Forecasting with Parsimonious Method and Estimating Share Value Using the DCF Model Following are income statements and balance sheets for '4 Ho.- |11.,-. NIKE INC. Consolidated Income Statements Inlay 31, May 31, For Year Ended (3 mllllons) 2019 2018 Revenues .................................................... 539,1 17 $36,397 Cost of sales .................................................. 21,643 20,441 Gross profit ................................................. 17,474 15,956 Demand creation expense ....................................... 3,753 3,577 Operating overhead expense ..................................... 3,949 7.934 Total selling and administrative expense .......................... 12,702 1 1.511 Interest expense (income), net .................................... 49 54 Other (income) expense, net ..................................... {78] 66 Income betore income taxes ..................................... 4,301 4.325 Income tax expense ............................................ 772 2,392 Net income ................................................... $ 4,029 $ 1.933 NIKE INC. Consolldated Balance Sheets May 31, May 31, $ mllllcns 2019 2018 Current assets Cash and equivalents ......................................... $ 4,466 $ 4.249 Shortterm investments ........................................ 197 996 Accounts receivable. net ....................................... 4,272 3,498 Inventories ................................................. 5,622 5.261 Prepaid expenses and other current assets ........................ 1,968 1.130 Total current assets ............................................ 16,525 15.1 34 Property, plant and equipment. net ............................... 4,744 4.454 Identiable intangible assets, net ................................ 283 235 Goodwill ................................................... 154 1 54 Deferred income taxes and other assets .......................... 2,011 2.509 Total assets .................................................. $23,717 $22,536 Current liabilities Current portion of longterm debt ................................ $ 6 $ 6 Notes payable ............................................... 9 336 Accounts payable ............................................ 2,612 2.279 Accrued liabilities ............................................ 5,010 3.269 Income taxes payable ......................................... 229 150 Total current liabilities ........................................... 7,866 6,040 Longterm debt .............................................. 3,464 3,468 Deferred income taxes and other liabilities ......................... 3,347 3,216 Commitments and contingencies {Note 13} Shareholders' equity continued continued from previous page Inlay 31, May 31, S mllllons 2019 2018 Common stock at stated value: Class A convertible31 5 and 329 shares outstanding .............. Class 31.253 and 1,2?2 shares outstanding .................... 3 3 Capital in excess of stated value ................................ 1163 6,384 Accumulated other comprehensive income {loss} ................... 231 {92) Retained earnings ............................................ 1,643 3,517 Total shareholders' equity ....................................... 9,040 9,812 Total liabilities and shareholders' equity ............................. $23,?1? $22,536 Ftequlred .9. Compute net operating assets (NOA) and net nonoperating obligations {NNO} for 2019. The com pany's NNO is negative because cash exceeds debt. I). Compute net operating profit after tax (NOPAT) for 2019 assuming a federal and state statutory tax rate of 22%. c. Use the parsimonious forecast method, as shown in the Analysis Insight box in Exhibit 13.2, to fore cast sales, NDPAT, and NOA for 2020 through 2023 using the following assumptions. Sales growth .............................. 8% Net operating profit margin {NOPM} ............ 2019 ratios rounded to three decimal places Net operating asset turnover (NOAT). year-end. . . 2019 ratios rounded to three decimal places Forecast the terminal period value assuming a 2% terminal period growth and using the NOPM and NOAT assumptions above. 0'. Estimate the value of a share of Nike's common stock using the discounted cash flow (DCF) model as of May 31, 20W; assume a discount rate (WACC) of 6.8% and common shares outstanding of 1,632 million. a. Nike's stock closed at $36.70 on July 23, 2019, the date the Form 10K was led 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?l