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Assignment 3
Question 1) Three years of balance sheets for Cisco are given on the disk with this book. Restate t

CISCO BALANCE SHEET

Period Ending 27-Jul-12 29-Jul-11 30/Jul/10

Assets
Current Assets
Cash And Cash Equivalents 9,799,000 7,662,000 4,581,000
Short Term Investments 38,917,000 36,923,000 35,280,000
Net Receivables 10,324,000 10,219,000 9,358,000
Inventory 1,663,000 1,486,000 1,327,000
Other Current Assets 1,230,000 941,000 875,000
Total Current Assets 61,933,000 57,231,000 51,421,000
Long term Assets
Long Term Investments 3,585,000 3,488,000 2,614,000
Property Plant and Equipment 3,402,000 3,916,000 3,941,000
Goodwill 16,998,000 16,818,000 16,674,000
Intangible Assets 1,959,000 2,541,000 3,274,000
Other Assets 3,882,000 3,101,000 3,206,000
Total Assets 91,759,000 87,095,000 81,130,000

Liabilities
Current Liabilities
Accounts Payable 4,063,000 4,159,000 4,114,000
Short/Current Long Term Debt 31,000 588,000 3,096,000
Other Current Liabilities 13,637,000 12,759,000 12,023,000
Total Current Liabilities 17,731,000 17,506,000 19,233,000
Long Term Debt 16,297,000 16,234,000 12,188,000
Other Liabilities 2,402,000 1,914,000 2,005,000
Deferred Long Term Liability Charge 4,028,000 4,182,000 3,419,000

Minority Interest 15,000 33,000 18,000

Total Liabilities 40,473,000 39,869,000 36,863,000

Stockholders' Equity
Common Stock 39,271,000 38,648,000 37,793,000
Retained Earnings 11,354,000 7,284,000 5,851,000
Other Stockholder Equity 661,000 1,294,000 623,000
Total Stockholder Equity 51,286,000 47,226,000 44,267,000
Total liabilities and equity 91,759,000 87,095,000 81,130,000
ent 3
h this book. Restate these balance sheets so that the accounting enterprise value is on the left side.

SOLUTION
7/27/2012
Particular Amount Particular
NET WORKING CAPITAL 34,434,000 NET FINANCIAL DEBT
CURRENT ASSETS(OPERATING) 52,134,000
CURRENT LIABLITIES(OPERATING) 17,700,000
NET FIXED ASSETS 9,243,000 OTHER LIABILITIES
PPE 3,402,000 MINORITY INTEREST
INTANGIBLE 1,959,000 Total Stockholder Equity
OTHERS 3,882,000
GOODWILL 16,998,000

ENTERPRISE VALUE 60,675,000

7/29/2011
Particular Amount Particular
NET WORKING CAPITAL 32,651,000 NET FINANCIAL DEBT
CURRENT ASSETS(OPERATING) 49,569,000
CURRENT LIABLITIES(OPERATING) 16,918,000
NET FIXED ASSETS 9,558,000 OTHER LIABILITIES
PPE 3,916,000 MINORITY INTEREST
INTANGIBLE 2,541,000 Total Stockholder Equity
OTHERS 3,101,000
GOODWILL 16,818,000

ENTERPRISE VALUE 59,027,000

7/30/2010
Particular Amount Particular
NET WORKING CAPITAL 30,703,000 NET FINANCIAL DEBT
CURRENT ASSETS(OPERATING) 46,840,000
CURRENT LIABLITIES(OPERATING) 16,137,000
NET FIXED ASSETS 10,421,000 OTHER LIABILITIES
PPE 3,941,000 MINORITY INTEREST
INTANGIBLE 3,274,000 Total Stockholder Equity
OTHERS 3,206,000
GOODWILL 16,998,000

ENTERPRISE VALUE 58,122,000

nterprise value is on the left side.

Particular Amount
NET FINANCIAL DEBT 6,529,000
TOTAL FINANCIAL DEBT 16,328,000
CASH AND CASH EQU 9,799,000
OTHER LIABILITIES 2,402,000
MINORITY INTEREST 15,000
Total Stockholder Equity 51,286,000
60,232,000

Particular Amount
NET FINANCIAL DEBT 9,160,000
TOTAL FINANCIAL DEBT 16,822,000
CASH AND CASH EQU 7,662,000
OTHER LIABILITIES 1,914,000
MINORITY INTEREST 33,000
Total Stockholder Equity 47,226,000
58,333,000

Particular Amount
NET FINANCIAL DEBT 10,703,000
TOTAL FINANCIAL DEBT 15,284,000
CASH AND CASH EQU 4,581,000
OTHER LIABILITIES 2,005,000
MINORITY INTEREST 18,000
Total Stockholder Equity 44,267,000
56,993,000
Question 2) Below are some year-end numbers for Cisco ’ s equity. Restate the enterprise value in

SOLUTION
27-Jul-12 29-Jul-11
MARKET CAP OF EQUITY 84,255,000,000 88,298,000,000
CASH AND CASH EQUI 9,799,000 7,662,000
SHORT/CURRENT LONG TERM DEBT 31,000 588,000
OTHER LIABILITIES 2,402,000 1,914,000
MINORITY INTEREST 15,000 33,000
ENTERPRISE VALUE 84,247,649,000 88,292,873,000
. Restate the enterprise value in market terms.

30/Jul/10
132,237,000,000
4,581,000
3,096,000
2,005,000
18,000
132,237,538,000
Question 3) Examine Cisco ’ s consolidated statement of cash flows (on the disk that accompanies

CISCO CONSOLIDATED STATEMENT OF CASH FLOWS

Period Ending 27-Jul-12 29-Jul-11

Net Income 8,041,000 6,490,000

Operating Activities, Cash Flows Provided By or Used In
Depreciation 2,602,000 2,486,000
Adjustments To Net Income 1,046,000 1,268,000
Changes In Accounts Receivables -574,000 -1,318,000
Changes In Liabilities 1,337,000 1,025,000
Changes In Inventories -287,000 -147,000
Changes In Other Operating Activities -674,000 275,000
Total Cash Flow From Operating Activities 11,491,000 10,079,000

Investing Activities, Cash Flows Provided By or Used In

Purchases of investments
Proceeds from sales of investments
Proceeds from maturities of investments
Acquisitions of property and equipment -1,126,000 -1,174,000
Acquistions of businesses, net of cash and cash equivalents -375,000 -266,000
Purchases of investments in privately held companies -380,000 -204,000
Return of investments in privately held companies 242,000 163,000
Other 166,000 22,000
Total Cash Flows From Investing Activities -1,473,000 -1,459,000

Financing Activities, Cash Flows Provided By or Used In

Dividends Paid
Sale Purchase of Stock
Net Borrowings
Other Cash Flows from Financing Activities
Total Cash Flows From Financing Activities 0 0
Effect Of Exchange Rate Changes - -

Free cash flow before interest adjustment 10,018,000 8,620,000

Net interest paid 681,000 777,000

Tax rate 20.85% 17.06%
After-tax net interest
Free cash flow 10,557,022 9,264,438
n the disk that accompanies this book) and transform this into a free cash flow.

30-Jul-10

7,767,000

2,030,000
718,000
-2,524,000
2,438,000
-158,000
-98,000
• 10,173,000
We keep all the items under operating activities.

All financial
and not
operational
-1,008,000
-5,279,000
-137,000
58,000
128,000
-6,238,000

We completely ignore the cash fl ows under Financing Activities

0
-

3,935,000

692,000
17.50%
4,505,872
Question 4) Use the template for the ABC Corp. valuation in section 2.7 to value Cisco stock. A
years 1–5 is 4%, and that the long-term growth rate is 0%. (Detai

Given
WACC 12.60%
Growth Rate for 1-5 Years 4%
Long-term growth rate 0%

SOLUTION

Free Cash Flow (FCF) Year ending

Growth rate of FCF, Years 1-5 4.00%
Long-term FCF growth rate 0.00%
Weighted average cost of capital, WACC 12.60%

Year 0 1 2 3
FCF 4,505,872 9,264,438 10,557,022
Terminal Value 83785888.89
Total 4,505,872 9,264,438 94,342,911

Enterprise Value 82123488.051

Add back initial cash and marketable secutrities 4,581,000
Subtract out 2010 financial DEBT -12,188,000
Equity value 74,516,488
Per share 74.516488051 Assuming 1000000 shares
to value Cisco stock. Assume that the weighted average cost of capital for Cisco is 12.6%, the growth rate
owth rate is 0%. (Details and template on the disk that accompanies this book.)
is 12.6%, the growth rate for