Estimating Share Value Using the ROPI Model

Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 26, 2011, for Best Buy, Inc. Refer to the information in the table to answer the following requirements.

Assume Reported Horizon Period

(In millions) 2011 2012 2013 2014 2015 Terminal Period

Sales $40,023 $44,577 $49,650 $55,300 $61,592 $62,208

NOPAT 1,448 1,637 1,808 2,014 2,224 2,257

NOA 5,287 5,893 6,539 7,282 8,140 8,193

Answer the following requirements assuming a discount rate (WACC) of 11%, a terminal period growth rate of 1%, common shares outstanding of 410.5 million, net nonoperating obligations (NNO) of $801 million and noncontrolling interest (NCI) on the balance sheet of $690 million.

(a) Estimate the value of a share of Best Buy common stock using the residual operating income (ROPI) model as of February 26, 2011.

Rounding Instructions:

• Round your answer to the nearest whole number except for the discount factors, shares outstanding, and the stock price per share.
• Round the discount factors to five decimal places, common shares outstanding to one decimal place, and the stock price to two decimal places.
• Use your rounded answers for subsequent calculations.

Do not use negative signs with any of your answers below.

Assume 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

Cumm present value of horizon ROPI$ Answer

Present value of terminal ROPI Answer

NOA ______ Answer

Total firm value Answer

NNO Answer

NCI _____ _Answer

Firm equity value $ Answer

Shares outstanding (millions) ___ Answer (round one decimal place)

Stock price per share $ Answer (round two decimal places)

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