Question 3 It is currently the end of 2019, and you have been asked to determine the projected cash flows of your firm, AT&T, next year for decision-making purposes. Below is some financial statement information that is loosely based on AT&T for the fiscal year ended December 31, 2019: Income Statement (in millions $) Year Ended December 31, 2019 Sales Cost of Sales Gross Income Selling, General, Administrative Expenses Depreciation Other Expenses Interest Expense Pre-Tax Income Tax Net Income 181,000 84,000 97,000 40,000 28,000 3,000 8,000 18,000 4,000 14,000 a) Construct a pro-forma income statement for December 31, 2020. Management assumes that sales will grow by 5 percent next year, and that "Other Expenses" will remain unchanged. Also assume that net property, plant, and equipment at the end of 2018 is valued at $480,000M, net property, plant, and equipment at the end of 2019 is valued at $500,000M, long-term debt at the end of 2018 is $166,000M, and long-term debt at the end of 2019 is valued at $173,000M. b) Suppose that management plans to issue a large dividend of $20,000M and purchase $32,000M worth of new buildings and equipment in 2020. Using this information and numbers from part (a), calculate the following: (1) projected net, property, plant and equipment at the end of 2020, and (2) projected shareholders' equity at the end of 2020. Assume that shareholders' equity at the end of 2019 equals $201,000M. c) Using numbers from parts (a) and (b), calculate the projected net funding need for AT&T in 2020. Management assumes that net working capital will remain unchanged. d) What is the projected free cash flow in 2020? If the free cash flow is projected to grow at 2% per year in perpetuity, and the discount rate for these free cash flows is 6%, then what is the present value in 2019 of all AT&T free cash flows? Question 3 It is currently the end of 2019, and you have been asked to determine the projected cash flows of your firm, AT&T, next year for decision-making purposes. Below is some financial statement information that is loosely based on AT&T for the fiscal year ended December 31, 2019: Income Statement (in millions $) Year Ended December 31, 2019 Sales Cost of Sales Gross Income Selling, General, Administrative Expenses Depreciation Other Expenses Interest Expense Pre-Tax Income Tax Net Income 181,000 84,000 97,000 40,000 28,000 3,000 8,000 18,000 4,000 14,000 a) Construct a pro-forma income statement for December 31, 2020. Management assumes that sales will grow by 5 percent next year, and that "Other Expenses" will remain unchanged. Also assume that net property, plant, and equipment at the end of 2018 is valued at $480,000M, net property, plant, and equipment at the end of 2019 is valued at $500,000M, long-term debt at the end of 2018 is $166,000M, and long-term debt at the end of 2019 is valued at $173,000M. b) Suppose that management plans to issue a large dividend of $20,000M and purchase $32,000M worth of new buildings and equipment in 2020. Using this information and numbers from part (a), calculate the following: (1) projected net, property, plant and equipment at the end of 2020, and (2) projected shareholders' equity at the end of 2020. Assume that shareholders' equity at the end of 2019 equals $201,000M. c) Using numbers from parts (a) and (b), calculate the projected net funding need for AT&T in 2020. Management assumes that net working capital will remain unchanged. d) What is the projected free cash flow in 2020? If the free cash flow is projected to grow at 2% per year in perpetuity, and the discount rate for these free cash flows is 6%, then what is the present value in 2019 of all AT&T free cash flows
