity $ 84,351 $ 71,119 ** These investments are operating assets as they relate to associated companies. (a) Compute Intel's net operating assets (NOA) for year-end 2012. 2012 NOA = $ 63,030 X (b) Compute net operating profit after tax (NOPAT) for 2012, assuming a federal and state statutory tax rate of 3796. (Round your answer to the nearest whole number.) 2012 NOPAT = $ 63,030 X (c) Forecast Intel's sales, NOPAT, and NOA for years 2013 through 2016 using the following assumptions: Sales growth Net operating profit margin (NOPM) Net operating asset turnover (NOAT) at year-end 1096 20.4% 1.27 Forecast the terminal period value using a terminal period growth of: 19 and the NOPM and NOAT assumptions above. INTC Reported Forecast Horizon Terminal ($ millions) 2012 2013 Est. 2014 Est. 2015 Est. 2016 Est. Period Sales (rounded two decimal places) $ 0 x $ Ox 0 x $ 0 x $ Ox 0 x $ Ox $ OX Sales (rounded nearest whole number) OX OX OX OX OX OX NOPAT (rounded nearest whole number) 0 x OX OX OX 0X NOA (rounded nearest whole number)* OX OX OX OX OX OX * Use sales rounded to nearest whole number for this calculation. (d) Estimate the value of a share of Intel common stock using the residual operating income (ROPI) model as of December 29, 2012; assume a discount rate (WACC) of 1196, common shares outstanding of 4,944 million, and net nonoperating obligations (NNO) of $(9,138) million (NNO is negative which means that Intel has net nonoperating investments). Instructions: Use your rounded answers for subsequent calculations. Round all answers to the nearest whole number, except for discount factors and stock price per share. Round discount factors to 5 decimal places. Round stock price per share to two decimal places, Use a negative sign with your NNO answer. INTC ($ millions) Reported 2012 Forecast Horizon 2014 Est. 2015 Est. Terminal Period 2013 Est. 2016 Est. ROPI Model OX OX OX OX OX 0 x Ox OX 0 X OX OX OX Ox ROPI [NOPAT - (NOA beg x WACC)] (rounded to nearest whole number) Discount factor (rounded to 5 decimal places) Present value of horizon ROPI (rounded to nearest whole number) Cum present value of horizon ROPI Present value of terminal ROPI NOA $ S 0 x S OX Total firm value Plus negative NNO Firm equity value Shares outstanding (millions) Stock value per share OX OX OX 5 0 X 5 OX