1. You should create the following spreadsheets (with values)

(a) Projected (partial) Balance Sheet

Please make the following assumptions.

1. The weighted average cost of capital is 6%.

2. Warrens sales will grow at the following rate:

2018	2019	2020	2021	2022
4%	3%	4%	3%	3%

3. As an analyst, you believe the asset Goodwill will be fully impaired in 2019. Assume also that the impairment is NOT tax-deductible.

4. The company expects the asset Patents to be amortized as follows in the next five years:

2018: $30

2019: $25

2020: $23

2021: $20

2022: $17

6. The companys long term notes payable carries an interest rate of 5%. The fair value of the companys debt is as follows on December 31, 2017:

Short term notes	395
Line of Credit	210
Notes payable	847

7. The company owns 30% of the equity of Lillian Co. Warren uses the equity method to account for its investment in Lillian. Lillians competitors have an average price-earnings multiple of 15.

8. The litigation and regulatory expense reported by the company in 2017 is because of a court ruling made in 2017. Analysts believe the company will incur an additional $46 in 2018.

9. Bernards Inc. will likely have the same days inventory and days accounts payable in the future as in 2017. However, days receivable should be 35 in 2018, 33 in 2019, and then 32 thereafter.

10. The company generally includes gains and losses on asset sales (including sales of short term investments) in selling, general and administrative expenses.

13. The reconciliation of the statutory rate with the effective tax rate (excluding income under the equity method, which is reported net of income taxes on the income statement) is as follows:

	2017	2016	2015
Statutory rate	35.0%	35.0%	35.0%
State tax	1.2%	1.3%	0.8%
Tax credits	-2.1%		-2.7%
Permanent differences	-0.8%	-6.1%
Effective tax rate	33.3%	30.2%	33.1%

Starting 2018, the new federal tax rate will be 21%.

14. The new federal tax rate will have the effect of reducing the deferred tax assets and liabilities. Assume that all Bernards Inc.s deferred taxes are related to federal, and not state, taxation.

Warren Inc.
Balance Sheet
Assets
December 31,	2017	2016
Current Assets:
Cash and equivalents	458	555
Short term investments	367	394
Accounts receivable	618	566
Inventories	456	423
Prepayments and other	134	78
Total Current Assets	2,033	2,016
Property, Plant and Equipment:
Land	455	349
Buildings and improvements	895	812
Machinery and equipment	1,532	1,312
	2,882	2,473
Less: Accumulated depreciation	(1,418)	(1,244)
Total PP&E	1,464	1,229
Investment in Lillian	576	494
Patents	255	285
Trade names	240	240
Goodwill	320	320
Total intangibles and other assets	1,391	1,339
Total Assets	4,888	4,584

Warren Inc.
Balance Sheet (continued)
Liabilities and Stockholders Equity
December 31,	2017	2016
Current Liabilities:
Short term notes	395	395
Line of Credit	210	295
Accounts payable	415	399
Unearned Revenue	210	179
Income tax payable	45	39
Total current liabilities	1,275	1,307
Noncurrent liabilities
Notes payable	922	905
Deferred income taxes	450	390
Deferred and other non-current liabilities	121	96
Total noncurrent liabilities	1,493	1,391
Stockholders Equity:
Common stock	25	25
Capital in excess of par value	788	693
Retained earnings	1,815	1,634
Accumulated other comprehensive income	65	79
Less: Treasury stock at cost	(573)	(545)
Total Stockholders Equity	2,120	1,886
Total Liabilities and Stockholders Equity	4,888	4,584