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PROBLEM 6-12 Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal...

6-1 2 FORECASTI N G PRO FORM A FI N AN CIAL STATEM EN TS Prepare a pro forma income
statement and balance sheet for Webb Enterprises, found in Problem 6-7, where rev-
enues are expected to grow by 20% in 2011. Make the following assumptions in making
your forecast of the firm’s balance sheet for 2011:
■ The income statement expenses are a constant percent of revenues except for inter-
est, which remains equal in dollar amount to the 2010 level, and taxes, which equal
40% of earnings before taxes.
■ The cash and marketable securities balance remains equal to $500,and the remain-
ing current asset accounts and fixed assets increase in proportion to revenues for
2010
■ Net property, plant, and equipment increase in proportion to the increase in rev-
enues.
■ Accounts payable increase in proportion to firm revenues.
■ Owners’ equity increases by the amount of firm net income for 2011 (no cash divi-
dends are paid).
■ Long-term debt remains unchanged, and short-term debt changes in an amount
that balances the balance sheet.

6-13 FORECASTING FIRM FCF Using your pro forma financial statements from Problem
6-12,estimate the firm’s FCF for 2011.
PROBLEM 6-12 Solution Legend = Value given in problem Given (refer to problem 6-7): = Formula/Calculation/Analysis required Balance Sheet 2010 = Qualitative analysis or Short answer required Cash and Marketable Securities $500 = Goal Seek or Solver cell Accounts Receivable 6,000 = Crystal Ball Input Inventories 9,500 = Crystal Ball Output Current Assets $16,000 Net Property Plant & Equipment 17,000 Total $33,000 0.00% Accounts Payable $7,200 Short-term Debt 6,800 Current Liabilities $14,000 Long-term Debt 7,000 Total Liabilities $21,000 Total Owners' Equity 12,000 Total Liabilities and Owners' Equity $33,000 0.00% Income Statement 2010 Revenues $30,000 100.00% Cost of Goods Sold (20,000) Gross Profit $10,000 Operating Expenses (8,000) Net Operating income $2,000 Interest Expense (900) Earnings before Taxes $1,100 Taxes (400) Net Income $700 Projected growth rate in revenues 20% Tax rate 40% Solution: Pro forma Income Statement 2011 Sales Cost of Goods Sold Gross Profit Operating Expenses Net Operating income Interest Expense Earnings before Taxes Taxes Net Income Balance Sheet 2011 Cash and Marketable Securities Accounts Receivable Inventories Current Assets Net Property Plant & Equipment Total Accounts Payable Short-term Debt Current Liabilities Long-term Debt Total Liabilities Total Owners' Equity Total Liabilities and Owners' Equity Additional Short-term Debt Needed
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PROBLEM 6-13 Solution Legend = Value given in problem Given (refer to problem 6-7): = Formula/Calculation/Analysis required Balance Sheet 2010 = Qualitative analysis or Short answer required Cash and Marketable Securities $500 = Goal Seek or Solver cell Accounts Receivable 6,000 = Crystal Ball Input Inventories 9,500 = Crystal Ball Output Current Assets $16,000 Net Property Plant & Equipment 17,000 Total $33,000 0.00% Accounts Payable $7,200 Short-term Debt 6,800 Current Liabilities $14,000 Long-term Debt 7,000 Total Liabilities $21,000 Total Owners' Equity 12,000 Total Liabilities and Owners' Equity $33,000 0.00% Income Statement 2010 Revenues $30,000 100.00% Cost of Goods Sold (20,000) Gross Profit $10,000 Operating Expenses (8,000) Net Operating income $2,000 Interest Expense (900) Earnings before Taxes $1,100 Taxes (400) Net Income $700 Projected growth rate in revenues 20% Tax rate 40% Given (refer to problem 6-12): Pro forma Income Statement 2011 Sales Cost of Goods Sold Gross Profit Operating Expenses Net Operating income Interest Expense Earnings before Taxes Taxes Net Income Balance Sheet 2011 Cash and Marketable Securities Accounts Receivable Inventories Current Assets Net Property Plant & Equipment Total Accounts Payable Short-term Debt Current Liabilities Long-term Debt Total Liabilities $- Total Owners' Equity Total Liabilities and Owners' Equity Additional Short-term Debt Needed Solution: Estimated Free Cash Flow 2011 EBIT -Taxes NOPAT + Depreciation and Amortization - Increase in Operating Net Working Capital - CapEx = Free Cash Flow
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PROBLEM 6-12 Solution Legend Given (refer to problem 6-7):
Balance Sheet
Cash and Marketable Securities
Accounts Receivable
Inventories
Current Assets
Net Property Plant & Equipment
Total 2010...

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