Chapter_15web - EXERCISES FOR CHAPTER 15 With Solutions...

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EXERCISES FOR CHAPTER 15 With Solutions Forecasting Using Accounting Relations The following forecasts were prepared for a firm. Year Ahead 1 2 3 4 5 Dividends 70 75 75 75 75 Net debt 0 0 0 0 0 Investment expenditures 80 89 94 95 95 Net operating assets 635 665 689 703 713 The common stockholders’ equity at the beginning of year 1 is 596 and there is no net debt. (a) Forecast free cash flow generated from operations for each of the five years (b) Forecast cash flow operations for each year (c) Forecast operating income for each year (d) Forecast comprehensive income for each year Forecasting Using Accounting Relations: Solution Here is the pro forma for the solution. Question numbers are indicated to the left. (a) C – I = d 70 75 75 75 75 (b) I 80 89 94 95 95 C 150 164 169 170 170 ΔNOA 39 30 24 14 10 C – I 70 75 75 75 75 (c) (d) OI = CI 109 105 99 89 85
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Relations used in solution: (a) For a firm with no net debt, C- I = d (b) C = C – I + I (c) OI = C - I + ΔNOA (d) For a firm with no net debt, operating income = comprehensive income ----------------------------------------------------------------------------------------------------------- - Wal-Mart When Wal-Mart Stores, the retailer, filed its 10-K for year ending January 31, 1999, it reported an after-tax profit margin of 3.65% and an asset turnover of 4.66 on net operating assets of $29.9 billion.
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This note was uploaded on 10/07/2010 for the course ECTCS ec12947322 taught by Professor Johnathayeri during the Spring '10 term at Life.

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Chapter_15web - EXERCISES FOR CHAPTER 15 With Solutions...

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