Question

Computing ROPI for Multiple Years
Use the following data to compute ROPI for Intel Corporation for 2016 through the terminal period. Assume that the company's weighted average cost of capital is 9%.

	Actual	Horizon Period				Terminal
$ millions	2015	2016	2017	2018	2019	Period
Sales	$55,466	$61,555	$67,699	$73,771	$78,962	$80,511
NOPAT	11,343	13,573	14,248	15,524	15,825	15,331
NOA	51,488	57,157	62,873	68,521	72,674	74,101

Round answers to the nearest whole number.

		Forecast Horizon				Terminal
($ millions)		2016	2017	2018	2019	Period
ROPI		Answer	Answer	Answer	Answer	Answer

Answer 1

We know that

ROPI = Residual operating income = NOPAT - (Beginning NOA x WACC)

Beginning NOA of a year = Ending NOA of previous year

For year 2016, NOPAT = 13573 and Beginning NOA = Ending NOA of 2015 = 51488

ROPI = 13573 - 51488 x 9% = 13573 - 4633.92 = 8939.08 = 8939 (rounded to nearest dollar)

For year 2017, NOPAT = 14248 and Beginning NOA = Ending NOA of 2016 = 57157

ROPI = 14248 - 57157 x 9% = 14248 - 5144.13 = 9103.87 = 9104 (rounded to nearest dollar)

For year 2018, NOPAT = 15524 and Beginning NOA = Ending NOA of 2017 = 62873

ROPI = 15524 - 62873 x 9% = 15524 - 5658.57 = 9865.43 = 9865 (rounded to nearest dollar)

For year 2019, NOPAT = 15825 and Beginning NOA = Ending NOA of 2018 = 68521

ROPI = 15825 - 68521 x 9% = 15825 - 6166.89 = 9658.11 = 9658 (rounded to nearest dollar)

For terminal period NOPAT = 15331 Beginning NOA = 72674

ROPI = 15331 - 72674 x 9% = 15331 - 6540.66 = 8790.34 = 8790 (rounded to nearest dollar)

Answer:

		Forecast Horizon				Terminal
($ millions)		2016	2017	2018	2019	Period
ROPI		8939	9104	9865	9658	8790