09class11_126

09class11_126 - Step 4 Project Liabilities and Contributed...

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Step 4. Project Liabilities and Contributed Capital 1
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2 Other current liabilities --- Plausible that they growth at the sales growth rate. Short-term debt. Use the common size balance sheet approach. Total assets times historical common size percentage. Long-term debt. Based on projected long- term debt to total assets ratio. We may want to incorporate a trend.
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3 Contributed capital : Assumptions will be given. Hard to know the plans of the top management.
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4 Step 5 A Interest Expense, Interest Income, Retained Earnings
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5 Interest Expense Average Short-term borrowing times average interest rate for short-term loans Average long-term borrowing times average interest rate for long-term loans.
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6 Interest income One approach: Average Cash and Marketable securities times interest income rate for short-term investments. Better approach: Average Cash times interest income to cash Average Marketable securities times interest income to marketable securities
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7 Income tax expense Apply the effective tax rate times pre-tax income based on historical information.
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8 Projected Net Income – No particular problem all inputs are ready.
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09class11_126 - Step 4 Project Liabilities and Contributed...

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