Question
Refine Cash Balance and Consider Capital Structure Consider the following actual FY2019 data and a forecast of FY2020 selected balance sheet and income statement numbers.
Refine Cash Balance and Consider Capital Structure
Consider the following actual FY2019 data and a forecast of FY2020 selected balance sheet and income statement numbers.
$ millionsFY2019 ActualFY2020 Est.Net sales$29,009$32,102Total assets14,59216,051Total liabilities8,7559,923Total equity5,8376,128Cash2,9184,378Marketable securities730730Treasury stock(2,189)(2,627)
a. Calculate the company's normal cash level as a percentage of sales.
Round answer to one decimal place (ex: 0.2345 = 23.5%)
Answer
%
b. Determine the amount of adjustment needed to return cash to a normal level. Is an adjustment warranted? If an adjustment is not warranted, enter zero as the amount needed to return cash to a normal level.
If the adjustment is a decrease, use a negative sign with your answer.
Round answer to the nearest whole number, if applicable.
$Answer
c.Compute the liabilities-to-equity ratio for both years. Round answers totwo decimal places.
FY2019 ActualAnswer
FY2020 Est.Answer
d. Adjust marketable securities so the forecasted cash balance is at its normal level. What affect does this have on the forecasted liabilities-to-equity ratio?
e. Adjust long-term debt so the forecasted cash balance is at its normal level. What effect does this have on the forecasted liabilities-to-equity ratio?
f. Adjust treasury stock so the forecasted cash balance is at its normal level. What effect does this have on the forecasted liabilities-to-equity ratio?
g. Adjust both long-term debt and marketable securities so as to adjust the forecasted cash balance. In so doing, make sure we preserve the company's liabilities-to-equity ratio. (Hint: Use "Goal Seek" under the "What-If Analysis" in Excel to determine the proportion of long-term debt versus treasury stock needed to ensure the forecasted liabilities-to-equity ratio remains at its historical level.)
h. Adjust both long-term debt and treasury stock so as to adjust the forecasted cash balance. In so doing, make sure we preserve the company's liabilities-to-equity ratio. (Hint: Use "Goal Seek" under the "What-If Analysis" in Excel to determine the proportion of long-term debt versus treasury stock needed to ensure the forecasted liabilities-to-equity ratio remains at its historical level.
For parts d through h, complete the table below.
- Do not use any negative signswith your answers.
- Round liabilities to equity ratios totwo decimal places.
d.g. Debt andh. Debt andMarketablef. TreasuryMarketableTreasury$ millionsSecuritiese. DebtStocksecuritiesstockTotal assetsAnswer
Answer
Answer
Answer
Answer
Total liabilitiesAnswer
Answer
Answer
Answer
Answer
Total equityAnswer
Answer
Answer
Answer
Answer
CashAnswer
Answer
Answer
Answer
Answer
Marketable securitiesAnswer
Answer
Answer
Answer
Answer
Treasury stockAnswer
Answer
Answer
Answer
Answer
Liabilities to equity ratioAnswer
Answer
Answer
Answer
Answer
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Multinational Business Finance
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
13th edition
132743469, 978-0132743464
