Forecasting and Estimating Share Value Using the DCF Model 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 administrative	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	$84,351	$71,119
Liabilities
Current 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 = $Answer (b) Compute net operating profit after tax (NOPAT) for 2012, assuming a federal and state statutory tax rate of 37%. Round your answer to the nearest whole number. 2012 NOPAT = $Answer (c) Use the parsimonious forecast method, as shown in Analysis Insight box on page 13-4, to forecast Ciscos sales, NOPAT, and NOA for 2013 through 2016 and the terminal period using the following assumptions.

Sales growth	10%
Net operating profit margin (NOPM)	20.4%
Net operating asset turnover (NOAT) at year-end	1.27

Forecast the terminal period value using a terminal period growth of: 1% 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)	Answer	Answer	Answer	Answer	Answer	Answer
Sales (rounded nearest whole number)	Answer	Answer	Answer	Answer	Answer	Answer
NOPAT (rounded nearest whole number)*	Answer	Answer	Answer	Answer	Answer	Answer
NOA (rounded nearest whole number)*	Answer	Answer	Answer	Answer	Answer	Answer

* Use sales rounded to nearest whole number for this calculation.

(d) Estimate the value of a share of Intel common stock using the discounted cash flow (DCF) model as of December 29, 2012; assume a discount rate (WACC) of 11%, 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	Reported	Forecast Horizon				Terminal
($ millions)	2012	2013 Est.	2014 Est.	2015 Est.	2016 Est.	Period
DCF Model
Increase in NOA		Answer	Answer	Answer	Answer	Answer
FCFF (NOPAT - Increase in NOA)		Answer	Answer	Answer	Answer	Answer
Discount factor		Answer	Answer	Answer	Answer
Present value of horizon FCFF		Answer	Answer	Answer	Answer
Cummultive present value of horizon FCFF	Answer
Present value of terminal FCFF	Answer
Total firm value	Answer
NNO	Answer
Firm equity value	Answer
Shares outstanding (millions)	Answer
Stock price per share	Answer

(e) Intel (INTC) stock closed at $21.09 on February 19, 2013, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results? (Select all that apply) Answeryesno Our stock price estimate is higher than the INTC market price as of February 19, 2013, indicating that we believe the stock is undervalued. Answeryesno Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Answeryesno Our lower stock price estimate may be due to more pessimistic forecasts or a higher discount rate compared to other investors' and analysts model assumptions. Answeryesno Our higher stock price estimate may be due to more optimistic forecasts or a lower discount rate compared to other investors' and analysts model assumptions.

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