Estimating Share Value Using the ROPI Model Following are forecasts of sales, net operating profit after tax (NOPAT), a Note: Complete the entire question in Excel and format each answer to Reported Horizon period Terminal $ millions Sales NOPAT NOA 2018 2019 2020 2021 2022 $56,912 $57,766 $58,632 $59,512 $60,404 2,492 2,542 2,580 2,619 2,658 4,032 4,097 4,158 4,221 4,284 Period $61,008 2,684 4,327 Answer the following requirements with the following assumptions: Assumptions Terminal period growth rate 1% Discount rate (WACC) 7.8% Common shares outstanding 135.6 million Net nonoperating obligations (NNO) $(6,129) million NNO is negative because Humana's nonoperating assets exceed its non-
Estimating Share Value Using the ROPI Model Following are forecasts of sales, net operating profit after tax (NOPAT), a Note: Complete the entire question in Excel and format each answer to Reported Horizon period Terminal $ millions Sales NOPAT NOA 2018 2019 2020 2021 2022 $56,912 $57,766 $58,632 $59,512 $60,404 2,492 2,542 2,580 2,619 2,658 4,032 4,097 4,158 4,221 4,284 Period $61,008 2,684 4,327 Answer the following requirements with the following assumptions: Assumptions Terminal period growth rate 1% Discount rate (WACC) 7.8% Common shares outstanding 135.6 million Net nonoperating obligations (NNO) $(6,129) million NNO is negative because Humana's nonoperating assets exceed its non-
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![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 December 31, 2018, for Humana.
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.
Reported
Horizon period
Terminal
millions
Sales
NOPAT
NOA
2018 2019 2020 2021 2022
$56,912 $57,766 $58,632 $59,512 $60,404
2,492 2,542 2,580 2,619 2,658
4,097 4,158 4,221 4,284
4,032
Answer the following requirements with the following assumptions:
Assumptions
Terminal period growth rate
1%
Discount rate (WACC)
7.8%
Common shares outstanding
135.6 million
Net nonoperating obligations (NNO) $(6,129) million
($ millions)
ROPI (NOPAT- [NOABeg x rw])
Present value of horizon ROPI
Cum present value of horizon ROPI $
Present value of terminal ROPI
NOA
Total firm value
Less NNO
Firm equity value
Shares outstanding (millions)
Stock price per share
NNO is negative because Humana's nonoperating assets exceed its nonoperating liabilities.
(a) Estimate the value of a share of common stock using the residual operating income (ROPI) model as of December 31, 2018.
Forecast Horizon
Reported
2018
$
$
Period
$61,008
0 x
0 x
0x
0 x
(6,129) ✔
0 x
135.6 ✔
319.44 ✔
2,684
4,327
$
2019
0 x $
0 x
2020
0 x $
0 x
2021
0 x $
0 x
2022
0 x $
0 x
Terminal
Period
0 x
(b) Humana (HUM) stock closed at $307.56 on February 21, 2019, the date the 10-K was filed with the SEC. How does your valuation estimate compare with this closing price?
Stock price is overvalued
+](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F081951e6-f346-4a60-ae13-602b45047e5f%2F27a06a1e-65cf-4a4e-83c9-d30e155d15fe%2Fgyt9i7f_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 December 31, 2018, for Humana.
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.
Reported
Horizon period
Terminal
millions
Sales
NOPAT
NOA
2018 2019 2020 2021 2022
$56,912 $57,766 $58,632 $59,512 $60,404
2,492 2,542 2,580 2,619 2,658
4,097 4,158 4,221 4,284
4,032
Answer the following requirements with the following assumptions:
Assumptions
Terminal period growth rate
1%
Discount rate (WACC)
7.8%
Common shares outstanding
135.6 million
Net nonoperating obligations (NNO) $(6,129) million
($ millions)
ROPI (NOPAT- [NOABeg x rw])
Present value of horizon ROPI
Cum present value of horizon ROPI $
Present value of terminal ROPI
NOA
Total firm value
Less NNO
Firm equity value
Shares outstanding (millions)
Stock price per share
NNO is negative because Humana's nonoperating assets exceed its nonoperating liabilities.
(a) Estimate the value of a share of common stock using the residual operating income (ROPI) model as of December 31, 2018.
Forecast Horizon
Reported
2018
$
$
Period
$61,008
0 x
0 x
0x
0 x
(6,129) ✔
0 x
135.6 ✔
319.44 ✔
2,684
4,327
$
2019
0 x $
0 x
2020
0 x $
0 x
2021
0 x $
0 x
2022
0 x $
0 x
Terminal
Period
0 x
(b) Humana (HUM) stock closed at $307.56 on February 21, 2019, the date the 10-K was filed with the SEC. How does your valuation estimate compare with this closing price?
Stock price is overvalued
+
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