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Chapter 10--Forecasting Financial Statements
Student: ___________________________________________________________________________
1. The objective of forecasting is to develop

A. stand-alone financial statements for future analysis.
B. a set of realistic expectations for future value-relevant payoffs.
C. a balance sheet and income statement that articulate.
D. financial statements for comparison to industry averages.
2. Nichols and Wahlen's 2004 study showed that superior forecasting provides the potential to earn superior
security returns. Nichols and Wahlen's findings indicate
A. that an investor could earn excess returns if the investor could predict accurately the sign of the change in
earnings one year ahead.
B. that an investor could earn excess returns if the investor could predict accurately the magnitude of the change
in earnings one year ahead.
C. that an investor could earn excess returns if the investor could predict accurately the sign of the change in
cash flows from operations one year ahead.
D. that an investor could earn excess returns if the investor could predict accurately the sign of the change in
working capital one year ahead.
3. Financial statement forecasts rely on additivity within financial statements and articulation across financial
statements. Given this information forecasts of future growth in inventory will most likely affect growth in
A. accounts receivables.
B. accounts payable.
C. depreciation.
D. salary payable.
statements. Given this information sales growth forecasts will most likely affect growth in
C. depreciation.
D. salary payable.
5. Projecting sales price changes depends on factors specific to the firm and its industry that might affect
demand and price elasticity. Which of the following types of companies would most likely be able to increase
prices?
A. A firm in a capital intensive industry that is expected to operate near capacity for the near future.
B. A firm in a capital intensive industry in which excess capacity exists.
C. A firm operating in an industry that is expected to experience technological improvements in its production
process.
D. A firm operating in an industry that is transitioning from the high growth to the maturity phase of its life
cycle.
demand and price elasticity. Which of the following companies would most likely not be able to increase prices
in the near future?
C. A firm operating in an industry that is expected to maintain its current production processes.
D. A firm operating in an industry that is transitioning from the introduction phase to the high growth phase of
its life cycle.
7. If a company has very low operating leverage (i.e. a low proportion of fixed costs in the cost structure) and
no changes are expected in operations
A. percentage change income statement percentages can serve as the basis for projecting operating expenses.
B. using common-size income statement percentages will overstate future projected operating expenses.
C. using common-size income statement percentages will understate future projected operating expenses.
D. using common-size income statement percentages can serve as a reasonable basis for projecting future
operating expenses.
8. When projecting operating expenses it is important to determine the mix of fixed and variable costs, one clue
suggesting the presence of fixed costs is
A. the percentage change in cost of goods sold in prior years is significantly greater than the percentage change
in sales.
B. the percentage change in cost of goods sold in prior years is significantly less than the percentage change in
sales.
C. low capital intensity in the production process.
D. the percentage change in sales in prior years is significantly greater than the percentage change in
receivables.
9. To ensure that the financial statements articulate, it is important that the change in the cash balance on the
balance sheet each year agrees with
A. the cash collections from sales in the projected income statement.
B. the cash provided by or used by operations on the projected statement of cash flows.
C. the net change in cash on the projected statement of cash flows.
D. the net change in working capital from period to period.
10. An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem
that
A. the method reduces the potential understatement inherent in average balances.
B. the method can introduce artificial volatility in ending balances.
C. the method results in understating inventory each year.
D. the method results in overstating inventory each year.
11. Sparky’s
Sparky’s sells auto parts. Provided below is selected financial information from the company’s 2012 annual
report:
Sparky’s Selected Financial Statement data

Fiscal year end 2012 2011
(amounts in thousands of dollars)
Net sales $125,410 $106,380
Cost of Goods Sold -104,090 -89,359
Gross Profit $21,320 $17,021
Inventory $31,353 $30,850
Using Sparky’s financial information what is the company’s inventory turnover ratio for 2012?
A. 0.69
B. 1.00
C. 3.35
D. 4.03
12. Sparky’s
report:

Net sales $125,410 $106,380
Gross Profit $21,320 $17,021
Inventory $31,353 $30,850
Sparky’s forecasts that sales will grow by 25% in 2013 and that its cost of goods sold to sales ratio will be the same in 2013 as it was in 2012. If
these assumptions prove correct and Sparky’s inventory turnover ratio for 2013 is 4.5 what will be the level of inventory at the end of 2013?
A. $31,353
B. $38,320
C. $40,000
D. $42,314
13. Card Sharks, Inc.
Card Sharks, Inc. sells baseball cards and other memorabilia. The company tries to maintain a cash balance
equivalent to approximately 30 days of sales. Sales in 2011 amounted to $352,412 and the company expects
growth in 2012 of 33% and in 2013 of 40%.
Given the information provided about Card Sharks, what is the company’s 2012 projected year-end cash
balance?
A. $966
B. $28,965
C. $15,623
D. $38,524
Given the information provided about Card Sharks, what is the company’s 2013 projected annual sales?
A. $656,191
B. $493,377
C. $187,483
D. $542,333
Given the information provided about Card Sharks, what is the company’s 2013 projected cash balance?
A. $53,934
B. $49,524
C. $21,873
D. $38,524
16. All of the following are the fundamental bases for future payoffs to equity shareholders and share value
except:
A. earnings
B. cash flows
C. dividends
D. depreciation
17. All of the following are true regarding the key principles of forecasting except:
A. Financial statement forecasts need not be comprehensive.
B. Forecasts should not manifest wishful thinking.
C. Financial statement forecasts must be internally consistent.
D. Financial statement forecasts must rely on assumptions that have external validity.
18. Which of the following statements does not apply to preventing “garbage in, garbage out” when
implementing a forecasting game plan?
A. The quality of the financial statement forecasts will depend on the quality of the
forecast assumptions.
B. The quantities forecasted within financial statement forecasts will depend on the quantity of the forecast
assumptions.
C. Analysts should justify and evaluate the most important assumptions that reflect the critical risk and success
factors of the firm’s strategy.
D. Analysts can impose reality checks on the assumptions by analyzing the forecasted financial statements
using ratios, common-size, and rate-of-change financial statements.
19. If a firm competes in a capital-intensive industry with excess capacity, all of the following are true except:
A. price increases will be less likely.
B. price increases will be more likely.
C. companies in competitive industries face high exit barriers.
D. companies in competitive industries may experience future price decreases.
20. Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders’ equity
has all of the following shortcomings except:
A. Individual assets, liabilities, and shareholders’ equity are not independent
of each other.
B. If a company experiences changing proportions for investments in securities among its assets, other asset
categories may show decreasing percentages in some years even though their dollar amounts are increasing.
C. Individual assets, liabilities, and shareholders’ equity are independent
of each other.
D. The common-size percentages do not permit the analyst to easily change
the assumptions about the future behavior of an individual asset or liability.
21. All of the following statements are true regarding ratios and forecasts except:
A. Ratios cannot confirm whether forecast assumptions will turn out to be correct.
B. Ratios can tell whether future sales growth was accurately captured.
C. Ratios cannot tell whether assumptions about future cash flows are realistic.
D. Ratios can tell whether growth rates for sales are consistent with past sales growth performance.
22. Projected financial statements can be used to assess the sensitivity of all of the following except:
A. a firm’s liquidity
B. a firm’s leverage to changes in assumptions
C. conditions under which the firm’s debt covenants may become binding
D. unusual patterns for projected total assets.
23. Common-size financial statements recast each statement item as

A. a percentage of the "bottom line."
B. a percentage using industry averages for the "base number."
C. a percentage using a base year number for each line item.
D. a percentage of some "base number" on the financial statement in question.
24. Financial ratio, percentage, and trend comparisons can be distorted by all of the following except:
A. aggressive revenue recognition practices.
B. the timing of asset purchases.
C. accounting for similar economic fundamentals in similar fashion.
D. the presence of nonrecurring items among the firms being analyzed.
25. All of the following are true regarding projected financial statements except:
A. The statement of cash flows is the most critical forecast since it reflects profitability rather than viability.
B. Preparing projected financial statements must incorporate a company's past performance records.
C. Preparing projected financial statements must incorporate a company's current performance records.
D. The income statement demonstrates immediate capability to service debt for banks or real potential for
growth in returns for venture capital.
26. As a firm progresses through the introduction life-cycle stage, what type of flexible account will it be more
likely to use to balance the balance sheet?
A. dividends.
B. growth related assets.
C. issued equity.
D. stock buy-backs.
27. As a firm progresses through the decline life-cycle stage, what type of flexible account will it be more likely
to use to balance the balance sheet?
A. issued debt.
C. issued equity.
D. stock buy-backs.
28. As a firm progresses through the growth life-cycle stage, what type of flexible account will it be more likely
A. issued debt.
B. paying down of debt.
C. dividends
D. stock buy-backs.
29. Financial statement forecasts are important analysis tools because forecasts of
______________________________ play a central role in valuation and many other financial decision
contexts.
________________________________________
30. Realistic expectations are ____________________ and ____________________.

________________________________________
31. Financial statement forecasts should rely on ____________________ within financial statements.
________________________________________
32. Financial statement forecasts should rely on _________________________ across financial statements.
________________________________________
33. A firm in a mature industry with little expected change in its market share might anticipate volume increases
equal to the growth rate in the _________________________ within its geographic markets.
________________________________________
34. Firms which have differentiated ___________________________________ for its products may have a
greater potential to increase prices.
________________________________________
35. It may be difficult to forecast sales for firms with _________________________ patterns because their
historical growth rates reflect wide variations in both direction and amount from year to year.
________________________________________
36. A company that has a cost structure in which its costs grow at a lesser rate than its sale enjoys
___________________________________.
________________________________________
37. To develop forecasts of individual assets, the analyst must first link historical growth rates for individual
assets to historical growth rates in sales or other ___________________________________.
________________________________________
38. The analyst can capture projected levels of operating activity by using ______________________________
to develop forecasts for individual assets.
________________________________________
assets to historical growth rates in ____________________ and other activity-based drivers.
________________________________________
40. For some types of assets, such as plant, property and equipment, asset growth typically
____________________ future sales growth.
________________________________________
41. For some types of assets, such as accounts receivable, asset growth typically ____________________ future
sales growth.
________________________________________
42. When projecting ____________________, the analyst should consider economy-wide factors such as the
expected rate of general price inflation in the economy.
________________________________________
43. A firm in transition from the high growth to the mature phase of its life cycle, or a firm with significant
technological improvements in its production processes, might expect increases in
______________________________ but decreases in sales prices per unit.
________________________________________
44. If a firm competes in a ___________________________________ industry that the analyst expects will
operate near capacity for the next few years, then price increases will be more likely.
________________________________________
45. Analysts must develop realistic expectations for the outcomes of future business activities.
To develop these expectations, analysts build a set of _____________________________.
________________________________________
46. Many times an analyst will compute ending accounts receivable or inventory balances using turnover ratios.
Discuss the advantage and disadvantage of using this methodology.
47. The authors set forth a seven-step forecasting game plan for preparing pro forma financial statements.
Discuss the seven steps necessary to prepare the three principal financial statements.
48. One problem caused by using turnover ratios to calculate asset balances is that it can lead to volatility in
projected ending balances. What might an analyst do to reduce the "sawtooth" pattern caused by using turnover
ratios?
49. The first step in the forecasting game plan is to project sales and other other operating activities. Sales
numbers are determined by both a volume component and price component. Projecting prices depends on
factors specific to the firm and its industry that might affect demand and price elasticity. For the following types
of firms discuss whether it would be likely that the firm would be able to raise future prices:
a. A firm in a capital-intensive industry that is expected to operate near capacity for the near future.
b. A firm in an industry that is expected to experience numerous technological improvements.
c. A firm with products which are transitioning from the growth to maturity phase of the product life cycle.
d. A firm that has established a well known brand name and image.
50. As an analyst it is important when projecting sales to make estimates about future changes in sales volume.
Compare how you might make estimates about future sales value for a company in a mature industry and one in
a rapidly growing industry.
51. In comparison of 2010 to 2009 performance, Watson Company's inventory turnover decreased substantially,
although sales and inventory amounts were essentially unchanged.
Required:
During a corporate meeting you heard the following managers postulate why the decreased inventory turnover
ratio happened. Which statement best explains the decreased inventory turnover ratio and why?
a. The marketing manager said: The decreased inventory turnover ratio is due to an increase in the cost of goods
sold.
b. The operations manager said: The decreased inventory turnover ratio is due to increased gross profit
percentage.
c. The credit manager said: The decreased inventory turnover ratio is due to a decrease in the accounts
receivable turnover.
d. The shipping manager said: The decreased inventory turnover ratio is due to decreased total asset turnover.
52.
Bargains, Inc. manufactures and markets toys. Selected income statement data from 2010 and 2009 appear
below:
Bargains, Inc.
Selected Income Statement data
Fiscal year end 12/31/2010 12/31/2009
Net sales $4,885,340 $4,637,924
Cost of Goods Sold -3,824,353 -3,638,990
Gross profit 1,060,987 998,934
Required:
a. An analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost by dividing the amount of the
change in the cost item between two years by the amount of the change in sales for those two years. The analyst can then multiply the
variable cost percentage times sales to determine the total variable cost. Subtracting the variable cost yields the fixed cost for that
particular item. Follow this procedure to determine the cost structure for costs of goods sold for Bargains, Inc.
b. Bargains, Inc. projects sales to grow at the following percentages in future years: 2011, 9 percent; 2012, 11 percent; 2013, 15 percent.
Using this information project sales, cost of goods sold and gross profit for Bargains, Inc. for 2011 to 2013.
53. Glad Rags, Inc. sells women's clothes. Provided below is selected financial statement information:
Glad Rags, Inc.

Selected Financial Statement data
Net sales $47,895 $42,589
Cost of Goods Sold (35,952) (32,588)
Gross profit $11,943 $10,001
Inventory $ 5,548 $ 4,948
Required:
a. Compute the inventory turnover ratio for 2010.
b. Clothes, Inc. projects that sales will grow at a compound rate of 7% per year for years 2011-2013 and that the cost of goods sold to sales
percentage will equal that realized in 2010. Compute the projected implied level of inventory at the end of 2011 to 2013.
54. Office Mart, Inc. sells numerous office supply products through a national distribution center. The company
has focused on maintaining a cash balance equivalent to approximately 14 days of sales. Sales in 2010
amounted to $125,980,673 and the company expects growth in 2011 of 11% and in 2012 of 15%. Given this
information determine Office Mart, Inc.'s projected year-end cash balance for 2011 and 2012.
55. The following information about Douglas Corp.’s Accounts Receivable and Sales are presented below:
Year
2012-Beginnin
g Balance of
A/R = $791M
Year 2012
-Ending
Balance of A/R
= $807M
Year 2012 -
Sales =
$3,002M
Assumptions:
Sales growth
will be equal to
6% per year
A/R turnover
will stay
constant
throughout the
forecast period
Required:
a. Using this information, forecast Douglas Corp.’s the growth in Accounts Receivable for years 2013-2017.
b. What problem does a constant A/R turnover assumption cause?
c. Provide a solution to the problem caused by a constant A/R turnover assumption.
56. The following balance sheet and income statement pertain to Goode Corp., using the following assumptions
complete a forecasted 2013 income statement:
Assumpt
ions for
2013:
Revenue growth rate 32%
COGS 64% of sales
Operating expenses 23% of sales
Interest expense 10% of
beginning
long-term
debt
Tax rate 35%
Goode Corp. Consolidated Statement of Income

(Thousands except per share amounts) 2012
Net Revenues $345,871

Cost of Revenue (226,546)
SG&A (83,009)
Operating Income 36,316
Interest Expense (484)
Income Before Income Taxes 35,832
Income taxes (12,541)
Net Income $23,291
Goode Corp Consolidated Balance Sheet

(Thousands) 2012
Current Assets
Cash and Equivalents 7,905
Merchandise inventory 6,308
Accounts receivable 6,614
PPE (including intangibles), net 39,458
Total Assets 60,285
Liabilities and Stockholders' Equity

Accounts payable 9,643
Long-term debt 13,500
Shareholders' Equity
Common stock and APIC 28,613
Retained earnings 8,529
Total Liabilities and Shareholders' Eq. 60,285
57. Simmons Company
These data represent a summary of your first-iteration forecast amounts for Year 1. Simmons uses dividends as
a flexible financial account.
Year + 1
Operating Income $ 58
Interest Expense 8
Income before Tax $ 50
Tax Provision (20.0 percent effective tax rate) 10
Net Income $ 40
Total Assets $200
Accrued Liabilities $ 43
Long-Term Debt $ 80
Common Stock, at par $ 20
Retained Earnings (at the beginning of Year 1) $ 34
A. See the information for Simmons Company.

Compute the amount of dividends you can assume that Simmons will pay in order to balance your projected balance sheet. Present the projected
balance sheet.
B. See the information for Simmons Company.

Now assume that Simmons pays common shareholders a dividend of $25 in Year +1. Also assume that Simmons uses long-term debt as a flexible
financial account, increasing borrowing when it needs capital and paying down debt when it generates excess capital. For simplicity, assume that
Simmons pays 10.0 percent interest expense on the ending balance in long-term debt for the year and that interest expense is tax deductible at
Simmons' average tax rate of 20.0 percent.
Present the projected income statement and balance sheet for Year +1. (Hint: Because of the circularity between interest expense, net income,
and debt, several iterations may be needed to balance the projected balance sheet and to have the projected balance sheet articulate with net income.
You may find it helpful to program a spreadsheet to work the iterative computations.)
58. Repair Specialists is a leading retailer of home improvement products. It operates large warehouse-style
stores. Despite declining sales and difficult economic conditions in 2009 and 2010, Repair Specialists continued
to invest in new stores. The following table provides summary data for Repair Specialists.
Repair Specialists 2009 2010

(amounts in millions except number of stores)
Number of stores 2,234 2,274
Sales revenues $77,349 $71,288
Inventory $11,731 $10,673
Capital expenditures, net $ 3,558 $ 1,847
Required
a. Use the preceding data for Repair Specialists to compute average revenues per store,
capital spending per new store, and ending inventory per store in 2010.
b. Assume that Repair Specialists will add 100 new stores by the end of Year 1. Use
the data from 2010 to project Year 1 sales revenues, capital spending, and ending
inventory. Assume that each new store will be open for business for an average of
one-half year in Year 1. For simplicity, assume that in Year 1, Repair Specialists’ sales
revenues will grow, but only because it will open new stores.
59. Techtronics is a leader in manufacturing computer chips, which is very capital-intensive. Because the
production processes in computer chip manufacturing require sophisticated and rapidly changing technology,
production and manufacturing assets in the chip industry tend to have relatively short useful lives.
The following summary information relates to Techtronics’ property, plant, and

equipment for 2009 and 2010:
Techtronics (amounts in millions) 2009 2010

Property, Plant, and Equipment, at cost $ 46,052 $ 48,088
Accumulated Depreciation $(29,134) $(30,544)
Property, Plant, and Equipment, net $ 16,918 $ 17,544
Depreciation Expense $ 4,360
Capital Expenditures, net $ 5,200
Required
Assume that Techtronics depreciates all property, plant, and equipment using the straight-line
depreciation method and zero salvage value. Assume that Intel spends $6,000 on new
depreciable assets in Year 1 and does not sell or retire any property, plant, and equipment
during Year 1.
a. Compute the average useful life that Techtronics used for depreciation in 2010.
b. Project total depreciation expense for Year 1 using the following steps: (i) project
depreciation expense for Year 1 on existing property, plant, and equipment at the
end of 2010; (ii) project depreciation expense on capital expenditures in Year 1
assuming that Intel takes a full year of depreciation in the first year of service; and
(iii) sum the results of (i) and (ii) to obtain total depreciation expense for Year 1.
c. Project the Year 1 ending balance in property, plant, and equipment, both at cost
and net of accumulated depreciation.
60. Arco is an integrated manufacturer in capital-intensive industry. Nuwak manufactures more

commodity-level products in the same industry at the lower end of the market and uses less capital-intensive
processes. The following data describe sales and cost of products sold for both firms for Years 3 and 4.
($ amounts in millions) Year 3 Year 4

Arco
Sales $4,042 $ 5,217
Cost of Products Sold 3,887 4,554
Gross Profit $ 155 $ 663
Gross Margin 3.8% 12.7%
Nuwak
Sales $6,266 $11,377
Gross Profit $ 269 $ 2,248
Industry analysts anticipate the following annual changes in sales for the next five years:
Year +1, 5 percent increase; Year +2, 10 percent increase; Year +3, 20 percent increase; Year +4, 10 percent decrease; Year +5, 20 percent decrease.
Required
a. The analyst can sometimes estimate the variable cost as a percentage of sales for a
particular cost (for example, cost of products sold) by dividing the amount of the
change in the cost item between two years by the amount of the change in sales for
those two years. The analyst can then multiply the variable-cost percentage times
sales to estimate the total variable cost. Subtracting the variable cost from the total
cost yields an estimate of the fixed cost for that particular cost item. Follow this procedure
to estimate the manufacturing cost structure (variable cost as a percentage of
sales, total variable costs, and total fixed costs) for cost of products sold for both Arco and Nuwak in Year 4.
b. Discuss the structure of manufacturing cost (that is, fixed versus variable) for each
firm in light of the manufacturing process and type of product produced.
c. Using the analysts’ forecasts of sales changes, compute the projected sales, cost of
products sold, gross profit, and gross margin (gross profit as a percentage of sales)
of each firm for Year +1 through Year +5.
d. Why do the levels and variability of the gross margin percentages differ for these two
firms for Year +1 through Year +5?
61. Saunders Corporation manufactures consumer electronics products. Selected income statement data for
2009 and 2010 follow (amounts in millions of dollars):
Saunders Corporation (amounts in millions of dollars) 2009 2010

Sales 8,296 8,871
Selling and Administrative Expenses (1,788) (1,714)
Operating Income before Income Taxes 618 867
Required
a. The analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost (for example, cost of goods sold) by dividing the
amount of the change in the cost item between two years by the amount of the change in sales for those two years. The analyst can then multiply total
sales by the variable-cost percentage to determine the total variable cost. Subtracting the variable cost from the total cost yields the fixed cost
component for that particular cost item. Follow this procedure to determine the cost structure (fixed cost plus variable cost as a percentage of sales)
for cost of goods sold for Saunders.
b. Repeat requirement a. for selling and administrative expenses.
c. Saunders Corporation discloses that it expects sales to grow at the following percentages
in future years: Year 1, 12 percent; Year 2, 10 percent; Year 3, 8 percent; Year 4, 6 percent. Project sales, cost of goods sold, selling and
administrative expenses, and operating income before income taxes for Saunders for Year 1 to Year 4 using the cost structure amounts derived in
requirements a. and b.
d. Compute the ratio of operating income before income taxes to sales for Year 1 through Year 4.
e. Interpret the changes in the ratio computed in requirement d. in light of the expected changes in sales.
62. Hart designs, manufactures, and markets toys in domestic and international markets. Sales during 2010
totaled $4,022 million. Accounts receivable totaled $655 million at the beginning of 2010 and $612 million at
the end of 2010.
Required
a. Use the average balance to compute the accounts receivable turnover ratio for Hart for 2010.
b. Hart generated a compound annual sales growth rate of 13.0 percent over the past two years. Assume that
Hart's sales will continue to grow at that rate each year for Year +1 through Year +5 and that the accounts
receivable turnover ratio each year will equal the ratio computed in requirement a. for 2010. Project the amount
of accounts receivable at year-end through Year +5 based on the accounts receivable turnover computed in
requirement a. Also compute the percentage change in accounts receivable between each of the year-ends
through Year +5.
c. Does the pattern of growth in your projections of Hart's accounts receivable seem
reasonable considering the assumptions of smooth growth in sales and steady turnover? Explain.
d. The changes in accounts receivable computed in requirement b. display the sawtooth pattern depicted in
Exhibit 10.5 in the text. Smooth the changes in accounts receivable by computing the year-end accounts
receivable balances for Year 1 through Year 5 using the compound annual growth rate in accounts receivable
between the end of 2010 and the end of Year +1 from requirement b.
e. Smooth the changes in accounts receivable using the compound annual growth rate in accounts receivable
between the end of 2010 and the end of Year +4 from requirement b. Apply this growth rate to compute
accounts receivable at the end of Year +1 through Year +5. Why do the amounts for ending accounts receivable
using the growth rate from requirement d. differ from those using the growth rate from this requirement?
f. Compute the accounts receivable turnover for 2010 by dividing sales by the balance in accounts receivable at
the end of 2010 (instead of using average accounts receivable as in requirement a). Use this accounts receivable
turnover ratio to compute the projected balance in accounts receivable at the end of Year +1 through Year +5.
Also compute the percentage change in accounts receivable between the year-ends for Year +1 through Year
+5.
63. Benson sells books through retail stores and on the Web. For a retailer like Benson, inventory is a critical
element of the business and it is necessary to carry a wide array of titles. In 2010, sales totaled $5,122 million
and cost of sales and occupancy totaled $3,541 million. Inventories constitute the largest asset on Benson’s
balance sheet, totaling $1,203 million at the end of 2010 and $1,358 million at the end of 2009.
Required
a. Compute the inventory turnover ratio for Benson for 2010.
b. Over the last two years, the number of Benson retail stores has remained fairly steady and sales have grown
at a compounded annual rate of 11.6 percent. Assume that the number of stores will remain constant and that
sales will continue to grow at an annual rate of 11.6 percent each year between Year +1 and Year +5. Also
assume that the future cost of goods sold to sales percentage will equal that realized in 2010 (which is very
similar to the cost of goods sold percentage over the past three years). Project the amount of inventory at the
end of Year +1 through Year +5 using the inventory turnover ratio computed in Part a. Also compute the
percentage change in inventories between each of the year-ends between 2010 and Year +5. Does the pattern of
growth in your projections of Benson inventory seem reasonable to you considering the assumptions of smooth
growth in sales and steady cost of goods sold percentages? Explain.
c. The changes in inventories in Part b display the sawtooth pattern depicted in Exhibit 10.5 of the text. Smooth
the changes in the inventory forecasts between 2010 and Year +5 using the compound annual growth rate in
inventories between the end of 2010 and the end of Year +5 implied by the projections in Part b. Does this
pattern of growth seem more reasonable? Explain.
d. Now suppose that instead of following the smoothing approach in Part c, you used the rate of growth in
inventory during 2010 to project future inventory balances at the end of Year +1 through Year +5. Use these
projections to compute the implied inventory turnover rates. Does this pattern of growth and efficiency in
inventory for Benson seem reasonable? Explain.
Chapter 10--Forecasting Financial Statements Key
1. The objective of forecasting is to develop

A. stand-alone financial statements for future analysis.
B. a set of realistic expectations for future value-relevant payoffs.
C. a balance sheet and income statement that articulate.
D. financial statements for comparison to industry averages.
2. Nichols and Wahlen's 2004 study showed that superior forecasting provides the potential to earn superior
security returns. Nichols and Wahlen's findings indicate
A. that an investor could earn excess returns if the investor could predict accurately the sign of the change in
earnings one year ahead.
B. that an investor could earn excess returns if the investor could predict accurately the magnitude of the change
in earnings one year ahead.
C. that an investor could earn excess returns if the investor could predict accurately the sign of the change in
cash flows from operations one year ahead.
D. that an investor could earn excess returns if the investor could predict accurately the sign of the change in
working capital one year ahead.
statements. Given this information forecasts of future growth in inventory will most likely affect growth in
C. depreciation.
D. salary payable.
statements. Given this information sales growth forecasts will most likely affect growth in
C. depreciation.
D. salary payable.
demand and price elasticity. Which of the following types of companies would most likely be able to increase
prices?
C. A firm operating in an industry that is expected to experience technological improvements in its production
process.
D. A firm operating in an industry that is transitioning from the high growth to the maturity phase of its life
cycle.
demand and price elasticity. Which of the following companies would most likely not be able to increase prices
in the near future?
C. A firm operating in an industry that is expected to maintain its current production processes.
D. A firm operating in an industry that is transitioning from the introduction phase to the high growth phase of
its life cycle.
7. If a company has very low operating leverage (i.e. a low proportion of fixed costs in the cost structure) and
no changes are expected in operations
A. percentage change income statement percentages can serve as the basis for projecting operating expenses.
B. using common-size income statement percentages will overstate future projected operating expenses.
C. using common-size income statement percentages will understate future projected operating expenses.
D. using common-size income statement percentages can serve as a reasonable basis for projecting future
operating expenses.
8. When projecting operating expenses it is important to determine the mix of fixed and variable costs, one clue
suggesting the presence of fixed costs is
A. the percentage change in cost of goods sold in prior years is significantly greater than the percentage change
in sales.
B. the percentage change in cost of goods sold in prior years is significantly less than the percentage change in
sales.
C. low capital intensity in the production process.
D. the percentage change in sales in prior years is significantly greater than the percentage change in
receivables.
9. To ensure that the financial statements articulate, it is important that the change in the cash balance on the
balance sheet each year agrees with
A. the cash collections from sales in the projected income statement.
B. the cash provided by or used by operations on the projected statement of cash flows.
C. the net change in cash on the projected statement of cash flows.
D. the net change in working capital from period to period.
10. An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem
that
A. the method reduces the potential understatement inherent in average balances.
B. the method can introduce artificial volatility in ending balances.
C. the method results in understating inventory each year.
D. the method results in overstating inventory each year.
11. Sparky’s
report:

Net sales $125,410 $106,380
Gross Profit $21,320 $17,021
Inventory $31,353 $30,850
Using Sparky’s financial information what is the company’s inventory turnover ratio for 2012?
A. 0.69
B. 1.00
C. 3.35
D. 4.03
12. Sparky’s
report:

Net sales $125,410 $106,380
Gross Profit $21,320 $17,021
Inventory $31,353 $30,850
Sparky’s forecasts that sales will grow by 25% in 2013 and that its cost of goods sold to sales ratio will be the same in 2013 as it was in 2012. If
these assumptions prove correct and Sparky’s inventory turnover ratio for 2013 is 4.5 what will be the level of inventory at the end of 2013?
A. $31,353
B. $38,320
C. $40,000
D. $42,314
Given the information provided about Card Sharks, what is the company’s 2012 projected year-end cash
balance?
A. $966
B. $28,965
C. $15,623
D. $38,524
Given the information provided about Card Sharks, what is the company’s 2013 projected annual sales?
A. $656,191
B. $493,377
C. $187,483
D. $542,333
Given the information provided about Card Sharks, what is the company’s 2013 projected cash balance?
A. $53,934
B. $49,524
C. $21,873
D. $38,524
16. All of the following are the fundamental bases for future payoffs to equity shareholders and share value
except:
A. earnings
B. cash flows
C. dividends
D. depreciation
17. All of the following are true regarding the key principles of forecasting except:
A. Financial statement forecasts need not be comprehensive.
B. Forecasts should not manifest wishful thinking.
C. Financial statement forecasts must be internally consistent.
D. Financial statement forecasts must rely on assumptions that have external validity.
18. Which of the following statements does not apply to preventing “garbage in, garbage out” when
implementing a forecasting game plan?
A. The quality of the financial statement forecasts will depend on the quality of the
forecast assumptions.
B. The quantities forecasted within financial statement forecasts will depend on the quantity of the forecast
assumptions.
C. Analysts should justify and evaluate the most important assumptions that reflect the critical risk and success
factors of the firm’s strategy.
D. Analysts can impose reality checks on the assumptions by analyzing the forecasted financial statements
using ratios, common-size, and rate-of-change financial statements.
19. If a firm competes in a capital-intensive industry with excess capacity, all of the following are true except:
A. price increases will be less likely.
B. price increases will be more likely.
C. companies in competitive industries face high exit barriers.
D. companies in competitive industries may experience future price decreases.
20. Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders’ equity
has all of the following shortcomings except:
A. Individual assets, liabilities, and shareholders’ equity are not independent
of each other.
B. If a company experiences changing proportions for investments in securities among its assets, other asset
categories may show decreasing percentages in some years even though their dollar amounts are increasing.
C. Individual assets, liabilities, and shareholders’ equity are independent
of each other.
D. The common-size percentages do not permit the analyst to easily change
the assumptions about the future behavior of an individual asset or liability.
21. All of the following statements are true regarding ratios and forecasts except:
A. Ratios cannot confirm whether forecast assumptions will turn out to be correct.
B. Ratios can tell whether future sales growth was accurately captured.
C. Ratios cannot tell whether assumptions about future cash flows are realistic.
D. Ratios can tell whether growth rates for sales are consistent with past sales growth performance.
22. Projected financial statements can be used to assess the sensitivity of all of the following except:
A. a firm’s liquidity
B. a firm’s leverage to changes in assumptions
C. conditions under which the firm’s debt covenants may become binding
D. unusual patterns for projected total assets.
23. Common-size financial statements recast each statement item as

A. a percentage of the "bottom line."
B. a percentage using industry averages for the "base number."
C. a percentage using a base year number for each line item.
D. a percentage of some "base number" on the financial statement in question.
24. Financial ratio, percentage, and trend comparisons can be distorted by all of the following except:
A. aggressive revenue recognition practices.
B. the timing of asset purchases.
C. accounting for similar economic fundamentals in similar fashion.
D. the presence of nonrecurring items among the firms being analyzed.
25. All of the following are true regarding projected financial statements except:
A. The statement of cash flows is the most critical forecast since it reflects profitability rather than viability.
B. Preparing projected financial statements must incorporate a company's past performance records.
C. Preparing projected financial statements must incorporate a company's current performance records.
D. The income statement demonstrates immediate capability to service debt for banks or real potential for
growth in returns for venture capital.
26. As a firm progresses through the introduction life-cycle stage, what type of flexible account will it be more
likely to use to balance the balance sheet?
A. dividends.
C. issued equity.
D. stock buy-backs.
27. As a firm progresses through the decline life-cycle stage, what type of flexible account will it be more likely
A. issued debt.
C. issued equity.
D. stock buy-backs.
28. As a firm progresses through the growth life-cycle stage, what type of flexible account will it be more likely
A. issued debt.
B. paying down of debt.
C. dividends
D. stock buy-backs.
29. Financial statement forecasts are important analysis tools because forecasts of
______________________________ play a central role in valuation and many other financial decision
contexts.
future payoffs
30. Realistic expectations are ____________________ and ____________________.

unbiased, objective or
objective, unbiased
31. Financial statement forecasts should rely on ____________________ within financial statements.
additivity
32. Financial statement forecasts should rely on _________________________ across financial statements.
articulation
33. A firm in a mature industry with little expected change in its market share might anticipate volume increases
equal to the growth rate in the _________________________ within its geographic markets.
population
34. Firms which have differentiated ___________________________________ for its products may have a
greater potential to increase prices.
unique characteristics
35. It may be difficult to forecast sales for firms with _________________________ patterns because their
historical growth rates reflect wide variations in both direction and amount from year to year.
cyclical sales
36. A company that has a cost structure in which its costs grow at a lesser rate than its sale enjoys
___________________________________.
economies of scale
assets to historical growth rates in sales or other ___________________________________.
activity-based drivers
38. The analyst can capture projected levels of operating activity by using ______________________________
to develop forecasts for individual assets.
turnover rates
assets to historical growth rates in ____________________ and other activity-based drivers.
sales
40. For some types of assets, such as plant, property and equipment, asset growth typically
____________________ future sales growth.
leads
41. For some types of assets, such as accounts receivable, asset growth typically ____________________ future
sales growth.
lag
42. When projecting ____________________, the analyst should consider economy-wide factors such as the
expected rate of general price inflation in the economy.
prices
43. A firm in transition from the high growth to the mature phase of its life cycle, or a firm with significant
technological improvements in its production processes, might expect increases in
______________________________ but decreases in sales prices per unit.
sales volume
44. If a firm competes in a ___________________________________ industry that the analyst expects will
operate near capacity for the next few years, then price increases will be more likely.
capital-intensive
45. Analysts must develop realistic expectations for the outcomes of future business activities.
To develop these expectations, analysts build a set of _____________________________.
financial statement forecasts
46. Many times an analyst will compute ending accounts receivable or inventory balances using turnover ratios.
Discuss the advantage and disadvantage of using this methodology.
One advantage of using this method is that it reduces the potential understatement inherent in average balances.
One disadvantage is that it may introduce artificial volatility in ending balances.

47. The authors set forth a seven-step forecasting game plan for preparing pro forma financial statements.
Discuss the seven steps necessary to prepare the three principal financial statements.
The seven steps are:
1. Project revenues from sales and other operating activities.

2. Project operating expenses and derive projected operating income.
3. Project the operating assets that will be necessary to support the level of operations projected in Steps 1 and 2. Also project the
operating liabilities that will be triggered by normal business operations.
4. Project the financial leverage, financial assets, and common equity capital that will be necessary to finance the net operating assets
projected in Step 3. In addition, determine the financing costs triggered by the financial liabilities and any investment income from
financial assets in the firm’s capital structure. From projected operating income from Step 2, subtract interest expense and add interest
income.
5. Project nonrecurring gains or losses (if any) and derive projected income before tax. Subtract the projected provision for income taxes
to derive the projected net income. Subtract expected dividends from net income to obtain the projected change in retained earnings.
Also project any other comprehensive income items.
6. Check whether the projected balance sheet is in balance. Repeat Steps 4 and 5 until it is in balance.
7. Derive the projected statement of cash flows from the projected income statements and the changes in the projected balance sheet
amounts.
48. One problem caused by using turnover ratios to calculate asset balances is that it can lead to volatility in
projected ending balances. What might an analyst do to reduce the "sawtooth" pattern caused by using turnover
ratios?
One thing an analyst might do is estimating the average rate of growth in the asset balance expected over a long
forecast period and then smooth each year-end balance using the average growth rate.
49. The first step in the forecasting game plan is to project sales and other other operating activities. Sales
numbers are determined by both a volume component and price component. Projecting prices depends on
factors specific to the firm and its industry that might affect demand and price elasticity. For the following types
of firms discuss whether it would be likely that the firm would be able to raise future prices:
a. A firm in a capital-intensive industry that is expected to operate near capacity for the near future.
b. A firm in an industry that is expected to experience numerous technological improvements.
c. A firm with products which are transitioning from the growth to maturity phase of the product life cycle.
d. A firm that has established a well known brand name and image.
Suggested answers:
a. In this case, due to capacity constraints the firm should be able to raise prices. Because the industry is capital intensive it is not likely
that a competitor could easily and quickly enter the market and steal market share by cutting prices.
b. This firm would probably not be able to raise prices due to efficiencies brought on by the technological change, although sales
volumes may increase.
c. This firm may find it more difficult to raise prices, as the product's sales reach a level in which demand is more stable. Thus, price
increases may result in consumers switching products, etc.
d. Firms with well known images and brand names may be better positioned to raise prices because consumers feel such brand loyalty.
50. As an analyst it is important when projecting sales to make estimates about future changes in sales volume.
Compare how you might make estimates about future sales value for a company in a mature industry and one in
a rapidly growing industry.
Suggested Solution from the text::

For a stable firm in a mature industry (for example, consumer foods), an analyst may conclude that the firm will
not significantly increase its market share, in which he or she might anticipate that sales volume with grow with
population growth in the firm’s geographic markets. For a firm that has increased its production in an industry
with high anticipated growth (for example, biotechnology or cell phones), the analyst can use the industry
growth rate coupled with the expansion in the firm’s capacity to project sales volume increases.
51. In comparison of 2010 to 2009 performance, Watson Company's inventory turnover decreased substantially,
although sales and inventory amounts were essentially unchanged.
Required:
During a corporate meeting you heard the following managers postulate why the decreased inventory turnover
ratio happened. Which statement best explains the decreased inventory turnover ratio and why?
a. The marketing manager said: The decreased inventory turnover ratio is due to an increase in the cost of goods
sold.
b. The operations manager said: The decreased inventory turnover ratio is due to increased gross profit
percentage.
c. The credit manager said: The decreased inventory turnover ratio is due to a decrease in the accounts
receivable turnover.
d. The shipping manager said: The decreased inventory turnover ratio is due to decreased total asset turnover.
The operations manager’s statement (b) best explains the decreased inventory turnover ratio. The gross profit
margin increased. Sales were unchanged, so the gross profit margin increase would be due to decreased cost of
goods sold. If inventory were also unchanged, the lower cost of goods sold would result in lower inventory
turnover.
52.
Bargains, Inc. manufactures and markets toys. Selected income statement data from 2010 and 2009 appear
below:
Bargains, Inc.
Selected Income Statement data
Fiscal year end 12/31/2010 12/31/2009
Net sales $4,885,340 $4,637,924
Cost of Goods Sold -3,824,353 -3,638,990
Gross profit 1,060,987 998,934
Required:
a. An analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost by dividing the amount of the
change in the cost item between two years by the amount of the change in sales for those two years. The analyst can then multiply the
variable cost percentage times sales to determine the total variable cost. Subtracting the variable cost yields the fixed cost for that
particular item. Follow this procedure to determine the cost structure for costs of goods sold for Bargains, Inc.
b. Bargains, Inc. projects sales to grow at the following percentages in future years: 2011, 9 percent; 2012, 11 percent; 2013, 15 percent.
Using this information project sales, cost of goods sold and gross profit for Bargains, Inc. for 2011 to 2013.
a.
Change in COGS $185,363
Change in sales $247,416
Variable cost percentage 75%
Fixed Costs:
2010 $160,348
b.
2011 2012 2013
Projected Growth Rate 9% 11% 15%
Net Sales 5,325,021 5,910,773 6,797,389
Cost of Goods Sold:

Fixed portion ($ 160,348) ($ 160,348) ($ 160,348)
Variable portion (75% of Sales) (3,993,766) (4,433,080) (5,098,042)
Gross Profit 1,170,907 1,317,345 1,538,999
53. Glad Rags, Inc. sells women's clothes. Provided below is selected financial statement information:
Glad Rags, Inc.

Selected Financial Statement data
Net sales $47,895 $42,589
Gross profit $11,943 $10,001
Inventory $ 5,548 $ 4,948
Required:
a. Compute the inventory turnover ratio for 2010.
b. Clothes, Inc. projects that sales will grow at a compound rate of 7% per year for years 2011-2013 and that the cost of goods sold to sales
percentage will equal that realized in 2010. Compute the projected implied level of inventory at the end of 2011 to 2013.
a. Inventory Turnover 6.85

I.T. = $35,952/.5(5,548 + 4,948) = 6.85
b.
Inventory Average Inventory Inventory Percentage
Sales COGS Turnover Inventories beg. Year end year change
2010 47,895.00 $35,952 6.85 5,248 4,948 5,548 12%
2011 51,247.65 $38,469 6.85 5,616 5,548 5,684 2%
2012 54,834.99 $41,161 6.85 6,009 5,684 6,334 11%
2013 58,673.43 $44,043 6.85 6,430 6,334 6,525 3%
54. Office Mart, Inc. sells numerous office supply products through a national distribution center. The company
has focused on maintaining a cash balance equivalent to approximately 14 days of sales. Sales in 2010
amounted to $125,980,673 and the company expects growth in 2011 of 11% and in 2012 of 15%. Given this
information determine Office Mart, Inc.'s projected year-end cash balance for 2011 and 2012.
Annual Average Days Sales Year-end

Sales Sales/Day in Cash Cash Bal.
2010 $125,980,673 Sales/365 Given Sales/Day *14
2011 $139,838,547 383,119 14 $5,363,670
2012 $160,814,329 440,587 14 $6,168,221
55. The following information about Douglas Corp.’s Accounts Receivable and Sales are presented below:
Year
2012-Beginnin
g Balance of
A/R = $791M
Year 2012
-Ending
Balance of A/R
= $807M
Year 2012 -
Sales =
$3,002M
Assumptions:
Sales growth
will be equal to
6% per year
A/R turnover
will stay
constant
throughout the
forecast period
Required:
a. Using this information, forecast Douglas Corp.’s the growth in Accounts Receivable for years 2013-2017.
b. What problem does a constant A/R turnover assumption cause?
c. Provide a solution to the problem caused by a constant A/R turnover assumption.
a.
2012 2013* 2014* 2015* 2016* 2017*

Sales $3,002 $3,182 $3,373 $3,575 $3,790 $4,017
Beg. A/R balance $791 807 887 909 995 1,023
Ending A/R balance $807 887 909 995 1,023 1,116
Sales Growth Rate 6%

A/R turnover 3.76
Growth in A/R 9.90% 2.48% 9.46% 2.81% 9.09%
b. The constant A/R turnover assumption results in the sawtooth forecasting problem.
c.
2012 2013* 2014* 201 2016* 201
5* 7*
Sales $3,002 $3,182 $3,373 $3,575 $3,790 $4,017
Beg. A/R balance $791 807 887 909 995 1,023
Ending A/R balance $807 887 909 995 1,023 1,116
Sales Growth Rate 6%

A/R turnover 3.76
Yearly Growth in A/R 9.90% 2.48% 9.46% 2.81% 9.09%
Compound Average growth in 6.69%

A/R=
A/R based on CAGR year 1 Y2* Y3* Y4* Y5* Y6*
Beginning Balance $791 807 861 919 980 1,046

Ending Balance $807 861 919 980 1,046 1,116
Growth in A/R 6.69% 6.69% 6.69% 6.69% 6.69%
One potential solution is to: not use the average balance sheet account balance when initially calculating turnover ratios-but rather base it on the
ending balance. Then forecast using average turnover ratios and then smooth changes using the compound average growth rate.
56. The following balance sheet and income statement pertain to Goode Corp., using the following assumptions
complete a forecasted 2013 income statement:
Assumpt
ions for
2013:
Revenue growth rate 32%
COGS 64% of sales
Operating expenses 23% of sales
Interest expense 10% of
beginning
long-term
debt
Tax rate 35%
Goode Corp. Consolidated Statement of Income
(Thousands except per share amounts) 2012
Net Revenues $345,871

Cost of Revenue (226,546)
SG&A (83,009)
Operating Income 36,316
Interest Expense (484)
Income Before Income Taxes 35,832
Income taxes (12,541)
Net Income $23,291
Goode Corp Consolidated Balance Sheet

(Thousands) 2012
Current Assets
Cash and Equivalents 7,905
Merchandise inventory 6,308
Accounts receivable 6,614
PPE (including intangibles), net 39,458
Total Assets 60,285
Liabilities and Stockholders' Equity

Accounts payable 9,643
Long-term debt 13,500
Shareholders' Equity
Common stock and APIC 28,613
Retained earnings 8,529
Total Liabilities and Shareholders' Eq. 60,285
Goode Corp. Consolidated Statements of Income

(Thousands except per share amounts) 2013 2012
Net Revenues $456,550 $345,871

SG&A (105,006) (83,009)
Operating Income 59,352 36,316
Interest Expense (1,350) (484)
Income Before Income Taxes 58,002 35,832
Income taxes (20,301) (12,541)
Net Income $37,701 $23,291
57. Simmons Company
These data represent a summary of your first-iteration forecast amounts for Year 1. Simmons uses dividends as
a flexible financial account.
Year + 1
Operating Income $ 58
Interest Expense 8
Income before Tax $ 50
Tax Provision (20.0 percent effective tax rate) 10
Net Income $ 40
Total Assets $200
Long-Term Debt $ 80
Common Stock, at par $ 20
Retained Earnings (at the beginning of Year 1) $ 34
A. See the information for Simmons Company.
Compute the amount of dividends you can assume that Simmons will pay in order to balance your projected balance sheet. Present the projected
balance sheet.
B. See the information for Simmons Company.

Now assume that Simmons pays common shareholders a dividend of $25 in Year +1. Also assume that Simmons uses long-term debt as a flexible
financial account, increasing borrowing when it needs capital and paying down debt when it generates excess capital. For simplicity, assume that
Simmons pays 10.0 percent interest expense on the ending balance in long-term debt for the year and that interest expense is tax deductible at
Simmons' average tax rate of 20.0 percent.
Present the projected income statement and balance sheet for Year +1. (Hint: Because of the circularity between interest expense, net income,
and debt, several iterations may be needed to balance the projected balance sheet and to have the projected balance sheet articulate with net income.
You may find it helpful to program a spreadsheet to work the iterative computations.)
A. This problem basically asks students to compute the plug to dividends to balance the balance sheet for
Simmons Company for Year +1. Students can compute the plug to dividends as follows:
Year +1 Balance Sheet Amounts before Plugging Dividends:

Total Assets $ 200
Long-Term Debt $ 80
Common Stock (at par) $ 20
Beginning Retained Earnings $ 34
Year +1 Net Income $ 40
Total Liabilities and Equity
before Plugging Dividends $ 217
Necessary plug to increase dividends to balance the balance sheet: $17.
Year +1 Balance Sheet Amounts after Plugging Dividends:

Total Assets $ 200
Long-Term Debt $ 80
Ending Retained Earnings $ 57 = ($34 + $40 – $17)
Total Liabilities and Equity $ 200
B. This problem asks students to compute the plug to long-term debt to balance the balance sheet for Simmons
Company for Year +1. This problem introduces circularity to balancing the balance sheet because the amount
of debt needed depends on net income, which is affected by the interest expense on the amount of debt
needed. Students should input these amounts into a spreadsheet and have the spreadsheet compute the amounts
iteratively. Students should obtain the following amounts:
Year +1
Projected Income Statement Amounts
Operating Income $ 58.00
Interest Expense –8.87
Income before Tax $ 49.13
Tax Provision (20.0 percent rate) –9.83
Net Income $ 39.30
Year +1
Projected Balance Sheet Amounts
Total Assets $ 200
Long-Term Debt $ 88.70
Retained Earnings (end of Year +1) $ 48.30 = ($34+$39.30–$25)
Total Liabilities and Shareholders’ Equity $ 200
58. Repair Specialists is a leading retailer of home improvement products. It operates large warehouse-style
stores. Despite declining sales and difficult economic conditions in 2009 and 2010, Repair Specialists continued
to invest in new stores. The following table provides summary data for Repair Specialists.
Repair Specialists 2009 2010

(amounts in millions except number of stores)
Number of stores 2,234 2,274
Sales revenues $77,349 $71,288
Inventory $11,731 $10,673
Capital expenditures, net $ 3,558 $ 1,847
Required
a. Use the preceding data for Repair Specialists to compute average revenues per store,
capital spending per new store, and ending inventory per store in 2010.
b. Assume that Repair Specialists will add 100 new stores by the end of Year 1. Use
the data from 2010 to project Year 1 sales revenues, capital spending, and ending
inventory. Assume that each new store will be open for business for an average of
one-half year in Year 1. For simplicity, assume that in Year 1, Repair Specialists’ sales
revenues will grow, but only because it will open new stores.
In this problem, students work through the computations to project revenue, capital expenditures, and ending
inventory for Repair Specialists, using 100 new stores as the driver of growth forecasts in Year +1. The
problem requires students to use the average number of stores to compute sales, the number of new stores to
compute capital expenditures, and the ending number of total stores to compute ending inventory. The data and
computations follow:
Repair Specialists (Data in Mil- REQ. B

lions Except Number of Stores) 2009 2010 Year +1 Computations
Number of Stores 2,234 2,274 2,374
New Stores 40 100
Average Stores 2,254 2,324
Sales Revenues $ 77,349 $ 71,288 $ 73,502 =2,324x$31.63

REQ. A Sales per Average Store $ 31.63 =$71,288/2,254
Inventory $ 11,731 $ 10,673 $ 11,134 =2,374 x $4.69

REQ. A Ending Inventory per Store $ 4.69 =$10,673/2,274
Capital Expenditures (Net) $ 3,558 $ 1,847 $ 4,618 = 100 x $46.18

REQ. A Capital Expenditures per
New Store $ 46.18 = $1,847/40
59. Techtronics is a leader in manufacturing computer chips, which is very capital-intensive. Because the
production processes in computer chip manufacturing require sophisticated and rapidly changing technology,
production and manufacturing assets in the chip industry tend to have relatively short useful lives.
The following summary information relates to Techtronics’ property, plant, and

equipment for 2009 and 2010:
Techtronics (amounts in millions) 2009 2010

Property, Plant, and Equipment, at cost $ 46,052 $ 48,088
Accumulated Depreciation $(29,134) $(30,544)
Property, Plant, and Equipment, net $ 16,918 $ 17,544
Depreciation Expense $ 4,360
Capital Expenditures, net $ 5,200
Required
Assume that Techtronics depreciates all property, plant, and equipment using the straight-line
depreciation method and zero salvage value. Assume that Intel spends $6,000 on new
depreciable assets in Year 1 and does not sell or retire any property, plant, and equipment
during Year 1.
a. Compute the average useful life that Techtronics used for depreciation in 2010.
b. Project total depreciation expense for Year 1 using the following steps: (i) project
depreciation expense for Year 1 on existing property, plant, and equipment at the
end of 2010; (ii) project depreciation expense on capital expenditures in Year 1
assuming that Intel takes a full year of depreciation in the first year of service; and
(iii) sum the results of (i) and (ii) to obtain total depreciation expense for Year 1.
c. Project the Year 1 ending balance in property, plant, and equipment, both at cost
and net of accumulated depreciation.
This problem gets students working through the computations to project property, plant, and equipment and
depreciation expense for Year +1 for Techtronics, a leading manufacturer of computer chips.
a. The average useful life that Techtronics used in 2010 for depreciation was 10.80 years, computed as
follows:
Useful Life 10.80 Years (= [($46,052 + $48,088)/2]/$4,360)
b. Depreciation expense for Year +1 on (i) existing property, plant, and equipment at the end of 2010; (ii)
capital expenditures in Year +1 assuming that there is $6,000 in expenditures on depreciable assets in Year +1
and assuming that Intel takes a full year of depreciation in the first year of service; and (iii) the sum of (i) and
(ii) to obtain total depreciation expense for Year +1:
Depreciation Expense on Existing PPE $ 4,453 (=$48,088/10.80 Years)

Depreciation Expense on Year +1 Capital
Expenditures $ 556 (= $6,000/10.80 Years)
Total Depreciation Expense $5,009 (= $4,453 + $556)
c. The Year +1 ending balance in property, plant, and equipment, both at cost and net of accumulated
depreciation:
Techtronics (Data in Millions) 2009 2010 Year +1 Computations

Property, Plant, and Equip., at Cost $ 46,052 $ 48,088 $ 54,088 (= $48,088 + $6,000)
Accumulated Depreciation -29,134 -30,544 -35,553 (= $-30,544 - $5,009)
Property, Plant and Equip. (Net) 16,918 17,544 18,535 (= $54,088 - $35,553)
Depreciation Expense 4,360 5,009 Computed above
Capital Expenditures (Net) 5,200 6,000 Assumed
60. Arco is an integrated manufacturer in capital-intensive industry. Nuwak manufactures more
commodity-level products in the same industry at the lower end of the market and uses less capital-intensive
processes. The following data describe sales and cost of products sold for both firms for Years 3 and 4.
($ amounts in millions) Year 3 Year 4

Arco
Sales $4,042 $ 5,217
Gross Profit $ 155 $ 663
Nuwak
Sales $6,266 $11,377
Gross Profit $ 269 $ 2,248
Industry analysts anticipate the following annual changes in sales for the next five years:
Year +1, 5 percent increase; Year +2, 10 percent increase; Year +3, 20 percent increase; Year +4, 10 percent decrease; Year +5, 20 percent decrease.
Required
a. The analyst can sometimes estimate the variable cost as a percentage of sales for a
particular cost (for example, cost of products sold) by dividing the amount of the
change in the cost item between two years by the amount of the change in sales for
those two years. The analyst can then multiply the variable-cost percentage times
sales to estimate the total variable cost. Subtracting the variable cost from the total
cost yields an estimate of the fixed cost for that particular cost item. Follow this procedure
to estimate the manufacturing cost structure (variable cost as a percentage of
sales, total variable costs, and total fixed costs) for cost of products sold for both Arco and Nuwak in Year 4.
b. Discuss the structure of manufacturing cost (that is, fixed versus variable) for each
firm in light of the manufacturing process and type of product produced.
c. Using the analysts’ forecasts of sales changes, compute the projected sales, cost of
products sold, gross profit, and gross margin (gross profit as a percentage of sales)
of each firm for Year +1 through Year +5.
d. Why do the levels and variability of the gross margin percentages differ for these two
firms for Year +1 through Year +5?
a. Compute the cost structure for each firm as follows:

Variable Cost per Dollar of Sales = Change in Cost of Products Sold/Change in
Sales
Total Variable Cost = Variable Cost per Dollar of Sales x Sales
Total Fixed Cost = Total Cost of Product Sold – Total Variable Cost
Arco:
Variable Cost per Dollar of Sales = ($4,554 – $3,887)/($5,217 – $4,042) =
$0.568
Total Variable Cost = $0.568 x $5,217 = $2,963 (65% of cost of products sold)
Total Fixed Cost = $4,554 – $2,963 = $1,591 (35% of cost of products sold)
Nuwak:
Variable Cost per Dollar of Sales = ($9,129 – $5,997)/($11,377 – $6,266)
= $0.613
Total Variable Cost = $0.613 x $11,377 = $6,974 (76% of cost of products sold)
Total Fixed Cost = $9,129 – $6,974 = $2,155 (24% of cost of products sold)
b. Arco is more capital-intensive than Nuwak and therefore has a higher proportion of fixed costs and a
lower proportion of variable costs in its cost structure. Arco also offers products at the higher end of the market
than Nuwak does and should, therefore, have higher selling prices and a higher gross margin. Both of these
factors explain the lower variable cost as a percentage of sales for Arco.
c. (Amounts in Millions)
Arco
Year +1 Year +2 Year +3 Year +4 Year +5
Sales $5,478 $6,026 $7,231 $6,508 $5,206
Less Cost of Products Sold:
Variable Costs (.568 of sales) 3,112 3,423 4,107 3,697 2,957
Fixed Costs 1,591 1,591 1,591 1,591 1,591
Total Costs of Products Sold 4,703 5,014 5,698 5,288 4,548
Gross Profit $ 775 $1,012 $1,533 $1,220 $ 658
Gross Margin % 14.1% 16.8% 21.2% 18.7% 12.6%
Nuwak
Year +1 Year +2 Year +3 Year +4 Year +5
Sales $11,946 $13,140 $15,768 $14,191 $11,353
Less Cost of Products Sold:
Variable Costs (.613 of sales) 7,323 8,055 9,666 8,699 6,959
Fixed Costs 2,155 2,155 2,155 2,155 2,155
Total Costs of Products Sold 9,478 10,210 11,821 10,854 9,114
Gross Profit $2,467 $2,931 $3,947 $3,337 $2,239
Gross Margin % 20.7% 22.3% 25.0% 23.5% 19.7%
d. The average gross margin of Arco is 16.7 percent, with a standard deviation of 3.5 percent. The average gross margin of Nuwak is 22.2
percent, with a standard deviation of 2.1 percent. Despite a higher variable cost per dollar of sales and larger total fixed costs, Nuwak generates a
higher gross margin than Arco because Nuwak’s much larger size creates economies of scale. For example, Nuwak’s fixed costs are 24 percent of
cost of products sold compared to Arco’s fixed costs, which amount to 35 percent of the cost of products sold. The larger variability of the gross
margin for Arco also occurs because of the higher proportion of fixed costs in its cost structure. Compared with Nuwak, Arco realizes greater
incremental economies of scale as sales increase but greater diseconomies of scale as sales decrease. For example, given the same rates of sales
growth over Years +1 to +3, Arco’s gross margin grows from 14.1 percent to 21.2 percent, whereas Nuwak’s gross margin percentage grows from
only 20.7 percent to 25.0 percent.
61. Saunders Corporation manufactures consumer electronics products. Selected income statement data for
2009 and 2010 follow (amounts in millions of dollars):
Saunders Corporation (amounts in millions of dollars) 2009 2010

Sales 8,296 8,871
Selling and Administrative Expenses (1,788) (1,714)
Operating Income before Income Taxes 618 867
Required
a. The analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost (for example, cost of goods sold) by dividing the
amount of the change in the cost item between two years by the amount of the change in sales for those two years. The analyst can then multiply total
sales by the variable-cost percentage to determine the total variable cost. Subtracting the variable cost from the total cost yields the fixed cost
component for that particular cost item. Follow this procedure to determine the cost structure (fixed cost plus variable cost as a percentage of sales)
for cost of goods sold for Saunders.
b. Repeat requirement a. for selling and administrative expenses.
c. Saunders Corporation discloses that it expects sales to grow at the following percentages
in future years: Year 1, 12 percent; Year 2, 10 percent; Year 3, 8 percent; Year 4, 6 percent. Project sales, cost of goods sold, selling and
administrative expenses, and operating income before income taxes for Saunders for Year 1 to Year 4 using the cost structure amounts derived in
requirements a. and b.
d. Compute the ratio of operating income before income taxes to sales for Year 1 through Year 4.
e. Interpret the changes in the ratio computed in requirement d. in light of the expected changes in sales.
Identifying the Cost Structure (Amounts in Millions of Dollars ).

a. Change in Cost of Goods Sold: ($6,290 – $5,890) $ 400
Change in Sales: ($8,871 – $8,296) $ 575
Variable Cost Percentage: $400/$575 .696
Fixed Cost: 2009, [$5,890 – (.696 x $8,296] $ 116
2010, [$6,290 – (.696 x $8,871] $ 116
b. Change in Selling and Administrative Expense: ($1,714 – $1,670) $ 44

Change in Sales: from Part a $ 575
Variable Cost Percentage: $44/$575 .077
Fixed Cost: 2009, [$1,670 – (.077 x $8,296)] 1,031
Fixed Cost: 2010, [$1,714 – (.077 x $8,871)] 1,031
c. and d. Year +1 Year +2 Year +3 Year+4

Sales $ 9,936 $10,929 $ 11,804 $12,512
Cost of Goods Sold:
Fixed (116) (116) (116) (116)
Variable (.696 of Sales) (6,915) (7,607) (8,216) (8,708)
Selling and Administrative Expense:
Fixed (1,031) (1,031) (1,031) (1,031)
(.077 of Sales) (765) (842) (909) (963)
Operating Income before Income
Taxes $ 1,109 $ 1,333 $ 1,532 $1,694
Operating Income before Income
Taxes/Sales 11.2% 12.2% 13.0% 13.5%
e. The percentage of operating income before income taxes to sales increases over time because Saunders
Corporation spreads its fixed operating costs over a larger sales volume. These increasing percentages do not
portray a full picture of the changes in the firm’s profitability. Although sales are projected to increase, they
increase at a continually decreasing rate. It is likely that Saunders Corporation would adjust its selling prices,
manufacturing costs, or selling and administrative costs in response to the projected declining rate of growth in
sales. Such adjustments would change the cost structure computed in requirements a. and b. above.
62. Hart designs, manufactures, and markets toys in domestic and international markets. Sales during 2010
totaled $4,022 million. Accounts receivable totaled $655 million at the beginning of 2010 and $612 million at
the end of 2010.
Required
a. Use the average balance to compute the accounts receivable turnover ratio for Hart for 2010.
b. Hart generated a compound annual sales growth rate of 13.0 percent over the past two years. Assume that
Hart's sales will continue to grow at that rate each year for Year +1 through Year +5 and that the accounts
receivable turnover ratio each year will equal the ratio computed in requirement a. for 2010. Project the amount
of accounts receivable at year-end through Year +5 based on the accounts receivable turnover computed in
requirement a. Also compute the percentage change in accounts receivable between each of the year-ends
through Year +5.
c. Does the pattern of growth in your projections of Hart's accounts receivable seem
reasonable considering the assumptions of smooth growth in sales and steady turnover? Explain.
d. The changes in accounts receivable computed in requirement b. display the sawtooth pattern depicted in
Exhibit 10.5 in the text. Smooth the changes in accounts receivable by computing the year-end accounts
receivable balances for Year 1 through Year 5 using the compound annual growth rate in accounts receivable
between the end of 2010 and the end of Year +1 from requirement b.
e. Smooth the changes in accounts receivable using the compound annual growth rate in accounts receivable
between the end of 2010 and the end of Year +4 from requirement b. Apply this growth rate to compute
accounts receivable at the end of Year +1 through Year +5. Why do the amounts for ending accounts receivable
using the growth rate from requirement d. differ from those using the growth rate from this requirement?
f. Compute the accounts receivable turnover for 2010 by dividing sales by the balance in accounts receivable at
the end of 2010 (instead of using average accounts receivable as in requirement a). Use this accounts receivable
turnover ratio to compute the projected balance in accounts receivable at the end of Year +1 through Year +5.
Also compute the percentage change in accounts receivable between the year-ends for Year +1 through Year
+5.
(In Millions).
a. Hart accounts receivable turnover: $4,022/[.5($655 + $612)] = 6.35.
b. Percentage
Accounts Average Ending Accounts Receivable Change in
Receivable Accounts Beginning End of Accounts
Sales Turnover Receivable of Year Year Receivable
Year +1 $4,543 6.35 $ 716 $ 612 $ 819 +33.8%
Year +2 $5,132 6.35 808 819 798 –2.6%
Year +3 $5,797 6.35 913 798 1,029 +29.0%
Year +4 $6,548 6.35 1,031 1,029 1,034 +0.5%
Year +5 $7,397 6.35 1,165 1,034 1,298 +25.5%
c. The changes in receivables exhibit the sawtooth pattern described in the chapter and in Exhibit
10.5. Such a pattern does not seem reasonable in light of the assumptions of smooth growth in sales and steady
accounts receivable turnover. The cause of the sawtooth pattern is the slight drop in receivables during 2010,
which causes the change in receivables in Year +1 to be unusually large to compensate; the same holds true for
Year +2, Year +3, and Year +4, and so on.
d. The increase in accounts receivable from $612 million at the of 2010 to $1,296 million at the end of Year
+5 represents a compound annual rate of growth of 16.2 percent over those five years. Using this rate of
growth to project a smooth pattern of receivables growth leads to the following projections:
Ending Accounts Receivable

Year +1 $ 612 x 1.162 = $ 711
Year +2 $ 711 x 1.162 = $ 826
Year +3 $ 826 x 1.162 = $ 960
Year +4 $ 960 x 1.162 = $ 1,116
Year +5 $ 1,116 x 1.162 = $ 1,297
e. An increase in accounts receivable from $612 million to $1,034 million over four years represents a
compound annual rate of growth of 14.0 percent.
Ending Accounts Receivable

Year +1 $ 612 x 1.14 = $ 698
Year +2 $ 698 x 1.14 = $ 795
Year +3 $ 795 x 1.14 = $ 907
Year +4 $ 907 x 1.14 = $ 1,034
Year +5 $ 1,034 x 1.14 = $ 1,178
The difference in growth rate in Parts d. and e. results from using an ending accounts receivable date that is
an upward “sawtooth” (Part c.) and a downward “sawtooth” (Part d.). Observe from Part b. that accounts
receivable increased 0.5 percent during Year +4 (a down “sawtooth”) but increased 25.3 percent during Year +5
(an up “sawtooth”).
f. Turnover based on year-end accounts receivable balance: $4,022/$612 = 6.57

Accounts Accounts Receivable Change in
Receivable Beginning End of Accounts
Sales Turnover of Year Year Receivable
Year +1 $4,543 6.57 $ 612 $ 691 13.0%
Year +2 $5,132 6.57 691 781 13.0%
Year +3 $5,797 6.57 781 882 13.0%
Year +4 $6,548 6.57 882 997 13.0%
Year +5 $7,397 6.57 997 1,126 13.0%
63. Benson sells books through retail stores and on the Web. For a retailer like Benson, inventory is a critical
element of the business and it is necessary to carry a wide array of titles. In 2010, sales totaled $5,122 million
and cost of sales and occupancy totaled $3,541 million. Inventories constitute the largest asset on Benson’s
balance sheet, totaling $1,203 million at the end of 2010 and $1,358 million at the end of 2009.
Required
a. Compute the inventory turnover ratio for Benson for 2010.
b. Over the last two years, the number of Benson retail stores has remained fairly steady and sales have grown
at a compounded annual rate of 11.6 percent. Assume that the number of stores will remain constant and that
sales will continue to grow at an annual rate of 11.6 percent each year between Year +1 and Year +5. Also
assume that the future cost of goods sold to sales percentage will equal that realized in 2010 (which is very
similar to the cost of goods sold percentage over the past three years). Project the amount of inventory at the
end of Year +1 through Year +5 using the inventory turnover ratio computed in Part a. Also compute the
percentage change in inventories between each of the year-ends between 2010 and Year +5. Does the pattern of
growth in your projections of Benson inventory seem reasonable to you considering the assumptions of smooth
growth in sales and steady cost of goods sold percentages? Explain.
c. The changes in inventories in Part b display the sawtooth pattern depicted in Exhibit 10.5 of the text. Smooth
the changes in the inventory forecasts between 2010 and Year +5 using the compound annual growth rate in
inventories between the end of 2010 and the end of Year +5 implied by the projections in Part b. Does this
pattern of growth seem more reasonable? Explain.
d. Now suppose that instead of following the smoothing approach in Part c, you used the rate of growth in
inventory during 2010 to project future inventory balances at the end of Year +1 through Year +5. Use these
projections to compute the implied inventory turnover rates. Does this pattern of growth and efficiency in
inventory for Benson seem reasonable? Explain.
(Assume Amounts in Thousands).
a. Benson inventory turnover: $3,541/[.5($1,358 + $1,203)] = 2.77
b. Cost of Inventories Percentage

Goods Inventory Average Beginning End of Change in
Sold Turnover Inventories of Year Year Inventories
Year +1 $3,952 2.77 $ 1,427 $ 1,203 $ 1,655 +37.6%
Year +2 $4,410 2.77 $ 1,595 $ 1,655 $ 1,535 –7.3%
Year +3 $4,922 2.77 $ 1,780 $ 1,535 $ 2,025 +32.0%
Year +4 $5,493 2.77 $ 1,986 $ 2,025 $ 1,947 –3.8%
Year +5 $6,130 2.77 $ 2,217 $ 1,947 $ 2,486 +27.6%
These projections exhibit substantial volatility in ending inventory, which is unrealistic considering the
assumptions of smooth growth in sales and costs of sales.
c. The above projections indicate an increase in inventories from $1,203 to $2,486 over five years,
representing a compound annual rate of growth of 15.62 percent [= ($2,486/$1,203)^(1/5)–1].
Ending Inventories
Year +1 $ 1,203 x 1.1562 = $1,391
Year +2 $1,391 x 1.1562 = $1,608
Year +3 $1,608 x 1.1562 = $1,859
Year +4 $1,859 x 1.1562 = $2,150
Year +5 $2,150 x 1.1562 = $2,486
These smoothed inventory forecasts more closely match the assumptions of smooth growth in sales and costs of
goods sold.
d. Benson inventories actually decreased from $1,358 at the end of 2009 to $1,203 at the end of 2010, a
decline of 11.4 percent. Using this growth rate leads to the following projections of inventories and implied
turnover rates:
Ending Inventories Implied Turnover

Year +1 $1,203 x 0.886 = $1,066 $3,952/[($1,203 + $1,066)/2] = 3.48
Year +2 $1,066 x 0.886 = $944 $4,410/[($1,066 + $944)/2] = 4.39
Year +3 $944 x 0.886 = $836 $4,922/[($944 + $836)/2] = 5.53
Year +4 $836 x 0.886 = $741 $5,493/[($836 + $741)/2] = 6.97
Year +5 $741 x 0.886 = $656 $6,130/[($741 + $656)/2] = 8.77
This problem demonstrates that simply assuming that past growth rates will persist can lead to unreasonable
forecasts. In this case, it is highly unlikely that Benson can continue to decrease inventory while at the same
time generating an increase in sales. It would be very unusual for a retail bookstore such as Benson to be able
to achieve 8.77 inventory turns a year by Year +5.
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looked like a castle of the demons. Just in a ravine on the border of
this wild scene of natural revolutions, my companion had the good
luck to find some very interesting fossils, particularly that beautiful
specimen which after him has been called Exogyra Overwegi; but
our zeal had carried us too far, and it grew dark as we commenced
our return, so that we had some difficulty in groping our way back to
our encampment, where we arrived weary and fatigued, after having
caused our people a good deal of apprehension.
We were roused from our refreshing sleep as early as two o’clock
after midnight; but this was a mere sham of our camel-drivers, who
feigned making up for the loss of yesterday, and after all we did not
get off early. Our road carried us from wady to wady, which were
generally separated from each other by a defile, occasionally
presenting some difficulty of passage. We left a castle of Roman
workmanship, as it seemed, in the distance to the left, and further on
to the right a slight stone wall called Hakl el Urínsa, dating from the
petty wars between the Arab tribes. We had already passed a few
small ethel-bushes; but now we came to a most venerable-looking
old tree called Athelet Si Mohammed fi Useát, spreading out its
weather-beaten branches to a considerable distance: under this I sat
down quietly for a while, waiting for our people, who were still
behind. The caravan at length came up; and continuing our march,
we soon passed on our right hand the chapel of a great Merábet of
the Welád Bu-Séf, called Si Rashedán. The Welád Bu-Séf in general
enjoy great authority with the other tribes for their sanctity of life and
purity of manners; they allow no stranger to come near their villages,
but pitch a tent for him at a distance, and treat him well.
The Welád Bu-Séf are remarkable for the excellent breed of their
camels, which they treat almost as members of their families. It is
curious that this tribe, intent upon right and justice, has waged war
incessantly from ancient times with the Urfílla, the most warlike and
violent of the tribes of these regions. It is difficult to make out
whether they are related to the Welád Bu-Séf of the western part of
the desert, who are likewise distinguished by their peculiar manners,
but who it seems would scruple, on religious grounds, to call a man
ʿAbd eʾ nebi (Slave of the Prophet), which is the name of the
ancestor of the Eastern Bu-Séf.
Emerging from a defile, upon high ground, early in the afternoon,
we obtained a view over Wady Zémzem, one of the most celebrated
valleys of this part of North Africa. It runs in general from west to
east-north-east, and is furnished with a great many wells, the most
famous of which are el Abiadh, Sméla, Nákhala, Urídden, Halk el
Wady, and, a little further down, Téder. In half an hour we encamped
in the valley, full of herbage and with a goodly variety of trees. A
caravan coming from the natron-lakes, and carrying their produce to
Tripoli, was here encamped. I could not withstand the temptation of
ascending, in the afternoon, a projecting eminence on the south side
of the valley, which was broken and rent into a great variety of
precipices and ravines; but its summit, being on a level with the
plateau, did not afford me such a distant view as I had expected. The
cliff was formed of strata of marl and gypsum, and contained many
fossil shells.
As soon as we left the bottom of the valley, the path, which
became rugged and stony, led up the southern cliffs, went round the
east side of the conspicuous promontory, and then continued to wind
along between the slopes of the higher level of the plateau. A hill,
distinguished from among the surrounding heights by the peculiar
shape of its cone, has here received the significant name Shúsh el
ʿabíd—the Slaves’ Cap. A little further on, the roads separate, that to
the left leading along the principal branch of the valley to the little
town Gharíya, while the eastern goes to the well Taboníye. One
might suppose that in a desolate country like this, and just at the
entrance into a desert tract of great extent, the caravans would
gladly avail themselves of those abodes of life which still exist: but
this is not the case; they avoid them intentionally, as if a curse were
attached to them, and those places, of course, fall every day more
and more into decay. After a little consultation, the path by Taboníye
was thought preferable, and we took it. The rough and stony
character of the country ceased, and we gradually entered a fine
valley, called Wady Tolágga, richly clothed with a variety of trees and
bushes, such as the sidr, the ethel, the ghurdok, and several others.
After meeting here with a caravan, we caught the gladdening and
rare sight of an Arab encampment, belonging to the Urínsa, and
obtained some milk. Without crossing any separation or defile, but
always keeping along the same valley, we approached the well
Taboníye. But near it the vegetation is less rich; the soil is intermixed
with salt, and covered with a peculiar kind of low tree called by the
present inhabitants of the country, frʿo,—a term which in pure Arabic
would only mean “a branch.”
While our people were busily
employed pitching the tents, I went at
once to examine a monument which,
for the last hour of our march, had
stood as a landmark ahead of us. I
reached it at the distance of a mile
and a quarter from our encampment,
over very stony and rugged ground. It
was well worth the pains I had taken;
for, though it is less magnificent than
the monument in West Tagíje, its
workmanship would excite the interest
of travellers, even if it were situated in
a fertile and well-inhabited country,
and not in a desolate wilderness like
this, where a splendid building is of
course an object of far greater
curiosity. It is a sepulchre about
twenty-five feet high, and rising in
three stories of less slender
proportions than the monument above
described, and is probably of a later
period. The sketch on the preceding
page will suffice to give an exact idea
of it.
Near this is another sepulchre, occupying a more commanding
situation, and therefore probably of older date, but it is almost
entirely destroyed; and a third one in an equally ruinous state, but of
larger proportions than either, is seen further south-east. These
monuments serve to show that the dominion of the Romans in these
regions was not of momentary duration, but continued for a length of
time, as the different styles of the remains clearly proves. It may be
presumed that no common soldier could pretend to the honour of
such a tomb; and it is probable that these sepulchres were destined
to contain the earthly remains of some of the consecutive governors
or officers stationed at the neighbouring place, which I shall soon
describe.
Like a solitary beacon of civilization, the monument rises over this
sea-like level of desolation, which, stretching out to an immense
distance south and west, appears not to have appalled the
conquerors of the ancient world, who even here have left behind
them, in “lithographed proof,” a reminiscence of a more elevated
order of life than exists at present in these regions. The flat valley
below, with its green strip of herbage, stretches far into the stony
level; and beyond, north-eastwards, the desolate waste extends
towards Gharíya.
I returned to the encampment, which meanwhile had sprung up on
the open space round the well, and was anxious to quench my thirst
with a draught of the precious liquid; but the water was rather salt,
and disagreed with me so long as I continued to use it,—that is, for
the next seven days. That we might make good use of our leisure
hours, all three of us went the next day to Gharíya, or rather Gharíya
el gharbíya—i.e., western, to distinguish it from the more distant
eastern place of the same name.
Cheerfully as we set forward, we were heartily glad when, after a
three hours’ march, we saw the northern tower of the place become
visible over the monotonous stony plain, the wide and unbounded
expanse of which seemed to indicate something above a single
day’s excursion. After having also descried the half-ruined dwellings
of the village, we were eagerly looking out for the palm-grove, when
we suddenly reached the brink of a deep ravine, in which, on our left,
the fresh green plantation started forth, while all around was naked
and bare. We crossed the ravine, leaving the grove on our left, and
ascended the opposite cliffs towards the ruined cluster of miserable
cottages, when, having traversed the desolate streets, we encamped
outside the Roman gate, the massive and regular architecture of
which formed a remarkable contrast to the frail and half-ruined
structures of the village. We were greatly astonished to find such a
work here.
It has but little resemblance to the Roman castle or station at
Bonjem, such as it is seen in Captain Lyon’s drawing; for while the
latter represents a single gateway flanked by two quadrangular
towers, the building at Gharíya consists of three archways, flanked
by towers with receding walls. The two smaller gateways have been
almost entirely filled with rubbish; the upper layer likewise is gone,
and only those stones which form the arch itself are preserved, the
centre stone above the principal arch, bearing the inscription “PRO.
AFR. ILL.” (provincia Africæ illustris), encircled by a coronal, while
that above the eastern side-gate is ornamented with a large
sculpture, the lower part of which it is difficult to make out distinctly,
except the trace of a chariot and a person in curious attire following
it, while the upper part represents two eagles in a sitting posture,
with half-extended wings, holding a coronal, and at each end a
female genius, in a flying posture, stretching out a larger and a
smaller coronal. Besides this, and a few Berber names, there is no
inscription now on the building; but an inscription found in another
place, which I shall soon mention, and which was probably originally
placed over the small archway on the right, seems to leave no doubt
that this fortification dates from the time of Marc. Aurel. Severus
Antoninus, and if not built in the years between 232 and 235 after
Christ, at least was then in existence.
As the ground-plan, which is here subjoined, evidently shows, this
is not by itself a complete building, and could only afford quarters to
a very limited number of soldiers acting as a guard: in fact it can only
be the well-fortified entrance into the Roman station; but of the
station itself I was unable to discover any traces, though a great
quantity of stones from some building lie scattered about in the
village. The only ancient building which I was able to discover,
besides the gate, was a cistern at the north-west corner of the wall,
near the slope into the wady, which is here very precipitous. It was
probably 60 ft. long, for at 30 ft. there is an arch dividing it; but one
half of it, except a space of about 8 ft., has been filled with rubbish:
its breadth is 5 ft. 3½ in. Perhaps the whole fortification was never
finished; the inner edge of the stones would seem to intimate that not
even the gateway received its entire ornament.
While I was busy making a drawing of the ruins, Overweg, who, in
order to measure the elevation of the place by boiling water, had
directed his steps to a rising ground at some distance north of the
village, which was crowned with a tower, sent to inform me that on
the tower was a large Roman inscription, which he was unable to
make out; and as soon as I had finished my sketch I went thither. It is
a round Arab tower, only two large ancient stones having been made
use of as jambs, while a large slab, covered with an inscription, is
used as an impost, owing to which circumstance the inhabitants
generally regard even the tower as a Christian or Roman building.
The inscription, which was evidently taken from the fortified station,
is 32⁷⁄₁₂ in. long, and 15¹⁰⁄₁₂ in. high, and consists of nine lines. It has
been read and interpreted by Mr. Hogg in the following manner.
I(mperatori) Caes(ari) M. Aurelio Severo Alexandro P(atri)

P(atriæ) P(i)o Felici Aug(usto) Et pagus et senatus et
castr(um) [or castrum munitum] et municipium ... d. d.; poni
curavit Severianæ P. Nero situs vexillationis leg(ioni)s IV.
S(cythicæ); [or legionis XXI. Victricis Severianæ] dec(urio)
Maurorum e(t) solo (o)pere (e)andem vexillationem instituit.
“To the Emperor Cæsar M. Aurelius Severus, Father of his
Country, Pious, Happy, Augustus, the district, the senate, the
camp, and free town of ... dedicate (this).... P. Nero Decurion
of the Moors, caused the station of the Severian regiment
(horse) of the 21st Legion, Victorious, Severian, to be
established; and he instituted by his own act the same
regiment.”
As for the tower, or nadhúr, it was evidently erected in former
times in order to give timely notice when a band of freebooters—“el
jaesh” (the army), as they are called here—was hovering around the
solitary village; for this seems to have been the chief cause of its
destruction, the Urfílla being said to have been always watching and
lying in ambush round this lonely place, to attack and rob small
parties coming from or going to it; they are said even to have once
captured the whole place. The consequence is, that it has now
scarcely thirty male inhabitants to bear arms, and is avoided by the
caravans as pestilent, the water, they say, being very unwholesome.
The small remnant of the inhabitants have a very pale and ghastly
appearance, but I think this is owing rather to the bad quality of their
food than to that of the water. In former times it is said to have been
celebrated on account of a merábet of the name of Sidi Mʿadi.
As soon as I had sufficiently examined the ruins and the village, I
hastened to the bottom of the ravine. The contrast between the
ruined hovels of the village, perched on the naked rock, and the
green, fresh plantation, fed by a copious supply of water, is very
great. Thick, luxuriant, and shady clusters are here formed,
principally around the basin filled by the spring, which rushes forth
from beneath a rock, and gives life to the little oasis; its temperature I
found, at half-past one o’clock p.m., 70½° Fahr., while that of the air
was 70°. The number of the date-trees, though small, is nevertheless
larger than in Mizda, and may be nearer to 350 than to 300. The
water of the ravine after a heavy fall of rain joins the Wadi Zemzem,
the principal valley of this whole district, which together with Wady
Sófejín and Wady Beï, carries all the streams collected hereabouts
to the sea.
According to our Zintáni, the path leading to Taboníye from the
western village first lies over the hammáda, then crosses a ravine
called Wady Khatab, leads again over the plateau, crosses another
wady, and at length, after about ten miles, as it seems, reaches the
ravine of Gharíya eʾ sherkíya, stretching from west to east, the
grove, of about the same extent as in the other oasis, being formed
at the north and west bases of the rocky height upon which the place
stands. At the side of the village there is, he said, a large Roman
castle, far larger than that in the western one, of about eight or ten
feet elevation at present, but without an arched gateway of that kind,
and without inscriptions. On the east side of the eminence are only a
few palms, and on the south side none. The village is distinguished
by a merábet called Bu-Sbaeha. Neither from the Zintáni nor from
anybody else did I hear that the inhabitants of these two solitary ksúr
are called by the peculiar name Warínga; I learnt it afterwards only
from Mr. Richardson’s statement, and I have reason to think that the
name was intended for Urínsa.
We returned by a more northern path, which at first led us through
a rather difficult rocky passage, but afterwards joined our path of
yesterday. Overweg and I had no time to lose in preparing for our
journey over the hammáda, or plateau, while Mr. Richardson was
obliged, by the conduct of the ill-provided and ill-disciplined blacks
who accompanied him, to follow us by night. We therefore got up
very early next morning, but lost a good deal of time by the quarrels
among our camel-drivers, who were trying, most unjustly, to reserve
all the heavy loads for the camels of the inexperienced Tarki lad ʿAli
Karámra, till they excited his indignation, and a furious row ensued.
This youth, though his behaviour was sometimes awkward and
absurd, excited my interest in several respects. He belonged to a
family of Tawárek, as they are called, settled in Wady el Gharbi, and
was sent by his father to Tripoli with three camels, to try his chance
of success, although members of that nation, with the exception of
the Tinylkum, rarely visit Tripoli. He was slender and well-formed, of
a glossy light-black complexion, and with a profile truly Egyptian; his
manners were reserved, and totally different from those of his
Fezzáni companions.
At length we were under way, and began gradually to ascend
along the strip of green which followed the shelving of the plateau
into the valley, leaving the Roman sepulchre at some distance to our
right. The flat Wady Labaerek, which is joined by Wady Shák, was
still adorned with gattúf and rétem. It was not till we had passed the
little hill called Lebaerek, and made another slight ascent, that we
reached the real level of the terrible Hammáda; the ascent, or
shelving ground, from Taboníye to this point being called el Mudhár
mtà el Hammáda, and the spot itself, where the real Hammáda
begins, Bú-safár, a name arising from the obligation which every
pilgrim coming from the north, who has not before traversed this
dreaded district, lies under, to add a stone to the heaps accumulated
by former travellers.
But, notwithstanding all the importance attached to the dreary
character of this region, I found it far less naked and bare than I had
imagined it to be. To the right of our path lay a small green hollow, of
cheerful appearance, a branch of which is said, probably with some
degree of exaggeration, to extend as far as Ghadámes; but the
whole extent of the Hammáda is occasionally enlivened with small
green patches of herbage, to the great relief of the camel. And this,
too, is the reason why the traveller does not advance at a rate nearly
so expeditious as he would expect. In the latter part of our preceding
journey we generally had made almost as much as two and a half
miles an hour; but we scarcely got over two on this level open
ground. Of course, the wider the space the wider the dispersion of
the straggling camels; and much time is lost by unsteady direction.
At the verdant hollow called Garra mtà eʾ Nejm the eastern path,
which is called Trík el mugítha (via auxiliaris), and passes by the
village of Gharíya, joined our path.
At Wady Màmúra I first observed the little green bird generally
called asfír, but sometimes mesísa, which lives entirely upon the
caravans as they pass along, by picking off the vermin from the feet
of the camels. In the afternoon we observed, to our great delight, in
the green patch called el Wueshkeh, a cluster of stunted palm-trees.
Hereabouts the camel-drivers killed a considerable number of the
venomous lizard called bu-keshásh; and the Tarki in particular was
resolute in not allowing any which he saw to escape alive. After a
moderate march of little more than ten hours and a half, we
encamped in a small hollow called, from a peculiar kind of green
bush growing in it, el Jederíya. A strong cold wind, accompanied by
rain, began to blow soon after we encamped. The tent, not being
sufficiently secured, was blown down in the night; and we had some
trouble in pitching it again.
Continuing our march, we passed, about ten o’clock in the
morning, a poor solitary talha-tree bearing the appellation of el
Duhéda. Further on we found truffles, which in the evening afforded
us a delicious truffle-soup. Truffles are very common in many parts
of the desert; and the greatest of Mohammedan travellers (Ebn
Batúta) did not forget them in relating his journey from Sejelmása to
Waláta, in the middle of the fourteenth century. The sky was very
dark and hazy; and the moon had an extraordinary “dára,” or halo.
We slept this night without a tent, and felt the cold very sensibly.
The march of the following day was a little enlivened by our
meeting with two small caravans: the first, of five camels; the
second, belonging to Ghadámsi people, and laden with ivory, of
fifteen. With the latter was also a woman, sitting quite comfortably in
her little cage. Shortly after half-past one o’clock in the afternoon, we
had reached the highest elevation of the Hammáda, indicated by a
heap of stones called, very significantly, Rejm el erhá, 1,568 feet
above the level of the sea. We encamped soon after, when a very
heavy gale began to blow from the north-north-west driving the
swallows, which had followed our caravan, into the tent and the
holes formed by the luggage; but the poor things found no
protection, for our tent, which was light and high-topped, was blown
down again during the night, while a heavy rain accompanied the
storm, and we as well as our little guests were left awhile without
shelter, in a very uncomfortable situation.
We started rather late the following morning, entering now upon
the very dreariest part of the Hammáda, called el Hómra. So far
there had been only one track over this stony plateau; but in the
afternoon a path, called Msér ben Wáfi, branched off towards the
left. This path, which leads to the eastern parts of Wady Sháti,
formed formerly the common road to Fezzán, the road by way of el
Hasi being considered as too insecure, on account of the robberies
of the Urfílla. Hence the latter is still called the new road, “Trík el
jedíd.” Richardson, who had had enough of the inconveniences of
travelling by night, easily got in advance of us this morning, after our
short march of yesterday, and had advanced a good way by daytime.
We were therefore anxious to come up with him; and on our way we
encountered a heavy shower of rain before we pitched our tent. The
whole caravan being once more united, the increased variety of our
own party relieved a good deal of the feeling of monotony arising
from the desolate character of the country through which we
travelled. After marching about seven miles, we arrived at the
greenest and largest hollow of the Hammáda, called Wady el Alga,
which we ought to have reached yesterday, in order to be able to get
this day as near the well as possible.
As it was, when we encamped in the afternoon, we had still a long
day’s march before us, and therefore the next day, from general
impulse, in order to make sure of our arrival at the well, we started at
an early hour, keeping the caravan together by repeated shouting.
After a march of about twelve miles, we reached the first passage
leading down from the Hammáda and called Tníe Twennín; but it
was too steep and precipitous for our rather heavily laden caravan,
and we had to continue till we reached the Tníe el ʿArdha, a little
after eleven o’clock, when we began to descend from the plateau
along a rough winding pass. The sandstone of which it is formed
presented to us a surface so completely blackened, not only in the
unbroken walls of the ravine, but also in the immense blocks which
had been detached from the cliffs, and were lying about in great
confusion, that at first sight anybody would have taken it for basalt;
but when the stones were broken, their real nature became
apparent. Over this broad layer of sandstone, which in some places
covered a bed of clay mixed with gypsum, there was a layer of marl,
and over this, forming the upper crust, limestone and flints.
After a winding course for an hour, the narrow ravine, shut in by
steep, gloomy-looking cliffs, began to widen, and our direction varied
less; but still the whole district retained a gloomy aspect, and the
bottom of the valley was strewn with masses of black sandstone,
while the country ahead of us lay concealed in a hazy atmosphere,
which did not admit of an extensive view. Eager to reach the well, the
caravan being scattered over a great extent of ground, we three
travellers, with one of the shoushes, pushed on in advance, the
south wind driving the sand, which lay in narrow strips along the
pebbly ground, into our faces. We cherished the hope of finding a
cool little grove, or at least some shade, where we might recline at
ease after our fatiguing march; but, to our great disappointment, the
sand became deeper, and nothing was to be seen but small stunted
palm-bushes. But even these ceased near the well, which was dug
in the midst of the sandy waste, and had once been protected by an
oval-shaped building, of which nothing but crumbling ruins remained.
It was a cheerless encampment after so fatiguing a march; but
there was at least no more fear of scarcity of water, for the well had
an abundant supply. No name could be more appropriate to this
place than el Hasi (the well). There is no need of any discriminating
surname; it is “the Well”—the well where the traveller who has
successfully crossed the Hammáda may be sure to quench his own
thirst and that of his animals. But it is not a cheerful resting-place,
though it is the great watering-place on this desert road, as he has to
cross the fearful “burning plain” of the Hammáda before he reaches
the spot. There are several wells hereabouts, which might easily
supply with water the largest caravan in an hour’s time; for the water
is always bubbling up, and keeps the same level.
The well at the side of which we had encamped is rather narrow
and deep, and therefore inconvenient for a large party; but it is,
though slightly, protected by the ruins around against the wind, which
is often very troublesome, and was particularly so on the evening of
our arrival. Formerly there was here a sort of fortified khan, such as
is very rarely seen in these parts, built by the tribes of the Notmán
and Swaíd, in order to protect their caravans against the pillaging
parties of the Urfílla, originally a Berber tribe. This building consisted
of simple chambers, twenty, as it seems, in number, lying round an
oval court which has entrances from north and south. It is thirty
paces long by sixteen wide, the centre being occupied by the well,
which, as it is dug in the sandy soil, bears the general name Hasi. It
has a depth of five fathoms; and its temperature was found to be
71 ⅗ ° Fahr. The quality of the water, in comparison with that of
Taboníye, was very good. The elevation of this place was found by
Overweg to be 696 feet; so that we had descended from the highest
point of the Hammáda 742 feet.
As it was, we felt heartily glad when our steady and heavy
Tripolitan tent being at length pitched, we were able to stretch
ourselves without being covered with sand. All the people were
greatly fatigued, and required repose more than anything else. Out
of regard to the men as well as to the camels, we were obliged to
stay here the following day, though the place was comfortless in the
extreme, and did not offer the smallest bit of shade. Scarcely any of
our places of encampment on the whole journey seemed to me so
bad and cheerless as this. If I had had an animal to mount, I would
have gone on to a cluster of three or four date-trees, which are said
to be at the distance of about three miles west from the well, and
belong to the people of Zintán, to enjoy a little shade; but our camels
were too much distressed.
CHAPTER VI.
WADY SHATI.—OLD JERMA.—ARRIVAL IN
MÚRZUK.
There are three roads from el Hasi: the westernmost called Trík eʾ
duésa, after a small cluster of palm-trees; the second, called Trík eʾ
safar, stony and more desolate than the former, but half a day
shorter; and the third, or eastern, leading directly to Bírgen. When
we at length left our uncomfortable encampment at el Hasi, our
camel-drivers chose the middle road, which proved to be dismal and
dreary. But the first part of it was not quite so bad, the appearance of
granite among the rocks causing a little variety, while tamerán and
shíʿah clothed the bottoms of the valleys; and we had a single
specimen of a beautiful and luxuriant batúm-tree. When, however,
we began to enter the region of the sand-hills, intermixed with rocky
ridges and cliffs, the character of the country became desolate in the
extreme.
We travellers, being in advance, chose our resting-place for the
first night near a high rocky mass called el Medál, against the wish of
the camel-drivers, who would rather have encamped in the Shʿabet
eʾ talha, further on. The summit of the rocky eminence afforded a
very interesting prospect over this singular district; and our younger
shoush discovered, lower down, some scrawled figures. He came
running up to inform me of his discovery; but it was of no interest, a
cow and a sheep being the only figures plainly recognizable. The
Fezzáni people come hither in spring, when the rain-water collects in
the cavities of the rocks, and stay some months, in order to allow the
camels to graze on the young herbage, which then shoots up here in
profusion. Ben Sbaeda during such a stay here had lost a son, near
whose tomb the camel-drivers said a prayer, or zikr, early the next
morning.
Continuing our march, we soon came to the Shʿabet eʾ talha, the
bottom of which is clothed with the brushwood called arfísh, and with
the rétem, or broom. Further on, when we came upon the higher
rocky ground, the country grew more sterile, though we were so
fortunate as to catch two gazelles. Black masses of sandstone jutted
out on all sides, and gave a wild air to the desolate region through
which we were passing. The sterile character of the scene
underwent no change till next morning, when, on advancing about a
mile and a half, we came to the Wady Siddre, which was enlivened
by a few talha-trees. A narrow defile led us from this place to the
Wady Boghár, whence we entered another defile. Mid-day was past,
when we obtained a distinct view of the date-grove in Wady Sháti,
and the high sand-hills which border the valley on the south.
Towards the north it was rather open, and we hastened on to escape
from the hot desert through which we were marching; but a good
while elapsed before we reached the border of the valley, which on
this side abounded in herbage. After a mile and a half we reached
the first wild palm-trees, thriving in separate and casually formed
groups. Then followed a belt of bare black ground, covered with a
whitish crust of salt. The town, on the top of a broad terraced rock,
seemed as far off as ever. But I urged on my Bu-Séfi along the
winding path over the hard ground; Richardson and Overweg
followed close behind, while the camel-drivers had fallen back to
exchange their dirty costume for one more decent. At length we
reached the north-western foot of the picturesque hill, and chose our
camping-ground beyond the shallow bed of a torrent between the
date-trees and the corn-fields, near the largest fountain,—a very
agreeable resting-place, after the dreary desert which we had
traversed.
We had felt tired so long as the place was yet ahead of us; but we
had no sooner reached it than all fatigue was gone, and Overweg
and I, under the guidance of a mʿallem, went forth to view the
interesting features of the locality. It is certainly a very rare spectacle
in this quarter of the world, to see a town on the top of a steep
terraced hill in the midst of a valley, and occupying an advantageous
position which might be supposed to have given the place great
importance from very ancient times. Éderi seems to have been a
considerable place till fourteen years ago, when the independent
spirit of its inhabitants was broken by the despotism of ʿAbd el Jelíl
ben Séf eʾ Nasr, the famous chief of the Welád Slimán. The old town
on the top of the hill having been destroyed, and there being no
longer a necessity for a fortified residence, under the civilized though
exhausting government of the Turks, the new village was built at the
northern foot of the hill, on which side lies the chapel of the Merábet
Bu-Derbála, and another of less fame, a little east of the former,
called Sidi ʿAbd eʾ Salám.
The new village has two gates. Crossing it, we ascended the steep
narrow streets of the old town, which seems to have been densely
inhabited, and from the highest part, which is one hundred and
ninety feet above the bottom of the valley, obtained a very interesting
view over a great part of the wady, with its varied features,—here,
black sandstone, which in several places forms hills of considerable
extent; there, green fields of wheat and barley; then, again, a large
grove of date-trees scattered in long narrow strips behind the high
sand-hills bordering the valley on the south. The black ground,
covered with a whitish crust, lay bare and naked in many parts, while
in others it was entirely overgrown with herbage. Towards the south
the slope of the rock on which, the town stands is rather steep and
precipitous. On this side lies the caverns which have been already
noticed by Oudney, and which are interesting only on account of the
oval-shaped form in which they have been excavated, as they are
neither remarkable for dimensions nor for regularity; their general
shape is this. A larger group of caverns has been made in a
detached rocky eminence, upon which at present the cemetery is
situated; but it is only seventy-two feet in length, and its ground-plan
is far from being regular.
From this place I went through the adjoining grove, which, with a
little more care, might easily become a very beautiful plantation; for
there are a great many wells of very little depth, and the water is led
through the channels with slight trouble. Our encampment in the
beautiful moonlight, with not a breath of wind to disturb the
tranquillity of the scene, was pleasant in the extreme, and we all felt
much delighted and greatly restored.
Early on Sunday morning, after
having finished my sketch of the
village on the hill, with our
encampment in the foreground, I took
a walk all round the scattered groups
of the plantation, which must have
suffered a great deal from ʿAbd el
Jelíl, even though the number of six
thousand trees, which he is said to
have cut down, be an exaggeration. Towards the east side the salt
crust is still thicker than on the west, and is very unpleasant for
walking. I found here that, in addition to wheat and barley, much
amára was cultivated in the garden-fields, besides a few figs; but I
saw no grapes. Several families were living here outside in light huts
or sheds made of palm-branches, and seemed to enjoy some
degree of happiness. At the south-east end of the plantation rose a
hill also formed of marl, and very similar to that on which the town is
situated. The names of the villages along the valley, proceeding from
west to east, are the following: after Éderi, Témesán; then
Wuenzerík, Berga (a couple of villages distinguished as B. el foka
and B. el utíyah), Gúta, Turut, El Ghurda, Meherága, Agár, Gógam,
Kosaer Sellám, Támezawa, Anerúya, Zeluáz, Abrák, Gíreh, Debdeb,
and Ashkiddeh. The valley has two kaíds, one of whom, ʿAbd el
Rahmán, resides at present in Temesán, while the residence of the
other ʿAgha Hassan eʾ Rawi, is in Támezawa. Meherága seems to
be the most populous of the villages. Abrák has the advantage of a
school.
We left our picturesque encampment in order to commence the
passage over the sand-hills which separate the shallow “rent” of
Wady Shiyáti from the deeper valley the Wady el Gharbi, the great
valley par excellence. It is rather singular that even the higher
ground, which is elevated about fifty feet above the bottom of the
valley, is entirely covered with a crust of salt. Having traversed this,
we began the ascent of the sand-hills, which in several favoured
spots presents small clusters of palm-trees, which too have their
proprietors. Mukni, the father of Yusuf, Mr. Richardson’s interpreter,
is said to have killed a great many Welád Slimán hereabouts. The
most considerable of the depressions or hollows in the sand, which
are decked with palm-trees, is the Wady Shiúkh, which afforded in
truth a very curious spectacle,—a narrow range of palm-trees half-
buried between high sand-hills, some of them standing on the tops of
hillocks, others in deep hollows, with the head alone visible. At
length after a good deal of fatigue, we encamped in Wady Góber,
another shallow cavity between sand-hills with brackish water and a
few palm-trees. Here our camel-drivers themselves possessed a few
trees, and, of course, were more interested in the inspection of their
own property than in starting at an early hour the next day.
When we resumed our march we found our work more difficult
than before, the sand-hills assuming a steepness most trying for the
camels, particularly at the brink of the slopes. We were several times
obliged to flatten away the edges with our hands, in order to facilitate
the camel’s ascent. I went generally a little in front, conducted by
Mohammed ben Sbaeda, one of our camel-drivers, who, from the
moment we had entered Fezzán, had exchanged the quarrelsome
character by which he had made himself disagreeable to us, for very
obliging and pleasing manners, and was anxious to give me every
information. He told me that this belt of sand extended in south-west
and north-east direction from Dwésa as far as Fukka, a place,
according to him, five days’ march on this side of Sókna. He added,
that, however high and steep we might think these sand-hills, they
were nothing in comparison with those in the direction of the natron-
lakes; but, in making this remark, I think he wanted to excuse himself
and his companions for taking us this long way round by the west.
He knew that it was our desire to visit the natron-lakes, and that our
direct way to Murzuk led by those lakes, while their object was to
take us to their native village Ugréfe. Mohammed stated that each
district in Fezzán has its own peculiar dialect; and he contended that,
while the inhabitants of Wady Sháti speak a good sort of Arabic,
similar to that spoken in Mizda, the people of the great wady (Wady
el Gharbi) make use of a corrupt dialect.
Meanwhile the caravan remained very far behind, and we thought
it prudent to wait for them in Wady Tawíl, particularly as the path
divided here. It was so hot that my camel, when I let it loose to
browse a little would not touch anything. When the other camel-
drivers at length came up, there was a dispute as to the path to be
followed; but the truth was, that while there could be no doubt about
the direct road to Múrzuk, some of the camel-drivers wished to take
us to Ubári. But at length the other party, interested only in carrying
us westward as far as Ugréfe, which was a great deal out of our
route, got the upper hand, and we left the road to Ubári, which
passes only two wadys, or hollows, called Tekúr and Uglah, both
with bad water, to the west, and followed the road to Ugréfe.
About four o’clock in the afternoon we encamped in the Wady
Mukméda, near the sand-hills bordering its southern side, under the
shade of a wild palm-bush. Close to it was very good water only two
feet below the surface; but as the hole had only just been made, it
contained much sulphuretted hydrogen. The following day we
crossed several smaller valleys with a few palm-trees (but a larger
grove adorned the Wady Jemál), all belonging to one of our camel-
drivers of the name of Bu Bakr. He also possessed here a magazine,
built of bricks, and probably several centuries old, but entirely
covered with sand, where he had deposited forty camel-loads of
dates. They were of the kind called tefsirt, of very large size and
exquisite taste, and were eagerly devoured by our people. After
having refreshed ourselves for a moment, we went on, having just
before us the very steepest ascent that occurs on the whole road. I
was obliged to dismount from my beautiful Bu-Séfi in order to get
him over it. This ridge being once behind us, we were told that all the
“wár” was over; there were, however, still a few “difficult passes”
before us. In the Wady Gellah, which we next crossed, we found the
footsteps of a flock of sheep and of a single camel, which latter
animal finds plenty of food in this sandy district, and, at the shallow
well in Wady Uglah, is able to quench its thirst without the assistance
of man. Thence we descended into Wady Tigidéfa, where we
encamped near a couple of palm-trees, the only ones in the wady; a
copious well of very good water was near them, overshadowed by a
thick cluster of palm-bushes. It was altogether a very satisfactory
camping-ground, except that it swarmed with camel-bugs, as such
places in the desert generally do.

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Financial Reporting Financial

Statement Analysis and Valuation 7th

Financial Reporting Financial Statement Analysis and

Financial Reporting Financial Statement Analysis and

Financial Reporting Financial Statement Analysis and

Financial Reporting Financial Statement Analysis and

Financial Statement Analysis and Valuation 4th Edition

Financial Statement Analysis and Security Valuation 5th

Financial Statement Analysis and Security Valuation 5th

Financial Reporting and Analysis 7th Edition Gibson

1. The objective of forecasting is to develop

Sparky’s Selected Financial Statement data

Inventory $31,353 $30,850

Sparky’s Selected Financial Statement data

Inventory $31,353 $30,850

13. Card Sharks, Inc.

14. Card Sharks, Inc.

23. Common-size financial statements recast each statement item as

30. Realistic expectations are ____________________ and ____________________.

Glad Rags, Inc.

Inventory $ 5,548 $ 4,948

Goode Corp. Consolidated Statement of Income

Net Revenues $345,871

Goode Corp Consolidated Balance Sheet

Liabilities and Stockholders' Equity

A. See the information for Simmons Company.

B. See the information for Simmons Company.

Repair Specialists 2009 2010

The following summary information relates to Techtronics’ property, plant, and

Techtronics (amounts in millions) 2009 2010

60. Arco is an integrated manufacturer in capital-intensive industry. Nuwak manufactures more

($ amounts in millions) Year 3 Year 4

Saunders Corporation (amounts in millions of dollars) 2009 2010

b. Repeat requirement a. for selling and administrative expenses.

a. Compute the inventory turnover ratio for Benson for 2010.

1. The objective of forecasting is to develop

Sparky’s Selected Financial Statement data

Inventory $31,353 $30,850

Sparky’s Selected Financial Statement data

Inventory $31,353 $30,850

13. Card Sharks, Inc.

14. Card Sharks, Inc.

23. Common-size financial statements recast each statement item as

30. Realistic expectations are ____________________ and ____________________.

One disadvantage is that it may introduce artificial volatility in ending balances.

The seven steps are:

1. Project revenues from sales and other operating activities.

Suggested Solution from the text::

Cost of Goods Sold:

Gross Profit 1,170,907 1,317,345 1,538,999

Glad Rags, Inc.

Inventory $ 5,548 $ 4,948

a. Inventory Turnover 6.85

Annual Average Days Sales Year-end

2012 2013* 2014* 2015* 2016* 2017*

Sales Growth Rate 6%

Growth in A/R 9.90% 2.48% 9.46% 2.81% 9.09%

Sales Growth Rate 6%

Yearly Growth in A/R 9.90% 2.48% 9.46% 2.81% 9.09%

Compound Average growth in 6.69%

Beginning Balance $791 807 861 919 980 1,046

Growth in A/R 6.69% 6.69% 6.69% 6.69% 6.69%

Net Revenues $345,871

Goode Corp Consolidated Balance Sheet

30. Realistic expectations are and .

30. Realistic expectations are and .