Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Estimating Share Value Using the ROPI Model
Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2019 through 2022.
Forecast Horizon Period
Colgate Palmolive (CL) Reported
$ millions
2018
2019
2020
2021
2022
Sales
$15,544
$16,010 $16,491 $16,985 $17,495
NOPAT
2,737
2,818
2,902
2,989
3,079
NOA
5,837
6,012
6,193
6,378
6,570
a. Forecast the terminal period values for Sales, NOPAT, and NOA, assuming a 1% terminal period growth rate.
Note: Round answers to the nearest dollar.
Terminal period sales
17,670
Terminal period NOPAT $
3,110 v
Terminal period NOA
24
6,636 v
b. Estimate the value of a share of Colgate-Palmolive common stock using the residual operating income (ROPI) model. Assume a discount rate (WACC) of 5.70%, common shares outstanding of 862.9 million, net nonoperating
obligations (NNO) of $5,640 million, and noncontrolling interest (NCI) frombthe balance sheet of $299 million.
Note: Round answers to two decimal places.
$ 75.93
c. Colgate-Palmolive stock closed at $66.70 on February 21, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price?
Stock price is overvalued
d. The forecasts assumed a terminal growth rate of 1%. If the terminal growth rate had been 2%, what would the estimated stock price have been?
Note: Round answers to two decimal places.
$ 92.54
e. What would WACC need to be to warrant the actual stock price on February 21, 2019?
Note: Round answer to two decimal places (for example, 0.0674533 = 6.75%).
75.93
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Transcribed Image Text:Estimating Share Value Using the ROPI Model Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2019 through 2022. Forecast Horizon Period Colgate Palmolive (CL) Reported $ millions 2018 2019 2020 2021 2022 Sales $15,544 $16,010 $16,491 $16,985 $17,495 NOPAT 2,737 2,818 2,902 2,989 3,079 NOA 5,837 6,012 6,193 6,378 6,570 a. Forecast the terminal period values for Sales, NOPAT, and NOA, assuming a 1% terminal period growth rate. Note: Round answers to the nearest dollar. Terminal period sales 17,670 Terminal period NOPAT $ 3,110 v Terminal period NOA 24 6,636 v b. Estimate the value of a share of Colgate-Palmolive common stock using the residual operating income (ROPI) model. Assume a discount rate (WACC) of 5.70%, common shares outstanding of 862.9 million, net nonoperating obligations (NNO) of $5,640 million, and noncontrolling interest (NCI) frombthe balance sheet of $299 million. Note: Round answers to two decimal places. $ 75.93 c. Colgate-Palmolive stock closed at $66.70 on February 21, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? Stock price is overvalued d. The forecasts assumed a terminal growth rate of 1%. If the terminal growth rate had been 2%, what would the estimated stock price have been? Note: Round answers to two decimal places. $ 92.54 e. What would WACC need to be to warrant the actual stock price on February 21, 2019? Note: Round answer to two decimal places (for example, 0.0674533 = 6.75%). 75.93
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