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ACT5725 Consider the following actual FY2017 data and a forecast of FY2018 selected balance sheet and income statement numbers. $ millions FY2017 Actual FY2018 Est.

ACT5725

Consider the following actual FY2017 data and a forecast of FY2018 selected balance sheet and income statement numbers.

$ millions FY2017 Actual FY2018 Est.
Net sales $29,009 $32,102
Total assets 14,592 16,051
Total liabilities 8,755 9,923
Total equity 5,837 6,128
Cash 2,918 4,378
Marketable securities 730 730
Total liabilities (inc. long-term debt) 8,755 9,923
Treasury stock (2,189) (2,627)

a. Calculate the company's normal cash level as a percentage of sales. Round answer to one decimal place (ex: 0.2345 = 23.5%) Answer

% b. Determine the amount of adjustment needed to return cash to a normal level. Is an adjustment warranted? If an adjustment is not warranted, enter zero as the amount needed to return cash to a normal level. If the adjustment is a decrease, use a negative sign with your answer. Round answer to the nearest whole number, if applicable. $Answer For parts d through h, complete the table below.

d. Adjust marketable securities so the forecasted cash balance is at its normal level. What affect does this have on the forecasted liabilities-to-equity ratio? e. Adjust long-term debt so the forecasted cash balance is at its normal level. What effect does this have on the forecasted liabilities-to-equity ratio? f. Adjust treasury stock so the forecasted cash balance is at its normal level. What effect does this have on the forecasted liabilities-to-equity ratio? g. Adjust both long-term debt and marketable securities so as to adjust the forecasted cash balance. In so doing, make sure we preserve the companys liabilities-to-equity ratio. (Hint: Use Goal Seek under the What-If Analysis in Excel to determine the proportion of long-term debt versus treasury stock needed to ensure the forecasted liabilities-to-equity ratio remains at its historical level.) h. Adjust both long-term debt and treasury stock so as to adjust the forecasted cash balance. In so doing, make sure we preserve the companys liabilities-to-equity ratio. (Hint: Use Goal Seek under the What-If Analysis in Excel to determine the proportion of long-term debt versus treasury stock needed to ensure the forecasted liabilities-to-equity ratio remains at its historical level.)

Do not use any negative signs with your answers.

Round liabilities to equity ratios to two decimal places.

Hints

Part g. - Marketable securities is adjusted by $432. Debt is adjusted by $704.

Part h. - Debt is adjusted by $966. Treasury stock is adjusted by $170.

d. g. Debt and h. Debt and
Marketable f. Treasury Marketable Treasury
$ millions Securities e. Debt Stock securities stock
Total assets $Answer $Answer $Answer $Answer $Answer
Total liabilities Answer Answer Answer Answer Answer
Total equity Answer Answer Answer Answer Answer
Cash Answer Answer Answer Answer Answer
Marketable securities Answer Answer Answer Answer Answer
Total liabilities (inc. LT debt) Answer Answer Answer Answer Answer
Treasury stock Answer Answer Answer Answer Answer
Liabilities to equity ratio Answer Answer Answer Answer Answer

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