Estimating Share Value Using the ROPI Model

Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2019 through 2022.

		Forecast Horizon Period
Colgate Palmolive (CL)	Reported
$ millions	2018	2019	2020	2021	2022
Sales	$13,990	$14,409	$14,842	$15,287	$15,746
NOPAT	2,463	2,536	2,612	2,690	2,771
NOA	5,253	5,411	5,574	5,740	5,913

a. Forecast the terminal period values for Sales, NOPAT, and NOA, assuming a 1% terminal period growth rate.

Note: Round answers to the nearest dollar.

Terminal period sales	Answer
Terminal period NOPAT	Answer
Terminal period NOA	Answer

b. Estimate the value of a share of Colgate-Palmolive common stock using the residual operating income (ROPI) model. Assume a discount rate (WACC) of 5.70%, common shares outstanding of 862.9 million, net nonoperating obligations (NNO) of $5,076 million, and noncontrolling interest (NCI) from the balance sheet of $269 million. Note: Round answers to two decimal places. $Answer

c. Colgate-Palmolive stock closed at $60.03 on February 21, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? AnswerStock price is overvaluedStock price is undervaluedStock price is appropriately valued

d. The forecasts assumed a terminal growth rate of 1%. If the terminal growth rate had been 2%, what would the estimated stock price have been? Note: Round answers to two decimal places. $Answer

e. What would WACC need to be to warrant the actual stock price on February 21, 2019? Note: Round answer to two decimal places (for example, 0.0674533 = 6.75%). Answer%