Reference no: EM133057398
The following are forecasted residual operating income (ROPI) for Reed Corporation for Year 7:
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Current
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Forecast Horizon
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Terminal
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($millions)
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Year 7
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Year 8
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Year 9
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Year 10
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Year 11
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Year
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Residual operating income (ROPI)
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$1,999
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$2,099
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$2,204
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$2,314
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$2,430
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$2,479
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Assume a discount rate of 6%, an expected terminal growth rate of 2%, 2017 NOA of $29,896, and 2017 NNO of $17,314. What is the firm's equity value using the ROPI valuation model?
Select one:
a. $79,584
b. $17,314
c. $56,899
d. None of these are correct
e. $72,777
Estimating Share Value Using the ROPI Model
Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2019 through 2022.
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Forecast Horizon Period
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Colgate Palmolive (CL)
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Reported
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$ millions
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2018
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2019
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2020
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2021
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2022
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Sales
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$15,544
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$16,010
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$16,491
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$16,985
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$17,495
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NOPAT
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2,737
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2,818
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2,902
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2,989
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3,079
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NOA
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5,837
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6,012
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6,193
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6,378
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6,570
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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.
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.
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%).