Refine Cash Balance and Consider Capital Structure

Consider the following actual FY2017 data and a forecast of FY2018 selected balance sheet and income statement numbers.

$ millions	FY2017 Actual	FY2018 Est.
Net sales	$29,009	$32,102
Total assets	14,592	16,051
Total liabilities	8,755	9,923
Total equity	5,837	6,128
Cash	2,918	4,378
Marketable securities	730	730
Total liabilities (inc. long-term debt)	8,755	9,923
Treasury 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

0.00 points out of 1.00

% 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

0.00 points out of 1.00

For parts d through h, complete the table below.

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 companys 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 companys 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.)

Do not use any negative signs with your answers.

Round liabilities to equity ratios to two decimal places.

Hints

Part g. - Marketable securities is adjusted by $704. Debt is adjusted by $704.

Part h. - Debt is adjusted by $966. Treasury stock is adjusted by $170.

	d.			g. Debt and	h. Debt and
	Marketable		f. Treasury	Marketable	Treasury
$ millions	Securities	e. Debt	Stock	securities	stock
Total assets	$Answer 0.00 points out of 1.00	$Answer 0.00 points out of 1.00	$Answer 0.00 points out of 1.00	$Answer 0.00 points out of 1.00	$Answer 0.00 points out of 1.00
Total liabilities	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00
Total equity	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00
Cash	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00
Marketable securities	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00
Total liabilities (inc. LT debt)	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00
Treasury stock	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00
Liabilities	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00