I am evaluating a capital budgeting project and have the forecasted discounted free cash flow. I need to take the projections and see how it would affect the balance sheet and the income statement of my company. I have the forecasted balance sheet and income statement of the current company as well. I thought it was as simple as taking the line items in the cash flow statement and blending them into my income statement and balance sheet but my balance sheet is not balancing. For example they give you AP, AR, inventory, etc. I was simply just taking those numbers and adding them to the appropriate line items on the balance sheet. Any advice? I have attached the case and the spreadsheet. The case involves several topics. I just need help on this one.

Pacific Grove Spice Company Exhibit 3 - Capital Budgeting Analysis of Television Program Opportunity Initial Investment Cash Flows Equipment Growth Rate of Sales Operating Cash Flows Year 0 -$1,440,000 5.0% 5.0% 5.0% 5.0% 06/30/12 06/30/13 06/30/14 06/30/15 06/30/16 $8,100,000 4,738,500 3,361,500 $8,505,000 4,975,425 3,529,575 $8,930,250 5,224,196 3,706,054 $9,376,763 5,485,406 3,891,356 $9,845,601 5,759,676 4,085,924 Promotion Expense at 11% of sales General & Administrative Expense Depreciation Expense Incremental Operating Profit 891,000 760,000 288,000 1,422,500 935,550 798,000 288,000 1,508,025 982,328 837,900 288,000 1,597,826 1,031,444 879,795 288,000 1,692,118 1,083,016 923,785 288,000 1,791,123 Income Taxes at 27% Incremental Net Income 384,075 1,038,425 407,167 1,100,858 431,413 1,166,413 456,872 1,235,246 483,603 1,307,520 + Depreciation Expense Incremental Operating Cash Flow 288,000 1,326,425 288,000 1,388,858 288,000 1,454,413 288,000 1,523,246 288,000 1,595,520 Year 1 $1,664,384 1,184,625 389,466 -2,459,543 Year 2 $83,219 59,231 19,473 -122,977 Year 3 $87,380 62,193 20,447 -129,126 Year 4 $91,749 65,302 21,469 -135,582 Year 5 $96,337 68,568 22,543 -142,361 Year 2 Year 3 Year 4 06/30/11 Sales Cost of Goods Sold at 58.5% of sales Gross Profit Margin Yearly Net Working Capital Investment Additional A/R at 75 Days Sales Outstanding Additional Inventory at 4 Inventory Turns Additional A/P at 30 Days COGS Total NWC Investment Terminal Cash Flows Recovery of NWC Total Project Cash Flows Internal Rate of Return Net Present Value at 20% Net Present Value at 15% Net Present Value at 10% Year 1 -$1,440,000 41.28% $1,716,414 $2,405,498 $3,278,174 -$1,133,118 $1,265,881 $1,325,287 $1,387,664 Year 5 $2,989,590 $4,442,748 Pacific Grove Spice Company Exhibit 2 - Balance Sheet ($ in millions) Actual Assets 06/30/07 06/30/08 Current 06/30/09 06/30/10 06/30/11 Projected 06/30/12 06/30/13 06/30/14 06/30/15 Cash Accounts Receivable Inventories Prepaid Expenses Total Current Assets $2.325 9.489 6.697 0.770 19.281 $2.680 10.912 7.701 0.840 22.133 $2.924 11.895 8.394 0.910 24.123 $3.440 13.976 9.947 0.828 28.191 $4.102 16.632 11.878 0.969 33.581 Err:511 Err:510 Err:510 Err:510 Err:511 Err:511 Err:510 Err:510 Err:510 Err:511 Err:511 Err:510 Err:510 Err:510 Err:511 Err:511 Err:510 Err:510 Err:510 Err:511 Net Property & Equipment * Other Long-Term Assets Total Assets 15.200 2.241 36.722 16.000 2.479 40.612 17.300 2.671 44.094 19.100 3.074 50.365 22.400 3.639 59.620 25.157 Err:510 Err:511 28.427 Err:510 Err:511 31.554 Err:510 Err:511 34.395 Err:510 Err:511 10.6% 8.6% 14.2% 18.4% Err:511 Err:511 Err:511 Err:511 Growth rate of assets Liabilities & Owners' Equity 06/30/07 06/30/08 06/30/09 06/30/10 06/30/11 06/30/12 06/30/13 06/30/14 06/30/15 Bank Notes Payable Accounts Payable Current Portion of Long-Term Debt Accrued Expenses Total Current Liabilities $7.669 2.203 0.973 0.771 11.616 $8.820 2.532 1.060 0.884 13.296 $9.613 2.760 1.124 0.965 14.462 $11.295 3.271 1.240 1.129 16.935 $13.442 3.905 1.483 1.345 20.175 Err:510 Err:510 1.614 Err:510 Err:510 Err:510 Err:510 1.751 Err:510 Err:510 Err:510 Err:510 1.842 Err:510 Err:510 Err:510 Err:510 1.869 Err:510 Err:510 Long-Term Debt Total Liabilities 14.600 26.216 15.894 29.190 16.862 31.324 18.606 35.541 22.247 42.422 24.204 Err:510 26.258 Err:510 27.614 Err:510 28.028 Err:510 Common Stock Retained Earnings Total Shareholder Equity 6.881 3.625 10.506 6.881 4.541 11.422 6.881 5.889 12.770 6.881 7.943 14.824 6.881 10.317 17.198 6.881 Err:520 Err:520 6.881 Err:520 Err:520 6.881 Err:520 Err:520 6.881 Err:520 Err:520 Total Liabilities & Net Worth 36.722 40.612 44.094 50.365 59.620 Err:520 Err:520 Err:520 Err:520 * Net property & equipment for all years is calculated as net property & equipment from the prior year, plus capital expenditures in the same year, minus depreciation expense in the same year. Depreciation expense is included in reported operating expenses; it is not broken out separately. Total debt equals Bank notes payable + Current portion of long term debt + Long term debt 06/30/07 Total Debt (interest bearing) Total debt percent of assets Total debt percent of owners equity Equity Multiplier Interest Coverage Ratio Target 6/30/12 Total debt percent of assets Equity Multiplier 06/30/08 06/30/09 06/30/10 06/30/11 06/30/12 06/30/13 06/30/14 06/30/15 $23.24 $25.77 $27.60 $31.14 $37.17 Err:510 Err:510 Err:510 Err:510 63.29% 63.46% 62.59% 61.83% 62.35% Err:510 Err:510 Err:510 Err:510 221.22% 225.65% 216.12% 210.07% 216.14% Err:510 Err:510 Err:510 Err:510 3.50 3.56 3.45 3.40 3.47 Err:511 Err:511 Err:511 Err:511 Err:510 Err:510 Err:510 Err:510 Err:510 Err:510 Err:510 Err:510 Err:510 55% 2.7 Pacific Grove Spice Company Exhibit 1 - Income Statement ($ in millions except for price per share) Actual Income Statement Net Sales Cost of Goods Sold Gross Profit Margin 06/30/07 06/30/08 Current 06/30/09 06/30/10 06/30/11 Projected 06/30/12 06/30/13 06/30/14 06/30/15 $46.180 26.784 19.396 $53.107 30.802 22.305 $57.887 33.575 24.312 $68.017 39.790 28.227 $80.940 47.512 33.428 $93.081 54.452 38.629 $105.182 61.531 43.650 $116.751 68.300 48.452 $127.259 74.447 52.813 0.739 14.916 3.741 0.850 17.260 4.195 0.926 18.871 4.515 1.088 21.902 5.237 1.295 26.063 6.070 1.489 29.321 7.819 1.683 33.132 8.835 1.868 36.777 9.807 2.036 40.087 10.690 Interest Expense Earnings Before Income Taxes 2.906 0.835 2.940 1.255 2.668 1.847 2.423 2.814 2.817 3.253 Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 Income Taxes Net Income 0.225 0.610 0.339 0.916 0.499 1.348 0.760 2.054 0.879 2.374 Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 Err:511 15.00% 9.00% 17.50% 19.00% 15.00% 27.00% 13.00% 27.00% 11.00% 27.00% 9.00% 27.00% R&D Expense SG&A Expense Earnings Before Interest & Taxes Growth rate of sale Income tax rate assumed Price/Earnings Ratio Market Value of Equity 16.0 $37.990 Common Shares Outstanding Price per share 1,165,327 $32.60 06/30/07 Operating Margins 8.10% 06/30/08 7.90% 06/30/09 7.80% 06/30/10 7.70% 06/30/11 7.50% 06/30/12 8.40% 06/30/13 8.40% 06/30/14 8.40% 06/30/15 8.40%