PROBLEM 6-10

Given:
($ billions)
Net Property, Plant and Equipment (200 $ 3.507
Less: Depreciation Expense (2009) 0.727
Plus: Capex (2009) $ 0.72
Net Property, Plant and Equipment (200 $ 3.500

Solution:
 Solution Legend

= Value given in problem

= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or Solver cell
= Crystal Ball Input
= Crystal Ball Output
 PROBLEM 6-11

Given:
In Millions of $ 2015 2014 2013 2012
Cash & Equivalents $ 807,926 $ 560,960 $ 617,866 $ 658,255
Short Term Investments 178,994 197,408 182,442 614,513
Cash and Short Term Investments 986,920 758,368 800,308 1,272,768
Accounts Receivable 2,028,060 2,365,823 2,341,609 2,302,447
Inventories 1,456,271 1,441,024 1,450,258 1,262,308
Total Current Assets 4,471,251 4,565,215 4,592,175 4,837,523
Accounts Payable 1,138,770 1,601,413 1,584,959 1,416,367
Accrued Expenses 878,454 901,546 902,164 863,683
Notes Payable/Short Term Debt 1,038,633 789,285 979,675 821,126
Current Port. of LT Debt 531,635 386,879 303,214 248,028
Total Current Liabilities $ 3,587,492 $ 3,679,123 $ 3,770,012 $ 3,349,204

Solution a:
Operating Current Assets 3,484,331 3,806,847 3,791,867 3,564,755
Operating Current Liabilities 2,017,224 2,502,959 2,487,123 2,280,050
Operating Net Working Capital 1,467,107 1,303,888 1,304,744 1,284,705

Solution b:
Change in Operating Net Working Capita 163,219 (856) 20,039

Solution c:
 Solution Legend

= Value given in problem

= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or Solver cell
= Crystal Ball Input
= Crystal Ball Output
 PROBLEM 6-12 Solution Legend

Given (refer to problem 6-7):

Balance Sheet 2015
Cash and Marketable Securities $ 500 1.52%
Accounts Receivable 6,000 18.18%
Inventories 9,500 28.79%
Current Assets $ 16,000 48.48%
Net Property Plant & Equipment 17,000 51.52%
Total $ 33,000

Accounts Payable $ 7,200 21.82%

Short-term Debt 6,800 20.61%
Current Liabilities $ 14,000 42.42%
Long-term Debt 7,000 21.21%
Total Liabilities $ 21,000 63.64%
Total Owners' Equity 12,000 36.36%
Total Liabilities and Owners' Equity $ 33,000 100.00%

Income Statement 2015

Revenues $ 30,000
Cost of Goods Sold (20,000) -66.67%
Gross Profit $ 10,000 33.33%
Operating Expenses (8,000) -26.67%
Net Operating income $ 2,000 6.67%
Interest Expense (900) -3.00%
Earnings before Taxes $ 1,100 3.67%
Taxes (400) -1.33%
Net Income $ 700 2.33%

Projected growth rate in revenues 20%

Tax rate 40%

Solution:

Pro forma Income Statement 2016

Sales $ 36,000
Cost of Goods Sold (24,000)
Gross Profit $ 12,000
Operating Expenses (9,600)
Net Operating income $ 2,400
Interest Expense (900)
Earnings before Taxes $ 1,500
Taxes (600)
Net Income $ 900

Balance Sheet 2016

Cash and Marketable Securities $ 500
Accounts Receivable 7,200
Inventories 11,400
Current Assets $ 19,100
Net Property Plant & Equipment 20,400
Total $ 39,500

Accounts Payable $ 8,640

Short-term Debt 6,800
Current Liabilities $ 15,440
Long-term Debt 7,000
Total Liabilities $ 22,440
Total Owners' Equity 12,900
Total Liabilities and Owners' Equity $ 35,340

Additional Short-term Debt Needed $ -

 Solution Legend
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or Solver cell
= Crystal Ball Input
= Crystal Ball Output
 PROBLEM 6-13 Solution

Given (refer to problem 6-12):

Balance Sheet 2015
Cash and Marketable Securities $ 500 1.52%
Accounts Receivable 6,000 18.18%
Inventories 9,500 28.79%
Current Assets $ 16,000 48.48%
Net Property Plant & Equipment 17,000 51.52%
Total $ 33,000

Accounts Payable $ 7,200 21.82%

Short-term Debt 6,800 20.61%
Current Liabilities $ 14,000 42.42%
Long-term Debt 7,000 21.21%
Total Liabilities $ 21,000 63.64%
Total Owners' Equity 12,000 36.36%
Total Liabilities and Owners' Equity $ 33,000

Income Statement 2015

Revenues $ 30,000
Cost of Goods Sold (20,000) -66.67%
Gross Profit $ 10,000 33.33%
Operating Expenses (8,000) -26.67%
Net Operating income $ 2,000 6.67%
Interest Expense (900) -3.00%
Earnings before Taxes $ 1,100 3.67%
Taxes (400) -1.33%
Net Income $ 700 2.33%

Projected growth rate in revenues 20%

Tax rate 40%
NWC 8,300

Given (refer to problem 6-12):

Pro forma Income Statement 2016

Sales $ 36,000
Cost of Goods Sold (24,000)
Gross Profit $ 12,000
Operating Expenses (9,600)
Net Operating income $ 2,400
Interest Expense (900)
Earnings before Taxes $ 1,500
Taxes (600)
Net Income $ 900

Balance Sheet 2016

Cash and Marketable Securities $ 500
Accounts Receivable 7,200
Inventories 11,400
Current Assets $ 19,100
Net Property Plant & Equipment (Note A) 20,400
Total $ 39,500

Accounts Payable $ 8,640

Short-term Debt 6,800
Current Liabilities $ 15,440
Long-term Debt 7,000
Total Liabilities $ 22,440
Total Owners' Equity 12,900
Total Liabilities and Owners' Equity $ 35,340

Additional Short-term Debt Needed $ -

NWC 9,960
Solution:

Estimated Free Cash Flow 2016

EBIT $ 2,400
-Taxes (960)
NOPAT $ 1,440
+ Depreciation and Amortization $ 2,000
- Increase in Operating Net Working Capital (1,660)
- CapEx (5,400)
= Free Cash Flow $ (3,620)

Note A: Depreciation expense for 2016 = $ 2,000

 Solution Legend
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or Solver cell
= Crystal Ball Input
= Crystal Ball Output
 PROBLEM 6-14

Given
Firm free cash flows (years 1 - 5) $ 80
Cost of capital 12%
Terminal value multiple of cash flow (year 5) 5
5
Solution a:
Present value of cash flows for years 1-5 $ 288.38

Solution b:
Present value of the terminal value in year 5 $226.97

Solution c:
Enterprise Value = PV of interim cash flows + PV of Terminal Value $ 515.35
 Solution Legend

= Value given in problem

= Formula/Calculation/Analysis required
million = Qualitative analysis or Short answer required
= Goal Seek or Solver cell
= Crystal Ball Input
= Crystal Ball Output