1. You should submit the following spreadsheets (with values, not formulae):

(a) Projected (partial) Statement of Cash Flows

2. You must also submit your income statement and balance sheet assumptions. Explain how you made adjustments to base year values where necessary. Explanations may be provided separately or shown (with clear labeling) on the spreadsheets.

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

5. The asset Trade Names is not amortized by the company it is assumed to have an infinite life. An independent analyst has estimated the fair value of the asset is $387 at the end of 2017.

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. Warren 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.

11. Cost of goods sold in 2017 includes rationalization expenses of $121. The rationalization program has been completed.

12. The composition of income tax expense in 2017 is as follows (you will need to use knowledge that you learned in ACC303; if you did not take ACC303 prior to this course, please contact me for additional reading material required):

Current tax expense 477

Deferred tax expense 60

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 Warren Inc.s deferred taxes are related to federal, and not state, taxation.

15. For the Free Cash Flow method, assume that free cash flows beyond 2022 grow at 2.0%.

16. For the residual NOPAT method assume that the residual NOPAT grows at 2.0% from 2023 on.

17. Where you need to make additional assumptions, please briefly document your assumption.

Warren Inc.
Statement of Cash Flows
Years Ended December 31,	2017	2016	2015
Cash Flows from Operating Activities:
Net income	1,165	1,130	749
Noncash adjustments:			Noncash adjustments:
Depreciation	174	168	132
Amortization	30	30	40
Loss (Gain) on short term investments	(32)	(27)	41
Equity in results o00-f affiliates in excess of dividends received	(82)	(2)	(101)
Changes in operating assets & liabilities:
Accounts and other receivables	(52)	20	(50)
Inventories	(33)	(25)	(47)
Prepaid and other current assets	(56)	(24)	4
Accounts payable and accrued liabilities	16	52	59
Unearned revenue	31	45	(1)
Income taxes payable	6	6	8
Deferred income taxes	60	(12)	(52)
Deferred liabilities	25	(24)	(31)
Net cash provided by operations	1,252	1,337	751
Cash Flows from Investing Activities:
Capital expenditures	(409)	(501)	(282)
Sale (Purchase) of ST investments	45
Acquisition of business, net of cash acquired			(286)
Net cash used by investing activities	(364)	(501)	(568)
Cash Flows from Financing Activities:
Proceeds from or Repayments of obligations	(68)	83	32
Dividends paid	(984)	(840)	(410)
Issuance of Stock	95	53	28
Purchase of treasury stock	(28)	(43)	(36)
Net cash used by financing activities	(985)	(747)	(386)
Net (decrease)/increase in Cash and Equivalents	(97)	89	(203)
Cash and Equivalents at Beginning of Period	555	466	669
Cash and Equivalents at End of Period	458	555	466