Refine Cash Balance and Consider Capital Structure

Consider the following actual FY$2019$ data and a forecast of FY$2020$ selected balance sheet and income statement numbers.

$ millions FY$2019$ Actual FY$2020$ Est.

Net sales $$29,009$ $$32,102$

Total assets $14,59216,051$

Total liabilities $8,7559,923$

Total equity $5,8376,128$

Cash $2,9184,378$

Marketable securities $730730$

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: $0\mathrm{.}2345=23\mathrm{.}5\%)$

Answer

$10$

$\%$

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

$(1,168)$

c$.$ Compute the liabilities$-$to$-$equity ratio for both years. Round answers to two decimal places.

FY$2019$ Actual Answer

$1\mathrm{.}5$

FY$2020$ Est. Answer

$1\mathrm{.}62$

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 signs with your answers.

Round liabilities to equity ratios to two decimal places.

d$.$ g$.$ Debt and h$.$ Debt and

Marketable f$.$ Treasury Marketable Treasury

$ millions Securities e$.$ Debt Stock securities stock

Total assets Answer

$14,883$

Answer

$14,883$

Answer

$0$

Answer

$0$

Answer

$0$

Total liabilities Answer

$9,923$

Answer

$11,091$

Answer

$0$

Answer

$0$

Answer

$0$

Total equity Answer

$6,128$

Answer

$6,128$

Answer

$0$

Answer

$0$

Answer

$0$

Cash Answer

$3,210$

Answer

$3,210$

Answer

$0$

Answer

$0$

Answer

$0$

Marketable securities Answer

$1,898$

Answer

$730$

Answer

$0$

Answer

$0$

Answer

$0$

Treasury stock Answer

$2,627$

Answer

$2,627$

Answer

$0$

Answer

$0$

Answer

$0$

Liabilities to equity ratio Answer

$1\mathrm{.}62$

Answer

$1\mathrm{.}81$

Answer

$0$

Answer

$0$

Answer

$0$