Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model

Following are income statements and balance sheets for Cisco Systems.

Note: Complete the entire question in Excel and format each answer to two decimal places. Then enter the answers into the provided spaces below with two decimal places.

Cisco Systems Consolidated Statements of IncomeYears Ended December $($$ millions$)$July $27,2019$July $28,2018$RevenueProduct$$41,220$$$38,924$Service$15,11414,836$Total revenue$56,33453,760$Cost of salesProduct$17,07816,642$Service$4,3754,297$Total cost of sales$21,45320,939$Gross margin$34,88132,821$Operating expensesResearch and development$6,5776,332$Sales and marketing$9,5719,242$General and administrative$1,8272,144$Amortization of purchased intangible assets$150221$Restructuring and other charges$322358$Total operating expenses$18,44718,297$Operating income$16,43414,524$Interest income$3,5233,723$Interest expense$(859)(943)$Other income $($loss$),$ net$(97)165$Interest and other income $($loss$),$ net$2,5672,945$Income before provision for income taxes$19,00117,469$Provision for income taxes$2,95012,929$Net income$$16,051$$$4,540$

Cisco Systems Inc. Consolidated Balance SheetsIn millions, except par valueJuly $27,2019$July $28,2018$AssetsCurrent assetsCash and cash equivalents$$11,750$$$8,934$Investments$23,87839,829$Accounts receivable, net of allowance for doubtful accounts$5,4915,554$Inventories$1,3831,846$Financing receivables, net$7,3107,164$Other current assets$2,3732,940$Total current assets$52,18566,267$Property and equipment, net$2,7893,006$Financing receivables, net$4,9584,882$Goodwill$33,52931,706$Purchased intangible assets, net$2,2012,552$Deferred tax assets$6,2805,434$Other assets$2,4961,582$Total assets$$104,438$$$115,429$Liabilities and equityCurrent liabilitiesShort$-$term debt$$10,191$$$5,238$Accounts payable$4,2744,119$Income taxes payable$3,3643,219$Accrued compensation$3,2212,986$Deferred revenue$10,66811,490$Other current liabilities$4,4244,413$Total current liabilities$36,14231,465$Long$-$term debt$16,69022,546$Income taxes payable$11,14210,800$Deferred revenue$7,7998,195$Other long$-$term liabilities$1,3091,434$Total liabilities$73,08274,440$Equity:Cisco shareholders$$ equityPreferred stock, no par value: $5$ shares authorized; none issued and outstanding$00$Common stock and additional paid$-$in capital, $$0\mathrm{.}001$ par value: $20,000$ shares authorized;$4,250$ and $4,614$ shares issued and outstanding at July $27,2019,$ and July $28,2018,$ respectively$38,05140,605($Accumulated deficit$)$ Retained earnings$(5,903)1,233$Accumulated other comprehensive income $($loss$)(792)(849)$Total Cisco shareholders' equity$31,35640,989$Total equity$31,35640,989$Total liabilities and equity$$104,438$$$115,429$Federal and state statutory tax rate$22\%$

$($a$)$ Compute net operating assets $($NOA$)$ for $2019.$

Hint: Treat Financing receivable as operating assets.

NOA

$($b$)$ Compute net operating profit after tax $($NOPAT$)$ for $2019,$ assuming a federal and state statutory tax rate of $22\%.$ Assume that all items on the $2019$ income statement will persist.

NOPAT

$($c$)$ Use the parsimonious forecast method, as shown in Analysis Insight box on page $14-5$ and in Exhibit $14\mathrm{.}2,$ to forecast Cisco$$s sales, NOPAT, and NOA for $2020$ through $2023$ and the terminal period using the following assumptions.

Note: When completing the question in Excel, refer directly to the cells containing calculated assumptions for NOPM and NOAT, i$.$e$.,$ don't type the NOPM number when making a calculation, refer to the cell.