I need the solution for mini case chapter 14 ( Foundation of Finance Ninth Edition)

Q.1. Project net income for 1993 to 1997 using the present of sales method basaed on an average of this ratio for 1986 to 1992.

Q.2. Project total assets and current liability for 1993 to 1997 using the percent of sales method and your sales projections from part (a).

Q.3. Assuming that common equity increses only as a result of the retention of earnings and holding long term debt and preferred stock equal to its 1992 balance, project Phillips's discretionary financing needs for 1993 to 1997. ( hint: Assume that total assets and current liabilities very as a percentage of sales as per your answers to part (b). In addition, assume that Phillips plans to continue to pay its dividends of $ 1.12 per share in each of the next 5 years.)

Phillips Petroleum is an integrated oil and gas company with headquaters in Bartlesville, Oklahoma, where it was founded in 1917. The company engages in petroleum exploration and production worldwide. In addition, it engages in natural gas gathering and processing, as well as petroleum refining and marketing primarily in the United States. The company has three operating groups:Exploration and Production, Gas and Gas Lliquids, and Downstream Operations, which encompasses Petroleum Products and Chemicals.

In the mid -1980s, Phillips engaged in a major restructuring following two failed takeover attemts, one led by T. Boone Pickins and the other by Carl Ichan. The restructuring resulted in a $4.5 billion plan to exchange a package of cash and debt securities for roughly half the company's shares and to sell $2 billion worth of assets. Phillips's long term debt increased from $3.4 billion in late 1984 to a peak of $8.6 billion in April 1985.

During 1992, Phillips was able to strengthen its financial structure dramatically. Its subsidiary Phillips Gas Company completed an offering of $345 million of Series A 9.32% cumulative preferred stock. As a result of this action and prior years' debt reductions, the company lowered its long term debt-to-capital ratio over the preceding 5 years from 75 percent to 55 percent. In addition, the firm refinanced over a billion dollars of its debt at reduced rates. A company spokesman said, "Our debt to capital ratio is still on the high side, and we'll keep working to bring it down. But the cost of debt is manageable, and we are beyond the point where debt overshadows everything else we do."

Highlights of Phillips's financial condition from 1986 to 1992 are found in the accompanying table. These data reflect the company's financial restructuring following the downsizing and reorganization of Phillips's operations begun in the mid-1980s.

Summary Financial Information for Phillips Petroleum Corporation: 1986-1992 ( in Million of Dollars Except for Per Share Figures)

1986 1987 1988 1989 1990 1991 1992

Sale $10,018.00 $10,917.00 $11,490.00 $12,492.00 $13,975.00 $13,259.00 $12,140.00

Net

income 228.00 35.00 650.00 219.00 541.00 98.00 270.00

EPS 0.89 0.06 2.72 0.90 2.18 0.38 1.04

Current

assets 2,802.00 2,855.00 3,062.00 2,876.00 3,322.00 2,459.00 2,349.00

Total

assets 12,403.00 12,111.00 11,968.00 11,256.00 12,130.00 11,473.00 11,468.00

Current

liabilities 22,34.00 2,402.00 2,468.00 2,706.00 2,910.00 2,503.00 2,517.00

Long term

debt 8,175.00 7,887.00 7,387.00 6,418.00 6,505.00 6,113.00 5,894.00

Total

liabilities 10,409.00 10,289.00 9,855.00 9,124.00 9,411.00 8,716.00 8,411.00

Preferred

stock 270.00 205.00 0.00 0.00 0.00 0.00 359.00

Common

equity 1,724.00 1,617.00 2,113.00 2,132.00 2,719.00 2,757.00 2,698.00

Dividend

per share 2.02 1.73 1.34 0.00 1.03 1.12 1.12

Phillips's managers are currently developing its financial plans for 1993 through 1997 and want to develop a forecast of its financing requirement. As a first approximation, they have asked you to develop a model that can be used to make "ballpark" estimates of the firm's financing needs under the proviso that existing relationships found in the firm's financial statements remain the same over the period. Of particular interest is whether Phillips will be able to further reduce its reliance on debt financing. You may assume that Phillips's projected sales for 1993 through 1997 are as follows: $13,000; $13,500; $14,000; and $15,500.