Assume you just attended an Equity Research Conference where Merck's CFO discussed the firm's strategic plan...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Assume you just attended an Equity Research Conference where Merck's CFO discussed the firm's strategic plan for the upcoming fiscal year YY11, which ends on 12/31/YY11. During the conference, the CFO stated that management believes that in the fiscal year ending 12/31/YY11 Merck's Sales will increase by 5.85% from the Sales reported for the fiscal year ending 12/31/YY10 (YY10). Required: Calculate the predictable incremental operating cash flow (OCF) effect caused by the Change in Sales, Per Se, for the year ending 12/31/YY11 (YY11). (100 points) Merck's Income Statements Income Statement Sales Cost of sales Selling, general & administrative expenses Research & development expenses Restructuring costs Equity income (loss) from affiliates Interest income Interest expense Other income (expense), net Income (loss) before taxes (benefit) Taxes on income Net income (loss) Less: net (loss) income attributable to noncontrolling interests Net income (loss) attributable to Merck & Co., Inc. Less: income allocated to participating securities Net income allocated to common shareholders YY10 YY09 YY08 Thousands Thousands Thousands $47,994,000.0 $46,840,000.0 $42,294,000.0 $15,485,000.0 $14,112,000.0 $13,509,000.0 $10,468,000.0 $10,615,000.0 $10,102,000.0 $13,558,000.0 $9,872,000.0 $9,752,000.0 $578,000.0 $638,000.0 $632,000.0 $1,338,000.0 $170,000.0 $324,000.0 $59,000.0 $274,000.0 $343,000.0 $831,000.0 $893,000.0 $772,000.0 $442,000.0 $561,000.0 $290,000.0 $8,791,000.0 $11,464,000.0 $8,701,000.0 $1,709,000.0 $1,687,000.0 $2,508,000.0 $7,082,000.0 $9,777,000.0 $6,193,000.0 ($15,000.0) $27,000.0 $6,220,000.0 $66,000.0 $7,067,000.0 $9,843,000.0 $0.0 $0.0 $7,067,000.0 $9,843,000.0 $0.0 $6,220,000.0 Merck's Balance Sheets Balance Sheet Cash & cash equivalents Short-term investments Accounts receivable Inventories Other current operating assets Total current assets Investments Property, plant & equipment, net Goodwill Other intangibles, net Other assets Total assets Loans payable & current portion of long-term debt Trade accounts payable Accrued & other current liabilities Income taxes payable Interest payable Total current liabilities Long-term debt Deferred income taxes & noncurrent liabilities Other noncurrent liabilities Common stock Other paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Less treasury stock, at cost Total Merck & Co., Inc. stockholders' equity Noncontrolling interests Total equity OLL YY10 Thousands $8,062,000.0 YY09 Thousands $9,676,000.0 YY08 Thousands $7,965,000.0 $774,000.0 $899,000.0 $7,851,000.0 $6,778,000.0 $7,071,000.0 $6,310,000.0 $5,978,000.0 $5,440,000.0 $5,541,000.0 $4,277,000.0 $4,500,000.0 $27,764,000.0 $27,483,000.0 $25,875,000.0 $0.0 $785,000.0 $1,469,000.0 $6,233,000.0 $17,986,000.0 $15,053,000.0 $13,291,000.0 $20,238,000.0 $19,425,000.0 $18,253,000.0 $14,604,000.0 $14,196,000.0 $11,431,000.0 $10,211,000.0 $6,771,000.0 $7,554,000.0 $91,588,000.0 $84,397,000.0 $82,637,000.0 $5,308,000.0 $6,431,000.0 $3,610,000.0 $4,594,000.0 $3,738,000.0 $3,318,000.0 $13,053,000.0 $12,549,000.0 $10,151,000.0 $1,575,000.0 $736,000.0 $1,971,000.0 $1,674,000.0 $1,587,000.0 $1,458,000.0 $27,327,000.0 $22,220,000.0 $22,206,000.0 $25,360,000.0 $22,736,000.0 $19,806,000.0 $1,015,000.0 $1,470,000.0 $1,702,000.0 $12,482,000.0 $11,970,000.0 $12,041,000.0 $1,788,000.0 $1,788,000.0 $1,788,000.0 $39,588,000.0 $39,660,000.0 $38,808,000.0 $47,362,000.0 $46,602,000.0 $42,579,000.0 ($6,634,000.0) ($6,193,000.0) ($5,545,000.0) $56,787,000.0 $55,950,000.0 $50,929,000.0 $25,317,000.0 $25,907,000.0 $26,701,000.0 $94,000.0 $181,000.0 $87,000.0 $25,404,000.0 $26,001,000.0 $26,882,000.0 T Select Information from Merck's Statement of Cash Flows Select Statement of Cash Flow Information Depreciation & amortization Noncash Intangible asset impairment charges (included in SG&A) Noncash Charge for the acquisition of VelosBio Inc. (included in SG&A) Share-based compensation (included in SG&A) Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities YY10 YY09 YY08 Thousands Thousands Thousands $3,625,000.0 $3,652,000.0 $4,519,000.0 $1,718,000.0 $1,040,000.0 $296,000.0 $2,660,000.0 $0.0 $0.0 $475,000.0 $417,000.0 $348,000.0 $10,253,000.0 $13,440,000.0 $10,922,000.0 ($9,443,000.0) ($2,629,000.0) $4,314,000.0 ($2,832,000.0) ($8,861,000.0) ($13,160,000.0) Assume you just attended an Equity Research Conference where Merck's CFO discussed the firm's strategic plan for the upcoming fiscal year YY11, which ends on 12/31/YY11. During the conference, the CFO stated that management believes that in the fiscal year ending 12/31/YY11 Merck's Sales will increase by 5.85% from the Sales reported for the fiscal year ending 12/31/YY10 (YY10). Required: Calculate the predictable incremental operating cash flow (OCF) effect caused by the Change in Sales, Per Se, for the year ending 12/31/YY11 (YY11). (100 points) Merck's Income Statements Income Statement Sales Cost of sales Selling, general & administrative expenses Research & development expenses Restructuring costs Equity income (loss) from affiliates Interest income Interest expense Other income (expense), net Income (loss) before taxes (benefit) Taxes on income Net income (loss) Less: net (loss) income attributable to noncontrolling interests Net income (loss) attributable to Merck & Co., Inc. Less: income allocated to participating securities Net income allocated to common shareholders YY10 YY09 YY08 Thousands Thousands Thousands $47,994,000.0 $46,840,000.0 $42,294,000.0 $15,485,000.0 $14,112,000.0 $13,509,000.0 $10,468,000.0 $10,615,000.0 $10,102,000.0 $13,558,000.0 $9,872,000.0 $9,752,000.0 $578,000.0 $638,000.0 $632,000.0 $1,338,000.0 $170,000.0 $324,000.0 $59,000.0 $274,000.0 $343,000.0 $831,000.0 $893,000.0 $772,000.0 $442,000.0 $561,000.0 $290,000.0 $8,791,000.0 $11,464,000.0 $8,701,000.0 $1,709,000.0 $1,687,000.0 $2,508,000.0 $7,082,000.0 $9,777,000.0 $6,193,000.0 ($15,000.0) $27,000.0 $6,220,000.0 $66,000.0 $7,067,000.0 $9,843,000.0 $0.0 $0.0 $7,067,000.0 $9,843,000.0 $0.0 $6,220,000.0 Merck's Balance Sheets Balance Sheet Cash & cash equivalents Short-term investments Accounts receivable Inventories Other current operating assets Total current assets Investments Property, plant & equipment, net Goodwill Other intangibles, net Other assets Total assets Loans payable & current portion of long-term debt Trade accounts payable Accrued & other current liabilities Income taxes payable Interest payable Total current liabilities Long-term debt Deferred income taxes & noncurrent liabilities Other noncurrent liabilities Common stock Other paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Less treasury stock, at cost Total Merck & Co., Inc. stockholders' equity Noncontrolling interests Total equity OLL YY10 Thousands $8,062,000.0 YY09 Thousands $9,676,000.0 YY08 Thousands $7,965,000.0 $774,000.0 $899,000.0 $7,851,000.0 $6,778,000.0 $7,071,000.0 $6,310,000.0 $5,978,000.0 $5,440,000.0 $5,541,000.0 $4,277,000.0 $4,500,000.0 $27,764,000.0 $27,483,000.0 $25,875,000.0 $0.0 $785,000.0 $1,469,000.0 $6,233,000.0 $17,986,000.0 $15,053,000.0 $13,291,000.0 $20,238,000.0 $19,425,000.0 $18,253,000.0 $14,604,000.0 $14,196,000.0 $11,431,000.0 $10,211,000.0 $6,771,000.0 $7,554,000.0 $91,588,000.0 $84,397,000.0 $82,637,000.0 $5,308,000.0 $6,431,000.0 $3,610,000.0 $4,594,000.0 $3,738,000.0 $3,318,000.0 $13,053,000.0 $12,549,000.0 $10,151,000.0 $1,575,000.0 $736,000.0 $1,971,000.0 $1,674,000.0 $1,587,000.0 $1,458,000.0 $27,327,000.0 $22,220,000.0 $22,206,000.0 $25,360,000.0 $22,736,000.0 $19,806,000.0 $1,015,000.0 $1,470,000.0 $1,702,000.0 $12,482,000.0 $11,970,000.0 $12,041,000.0 $1,788,000.0 $1,788,000.0 $1,788,000.0 $39,588,000.0 $39,660,000.0 $38,808,000.0 $47,362,000.0 $46,602,000.0 $42,579,000.0 ($6,634,000.0) ($6,193,000.0) ($5,545,000.0) $56,787,000.0 $55,950,000.0 $50,929,000.0 $25,317,000.0 $25,907,000.0 $26,701,000.0 $94,000.0 $181,000.0 $87,000.0 $25,404,000.0 $26,001,000.0 $26,882,000.0 T Select Information from Merck's Statement of Cash Flows Select Statement of Cash Flow Information Depreciation & amortization Noncash Intangible asset impairment charges (included in SG&A) Noncash Charge for the acquisition of VelosBio Inc. (included in SG&A) Share-based compensation (included in SG&A) Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities YY10 YY09 YY08 Thousands Thousands Thousands $3,625,000.0 $3,652,000.0 $4,519,000.0 $1,718,000.0 $1,040,000.0 $296,000.0 $2,660,000.0 $0.0 $0.0 $475,000.0 $417,000.0 $348,000.0 $10,253,000.0 $13,440,000.0 $10,922,000.0 ($9,443,000.0) ($2,629,000.0) $4,314,000.0 ($2,832,000.0) ($8,861,000.0) ($13,160,000.0)
Expert Answer:
Answer rating: 100% (QA)
SOLUTION To calculate the predictable incremental operating cash flow OCF effect caused by the ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these accounting questions
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014, the company made and sold 60,000 umbrellas. The company had fixed manufacturing costs of $216,000. It also had fixed...
-
Bridge hands. In the game of bridge, four players are dealt hands of 13 cards each. An important statistic is the distribution of the number of cards in each suit in a hand. Which is the most likely,...
-
A line of charge of uniform density occupies a semicircle of radius b as shown in the figure. Use the material presented in Example 4-4 to determine the electric field at the origin. P,
-
Find the following integrals. y? dy (y + 1)4
-
Why have strategic alliances and joint ventures become a popular way of growing internationally?
-
A company manufactures mechanical heart valves from the heart valves of pigs. Different heart operations require valves of different sizes. The company purchases pig valves from three different...
-
Question 2 The principles of insurable interest, subrogation, actual cash value, and pro rata sharing all stem from the broader principle of indemnity. Explain what is meant by the principle of...
-
What is managerial economics? What role does it play in shaping business decisions?
-
State: Arizona 1) the federal/state match rate? 2) the basic benefit plan available to people qualifying for Medicaid above and beyond the requirements of the Federal program? 3) the traditional...
-
Although there is no one, single model for a strong organizational culture, there are some common characteristics that indicate how healthy a company's culture is. These indicators can be reflected...
-
Carmaker produces small cars. As production emits pollution, Carmaker needs to buy pollution permits. It also needs to hire labour. Carmaker's production function is given by: (1) q = min{0.05L,...
-
Find The domain of the function f ( x ) = sqrt ( ( x 5 ) ( 5 0 x ) )
-
Given the following binary tree, indicate that path for a) pre-order, b) post-order, and c) in-order traversal paths. 8 3 root 2 7
-
4. (10pts) Use the definition of the definite integral i.e., f(x)dx = lim Ef(x) Ax, where Ax = 11-+00 b-a and x = a +1 Ax, to evaluate the integral (3-2x) dx.
-
Suppose you invest $50 a month for 5 years into an account earning 8% compounded monthly. After 5 years, you leave the money, without making additional deposits, in the account for another 25 years....
-
A line l passes through the points with coordinates (0, 5) and (6, 7). a. Find the gradient of the line. b. Find an equation of the line in the form ax + by + c = 0.
-
Phil and Linda are 25-year-old newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not. a. Assuming Phil's wages were $27,000 and Linda's wages were...
-
Jason and Mary Wells, friends of yours, were married on December 30, 2012. They know you are studying taxes and have come to you with a question concerning their filing status. Jason and Mary would...
-
Ken (age 31) and Amy (age 28) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of these items must be used to...
-
Why is the accounting function of a firm likely to be centralized? What aspects of the accounting function should be centralized?
-
The implication from the discussion in this chapter is that as a company becomes more global, it concentrates more on the informal and subtle mechanisms for controlling global operations than it does...
-
What role does MIS play? Do they have a chief information officer? Do they have a Web site? How in-depth do you consider it to be? You may wish to compare it with other sites.
Study smarter with the SolutionInn App