Estimating Share Value Using the ROPI ModelFollowing 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.ReportedHorizon periodTerminalmillionsSalesNOPATNOA2018 2019 2020 2021 2022$56,912 $57,766 $58,632 $59,512 $60,4042,492 2,542 2,580 2,619 2,6584,097 4,158 4,221 4,2844,032Answer the following requirements with the following assumptions:AssumptionsTerminal period growth rate1%Discount rate (WACC)7.8%Common shares outstanding135.6 millionNet nonoperating obligations (NNO) $(6,129) million($ millions)ROPI (NOPAT- [NOABeg x rw])Present value of horizon ROPICum present value of horizon ROPI $Present value of terminal ROPINOATotal firm valueLess NNOFirm equity valueShares outstanding (millions)Stock price per shareNNO 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 HorizonReported2018$$Period$61,0080 x0 x0x0 x(6,129) ✔0 x135.6 ✔319.44 ✔2,6844,327$20190 x $0 x20200 x $0 x20210 x $0 x20220 x $0 xTerminalPeriod0 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+

Stock price:The stock price represents the current market valuation of a publicly traded company's…

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-

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter13: Financial Statement Analysis

Section: Chapter Questions

Problem 13.2DC

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