Question 1. Using the data in the student spreadsheet file P&G.xlsx (to find the student spreadsheets for Financial Analysis with Microsoft Excel, fifth edition, go to www.cengage.com/finance/mayes) forecast the June 30, 2011, income statement and balance sheet for Procter & Gamble. Use the percent of sales method and the following assumptions: (1) Sales in FY 2011 will be $81,000; (2) The tax rate will be 27.26%; (3) Each item that changes with sales will be the five-year average percentage of sales; (4) The preferred dividend will be 219; and (5) The common dividend payout ratio will be 42% of income available to common stockholders.

a. What is the discretionary financing needed in 2011? Is this a surplus or deficit?

b. Assume that the DFN will be absorbed by long-term debt and that the total interest rate is 4.50% of LTD. Set up an iterative worksheet to eliminate it.

c. Create a chart of cash vs. sales and add a linear trend line. Is the cash balance a consistent percentage of sales? Does the relationship fit your expectations?

d. Use the regression tool to verify your results from part c. Is the trend statistically significant? Use at least three methods to show why or why not.

e. Turn off iteration, and use the Scenario Manager to set up three scenarios:

1) Best Case ? Sales are 5% higher than expected.

2) Base Case ? Sales are exactly as expected.

3) Worst Case ? Sales are 5% less than expected.

What is the DFN under each scenario?

Question 2. Use the same data as in Problem 1.

a. Recalculate the percentage of sales income statement, but this time use the TREND function to forecast other income and interest expense.

b. Recalculate the percentage of sales balance sheet, but this time use the TREND function to forecast cash, gross property plant and equipment, gross intangibles, and other long-term assets.

c. Do these new values appear to be more realistic than the original values? Does this technique make sense for each of these items? Might other income statement or balance sheet items be forecasted in this way?

Problem One Using the data in the student spreadsheet file P&G.xlsx forecast the June 30, 2011, income statement and balance sheet for Procter and Gamble. Use the percent of sales method and the following assumptions: (1) Sales in FY 2011 will be $81,000 (2) The tax rate will be 27.26%. (3) Each item that changes with sales will be the five-year average percentage of sales. (4) The preferred dividend will be 219. (5) The common dividend payout ratio will be 42% of income available to common stockholders. Questions: a. What is the discretionary financing needed in 2011? Is this a surplus or deficit? b. Assume that the DFN will be absorbed by long-term debt and that the total interest rate is 4.50% of LTD. Set up an iterative worksheet to eliminate it. c. Create a chart of cash vs. sales and add a linear trend line. Is the cash balance a consistent percentage of sales? Does the relationship fit your expectations? d. Use the regression tool to verify your results from part c. Is the trend statistically significant? Use at least three methods to show why or why not. e. Turn off iteration, and use the Scenario Manager to set up three scenarios: 1.) Best Case - Sales are 5% higher than expected. 2.) Base Case - Sales are exactly as expected. 3.) Worst Case - Sales are 5% less than expected. What is the DFN under each scenario? The Procter & Gamble Company Pro-Forma Annual Income Statement Jun-10 Jun-09 78,938 76,694 Total Revenue 37,919 38,690 Cost of Goods Sold 41,019 38,004 Gross Profit 24,998 22,630 Selling / General / Administrative Expense 16,021 15,374 Net Operating Income Jun-08 79,257 39,261 39,996 24,017 15,979 Jun-07 72,441 35,376 37,065 22,580 14,485 Jun-06 64,416 31,867 32,549 19,998 12,551 Interest Expense Other Non-Operating Expense (Income) Earnings Before Taxes Income Taxes Income Before Extraordinary Items Total Extraordinary Items Net Income 946 28 15,047 4,101 10,946 1,790 12,736 1,358 -397 14,413 3,733 10,680 2,756 13,436 1,467 -373 14,885 3,594 11,291 784 12,075 1,304 -481 13,662 4,000 9,662 678 10,340 1,120 -221 11,652 3,465 8,187 497 8,684 Preferred Dividends Income Available to Common Stocks 219 12,517 192 13,244 176 11,899 161 10,179 148 8,536 2,900.80 3.70 4.32 1.80 5,239.00 2,952.20 3.55 4.49 1.64 4,852.00 3,080.80 3.61 3.86 1.45 4,479.00 3,159.00 3.01 3.22 1.28 4,048.00 3,112.93 2.58 2.74 1.15 3,555.00 Basic Weighted Average Shares Basic EPS Excluding Extraordinary Items Basic EPS Including Extraordinary Items Common Dividends per Share Gross Dividends - Common Stock The Procter & Gamble Company Pro-Forma Annual Balance Sheet Jun-10 Jun-09 Assets Cash & Equivalents Short Term Investments Accounts Receivable Inventory Prepaid Expenses Other Current Assets, Total Total Current Assets Gross Plant and Equipment Accumulated Depreciation, Total Net Plant and Equipment Goodwill, Net Intangibles - Gross Accumulated Intangible Amortization Intangibles, Net Other Long Term Assets Total Assets Liabilities Accounts Payable Accrued Expenses Notes Payable / Short Term Debt Current Portion of Long Term Debt / Capital Leases Income Taxes Payable Other Current Liabilities Total Current Liabilities Long Term Debt Deferred Income Tax Minority Interest Pension Benefits - Underfunded Other Long Term Liabilities Total Long Term Liabilities Total Liabilities Owner's Equity Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Less: Treasury Stock and Other Total Equity Total Liabilities & Shareholders' Equity Total Common Shares Outstanding Jun-08 Jun-07 Jun-06 2,879 0 5,335 6,384 3,194 990 18,782 4,781 0 5,836 6,880 3,199 1,209 21,905 3,313 228 6,761 8,416 3,785 2,012 24,515 5,354 202 6,629 6,819 3,300 1,727 24,031 6,693 1,133 5,725 6,291 2,876 1,611 24,329 37,012 17,768 19,244 54,012 35,194 3,558 31,636 4,498 128,172 36,651 17,189 19,462 56,512 35,812 3,206 32,606 4,348 134,833 38,086 17,446 20,640 59,767 36,904 2,671 34,233 4,837 143,992 34,721 15,181 19,540 56,552 35,537 1,911 33,626 4,265 138,014 31,881 13,111 18,770 55,306 35,004 1,283 33,721 3,569 135,695 7,251 4,679 7,908 564 622 3,258 24,282 21,360 10,902 324 6,616 3,573 42,775 67,057 5,980 4,361 9,379 6,941 722 3,518 30,901 20,652 10,752 283 5,314 3,832 40,833 71,734 6,775 4,544 11,338 1,746 945 5,610 30,958 23,581 11,805 290 3,658 4,206 43,540 74,498 5,710 9,586 9,495 2,544 3,382 0 30,717 23,375 12,015 0 0 5,147 40,537 71,254 4,910 9,587 198 1,930 3,360 0 19,985 35,976 12,354 0 0 4,472 52,802 72,787 1,277 4,008 61,697 64,614 70,481 61,115 128,172 2,843.47 1,324 4,007 61,118 57,309 60,659 63,099 134,833 2,917.04 1,366 4,002 60,307 48,986 45,167 69,494 143,992 3,032.72 1,406 3,990 59,030 41,797 39,463 66,760 138,014 3,131.95 1,451 3,976 57,856 35,666 36,041 62,908 135,695 3,178.84 Problem Two Using the same data as in Problem 1: Questions: a. Recalculate the percentage of sales income statement, but this time use the TREND function to forecast other income and interest expense. b. Recalculate the percentage of sales balance sheet, but this time use the TREND function to forecast cash, gross property plant and equipment, gross intangibles, and other long-term assets. c. Do these new values appear to be more realistic than the original values? Does this technique make sense for each of these items? Might other income statement or balance sheet items be forecast in this way