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Answer these questions from Module 13 and Module 14 (DCF and ROPI Valuation) P13-21. Forecasting with Parsimonious Method and Estimating Share Value Using the DCF Model Following are the income statement and balance sheet for Nike Inc. NIKE INC. Consolidated Income Statement May 31, 2016 May 31, 2015 For Year Ended ($ millions) $30,601 16,534 $32,376 17,405 14,971 3,278 7,191 14,067 3,213 6,679 Revenues. Cost of sales. Gross profit. Demand creation expense Operating overhead expense. Total selling and administrative expense Interest expense (income), net. Other (income) expense, net Income before income taxes Income tax expense.. Net income. 10,469 19 (140) 4,623 863 9,892 28 (58) 4,205 932 $ 3,760 $ 3,273 May 31, 2016 May 31, 2015 $ millions $ 3,138 2,319 3,241 4,838 1,489 Current assets Cash and equivalents.. Short-term investments Accounts receivable, net Inventories .... Prepaid expenses and other current assets. Total current assets Property, plant and equipment, net Identifiable intangible assets, net. Goodwill.. Deferred income taxes and other assets Total assets.. $ 3,852 2,072 3,358 4,337 1,968 15,587 3,011 281 131 2,587 15,025 3,520 281 131 2,439 $21,396 $21,597 $ $ 44 1 2,191 3,037 85 107 74 2,131 3,949 71 5,358 2,010 1,770 6,332 1,079 1,479 Current liabilities Current portion of long-term debt Notes payable Accounts payable.. Accrued liabilities. Income taxes payable Total current liabilities. Long-term debt Deferred income taxes and other liabilities Total liabilities.. Shareholders' equity Class A convertible common stock Class B common stock Capital in excess of stated value Accumulated other comprehensive income. Retained earnings Total shareholders' equity Total liabilities and shareholders' equity.. 9,138 8,890 0 3 7,786 318 4,151 0 3 6,773 1,246 4,685 12,258 12,707 $21,396 $21,597 c. Use the parsimonious forecast method, as shown in the Analysis Insight box and illustrated in Exhibit 13.2, to forecast sales, NOPAT, and NOA for 2017 through 2020 using the following assumptions. Sales growth. ..... 6% Net operating profit margin (NOPM).. 2016 ratios rounded to three decimal places Net operating asset turnover (NOAT), year-end..... 2016 ratios rounded to three decimal places Forecast the terminal period value assuming a 1% terminal period growth and using the NOPM and NOAT assumptions above. d. Estimate the value of a share of Nike's common stock using the discounted cash flow (DCF) model as of May 31, 2016; assume a discount rate (WACC) of 6.3% and common shares outstanding of 1,682 million. e. Nike's stock closed at $56.99 on July 21, 2016, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? What do you believe are some reasons for the difference? What investment decision is suggested from your results? Answer these questions from Module 13 and Module 14 (DCF and ROPI Valuation) P13-21. Forecasting with Parsimonious Method and Estimating Share Value Using the DCF Model Following are the income statement and balance sheet for Nike Inc. NIKE INC. Consolidated Income Statement May 31, 2016 May 31, 2015 For Year Ended ($ millions) $30,601 16,534 $32,376 17,405 14,971 3,278 7,191 14,067 3,213 6,679 Revenues. Cost of sales. Gross profit. Demand creation expense Operating overhead expense. Total selling and administrative expense Interest expense (income), net. Other (income) expense, net Income before income taxes Income tax expense.. Net income. 10,469 19 (140) 4,623 863 9,892 28 (58) 4,205 932 $ 3,760 $ 3,273 May 31, 2016 May 31, 2015 $ millions $ 3,138 2,319 3,241 4,838 1,489 Current assets Cash and equivalents.. Short-term investments Accounts receivable, net Inventories .... Prepaid expenses and other current assets. Total current assets Property, plant and equipment, net Identifiable intangible assets, net. Goodwill.. Deferred income taxes and other assets Total assets.. $ 3,852 2,072 3,358 4,337 1,968 15,587 3,011 281 131 2,587 15,025 3,520 281 131 2,439 $21,396 $21,597 $ $ 44 1 2,191 3,037 85 107 74 2,131 3,949 71 5,358 2,010 1,770 6,332 1,079 1,479 Current liabilities Current portion of long-term debt Notes payable Accounts payable.. Accrued liabilities. Income taxes payable Total current liabilities. Long-term debt Deferred income taxes and other liabilities Total liabilities.. Shareholders' equity Class A convertible common stock Class B common stock Capital in excess of stated value Accumulated other comprehensive income. Retained earnings Total shareholders' equity Total liabilities and shareholders' equity.. 9,138 8,890 0 3 7,786 318 4,151 0 3 6,773 1,246 4,685 12,258 12,707 $21,396 $21,597 c. Use the parsimonious forecast method, as shown in the Analysis Insight box and illustrated in Exhibit 13.2, to forecast sales, NOPAT, and NOA for 2017 through 2020 using the following assumptions. Sales growth. ..... 6% Net operating profit margin (NOPM).. 2016 ratios rounded to three decimal places Net operating asset turnover (NOAT), year-end..... 2016 ratios rounded to three decimal places Forecast the terminal period value assuming a 1% terminal period growth and using the NOPM and NOAT assumptions above. d. Estimate the value of a share of Nike's common stock using the discounted cash flow (DCF) model as of May 31, 2016; assume a discount rate (WACC) of 6.3% and common shares outstanding of 1,682 million. e. Nike's stock closed at $56.99 on July 21, 2016, 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