Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF 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 Income Years Ended December ($ millions) July 27, 2019 July 28, 2018 Revenue Product $33,544 $31,570 Service 11,093 10,854 Total revenue 44,637 42,424 Cost of sales Product 12,782 12,407 Service 3,763 3,695 Total cost of sales 16,545 16,102 Gross margin 28,092 26,322 Operating expenses Research and development 5,656 5,446 Sales and marketing 8,231 7,948 General and administrative 1,571 1,844 Amortization of purchased intangible assets 129 190 Restructuring and other charges 277 308 Total operating expenses 15,864 15,736 Operating income 12,228 10,586 Interest income 1,125 1,297 Interest expense (739) (811) Other income (loss), net (83) 142 Interest and other income (loss), net 303 628 Income before provision for income taxes 12,531 11,214 Provision for income taxes 2,537 11,119 Net income $9,994 $95 Cisco Systems Inc. Consolidated Balance Sheets In millions, except par value July 27, 2019 July 28, 2018 Assets Current assets Cash and cash equivalents $10,105 $7,683 Investments 18,630 32,348 Accounts receivable, net of allowance for doubtful accounts 4,722 4,776 Inventories 1,189 1,588 Financing receivables, net 4,382 4,256 Other current assets 2,041 2,528 Total current assets 41,069 53,179 Property and equipment, net 2,399 2,585 Financing receivables, net 4,264 4,199 Goodwill 28,835 27,267 Purchased intangible assets, net 1,893 2,195 Deferred tax assets 3,496 2,768 Other assets 2,147 1,361 Total assets $84,103 $93,554 Liabilities and equity Current liabilities Short-term debt $8,764 $4,505 Accounts payable 1,771 1,637 Income taxes payable 988 863 Accrued compensation 2,770 2,568 Deferred revenue 9,174 9,881 Other current liabilities 3,805 3,795 Total current liabilities 27,272 23,249 Long-term debt 12,449 17,485 Income taxes payable 7,677 7,383 Deferred revenue 6,707 7,048 Other long-term liabilities 1,126 1,233 Total liabilities 55,231 56,398 Equity: Cisco shareholders’ equity Preferred stock, no par value: 5 shares authorized; none issued and outstanding 0 0 Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 4,250 and 4,614 shares issued and outstanding at July 27, 2019, and July 28, 2018, respectively 34,630 36,826 (Accumulated deficit) Retained earnings (5,077) 1,060 Accumulated other comprehensive income (loss) (681) (730) Total Cisco shareholders' equity 28,872 37,156 Total equity 28,872 37,156 Total liabilities and equity $84,103 $93,554 Feceral and state statutory tax rate 22% (a) Compute net operating assets (NOA) for 2019. Hint: Treat Financing receivable as operating assets. NOA Answer 1 5,894 (b) Compute net operating profit after tax (NOPAT) for 2019, assuming a federal and state statutory tax rate of 22%. Assume that all items on the 2019 income statement will persist. NOPAT Answer 2 9,537.84 (c) Use the parsimonious forecast method, as shown in Analysis Insight box on page 13-4, to forecast Cisco’s sales, NOPAT, and NOA for 2020 through 2023 and the terminal period using the following assumptions. Note: When completing the question in Excel, refer directly to the cells containing calculated assumptions for NOPM and NOAT, i.e., don't type the NOPM number when making a calculation, refer to the cell. Assumptions Sales growth 2020–2023 5% Terminal growth 1% Net operating profit margin (NOPM) 2019 rate Net operating asset turnover (NOAT) 2019 rate Hint: Use 2019 NOA, not average NOA, to compute the 2019 rate for NOAT. CSCO Reported Forecast Horizon Terminal ($ millions) 2019 2020 Est. 2021 Est. 2022 Est. 2023 Est. Period Sales Answer 3 44,637 Answer 4 46,868.85 Answer 5 49,212.29 Answer 6 51,672.91 Answer 7 54,256.55 Answer 8 54,799.12 NOPAT = Forecasted sales x NOPM assumption Answer 9 9,534.46 Answer 10 10,011.19 Answer 11 10,511.75 Answer 12 11,037.33 Answer 13 11,589.2 Answer 14 11,705.09 NOA = Forecasted sales / NOAT assumption Answer 15 28,872 Answer 16 0 Answer 17 0 Answer 18 0 Answer 19 0 Answer 20 0 (d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 27, 2019 using the following assumptions Assumptions Discount rate (WACC) 7.60% Common shares outstanding 5,029.00 million Net nonoperating obligations (NNO) $(8,747) million NNO is negative, which means that Cisco has net nonoperating investments CSCO Reported Forecast Horizon Terminal ($ millions) 2019 2020 Est. 2021 Est. 2022 Est. 2023 Est. Period DCF Model Increase in NOA Answer 21 1,366 Answer 22 1,423 Answer 23 1,499 Answer 24 1,574 Answer 25 221 FCFF (NOPAT - Increase in NOA) Answer 26 0 Answer 2