FIN 317 – HOMEWORK 7 You are given comparative income statements and balance sheets for Best Buy (in millions). Based on the given forecasting assumptions, prepare forecasted income statement, balance sheet, and cash flow statement for year 3. (Show your calculation lik

FIN 317 – HOMEWORK 7

You are given comparative income statements and balance sheets for Best Buy (in millions). Based on the given forecasting assumptions, prepare forecasted income statement, balance sheet, and cash flow statement for year 3. (Show your calculation like A/B=C or (A+B)/C=D etc. in given cells).

  1. PROJECTED INCOME STATEMENT (30 points)

 

Best Buy Income Statement   
($ in millions)Forecasting stepYear 3 EstimateYear 2Year 1
Net sales15,32612,494
Cost of goods sold12,26710,101
Gross profit3,0592,393
Selling, general and administrative expense2,2511,728
Depreciation and amortization expense167103
Income before tax641562
Income tax expense245215
Net income 396 347

 

 

Forecasting assumptions (income statement)
Sales growth0.2267
Gross profit margin0.1996
Selling, general and administrative expense/sales0.1469
Depreciation expense/Gross prior year PPE0.1528
Income tax expense/pretax income0.3822

 

  1. PROJECTED BALANCE SHEET (40 points)
Best Buy Balance Sheet 
($ in millions)Forecasting stepYear 3 EstimateYear 2Year 1
Cash746751
Receivables313262
Inventories1,7671,184
Other current assets10241
Total current assets 2,928 2,238
PPE1,9871,093
Accumulated depreciation543395
Net PPE1,444698
Other assets46659
Total assets  4,838 2,995
Accounts payable2,4731,704
Short term debt and current portion of long-term debt11416
Income tax liabilities12765
Total current liabilities 2,714 1,785
Long-term debt303115
Total long-term liabilities 303 115
Common stock2020
Additional paid in capital576247
Retained earnings1,225828
Shareholders’ Equity 1,821 1,095
Total liabilities and SHs’ Equity  4,838 2,995

 

 

 

 

 

 

 

Forecasting assumptions (balance sheet)
Accounts receivable turnover rate48.96
Inventory turnover rate6.94
Other current assetsno change
CAPEX (in millions)1,262
Other assetsno change
Accounts payable turnover rate4.96
Short term debt and current portion of LT debtno change
Taxes payable/tax expense0.5184
Long term debt189
Common stockno change
Additional paid in capitalno change
Dividend payments0

 

  1. CASH FLOW STATEMENT PREPARATION (10 points)

Based on your forecasted balance sheet and income statement, in order to be able to prepare forecasted cash flow statement in the next step, for relevant accounts, calculate changes from Year 2 to Year 3, state whether those changes are cash inflow or outflow, and categorize them as operating, financing or investing activities (write your answers in the corresponding cells for relevant accounts).

Best Buy Projected Statement of Cash Flows
($ in millions)Year 3 EstimateYear 2Change from Year 2 to Year 3cash inflow or outflowoperating, investing or financing
Cash746
Receivables313
Inventories1,767
Other current assets102
Total current assets 2,928  
PPE1,987
Accumulated depreciation543
Net PPE1,444
Other assets466
Total assets 4,838  
Accounts payable2,473
Short term debt and current portion of long-term debt114
Income tax liabilities127
Total current liabilities 2,714  
Long-term debt303
Total long-term liabilities 303  
Common stock20
Additional paid in capital576
Retained earnings1,225
Shareholders’ Equity 1,821  
Total liabilities and SHs’ Equity 4,838  
  1. PROJECTED CASH FLOW STATEMENT (20 points)

Prepare the projected cash flow statement of Best Buy Company for Year 3. (write your answers in the corresponding cells) (there are more cells than you need).

Best Buy Projected Statement of Cash Flows 
($ in millions) 
Net income
Items to adjust income to cash flows
Net cash flow from operations 
  
Net cash flow from investing activities 
Net cash flow from financing activities 
Net change in cash
Beginning cash
Ending cash

 

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