#1

Prepare a balance sheet for Webb Enterprises, found in Problem 6-7, where revenues are expected to grow by 20% in 2011. Make the following assumptions in making your forecast of the firm's balance sheet in 2011:

a) The income statement expenses are a constant percent of revenues except for interest, which remains equal in dollar amount to the 2015 level, and taxes, which equal 40% of earnings before taxes.

b) The cash and marketable securities balance remains equal to $500, and the remaining current asset accounts and fixed assets increase in proportion to the increase in revenues for 2010.

c) Net property, plant, and equipment increase in proportion to the increase in revenues and depreciation expenses for 2016 is $2000.

d) Accounts payable increase in proportion to firm revenues.

e) Owners' equity increases by the amount of firm net income for 2011 (no cash dividends are paid).

f) Long-term debt remains unchanged, and short-term debt changes in an amount that balances the balance sheet.

#2 using your pro forma forma financial statements, estimate the firms FCF for 2016.

PROBLEM 6-12 Solution Legend = Value given in problem Given (refer to problem 6-7): Balance Sheet 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 Income Statement Revenues Cost of Goods Sold Gross Profit Operating Expenses Net Operating income Interest Expense Earnings before Taxes Taxes Net Income Projected growth rate in revenues Tax rate $ $ $ $ $ $ $ $ $ $ $ $ 2015 500 6,000 9,500 16,000 17,000 33,000 7,200 6,800 14,000 7,000 21,000 12,000 33,000 2010 30,000 100.00% (20,000) 10,000 (8,000) 2,000 (900) 1,100 (400) 700 20% 40% Solution: Pro forma Income Statement Sales Cost of Goods Sold Gross Profit Operating Expenses Net Operating income Interest Expense Earnings before Taxes Taxes Net Income 2016 Balance Sheet Cash and Marketable Securities Accounts Receivable Inventories Current Assets Net Property Plant & Equipment Total 2016 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 = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output PROBLEM 6-13 Solution Legend = Value given in problem Given (refer to problem 6-7): Balance Sheet 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 $ $ $ $ $ $ $ Income Statement Revenues Cost of Goods Sold Gross Profit Operating Expenses Net Operating income Interest Expense Earnings before Taxes Taxes Net Income $ $ $ $ $ 2015 500 6,000 9,500 16,000 17,000 33,000 7,200 6,800 14,000 7,000 21,000 12,000 33,000 2015 30,000 100.00% (20,000) 10,000 (8,000) 2,000 (900) 1,100 (400) 700 Projected growth rate in revenues Tax rate 20% 40% Given (refer to problem 6-12): Pro forma Income Statement Sales Cost of Goods Sold Gross Profit Operating Expenses Net Operating income Interest Expense Earnings before Taxes Taxes Net Income $ $ $ $ $ $ $ $ $ 2016 Balance Sheet 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 $ - 2016 Solution: Estimated Free Cash Flow EBIT -Taxes NOPAT + Depreciation and Amortization - Increase in Operating Net Working Capital - CapEx = Free Cash Flow 2016 = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output