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 step	Year 3 Estimate	Year 2	Year 1
Net sales			15,326	12,494
Cost of goods sold			12,267	10,101
Gross profit			3,059	2,393
Selling, general and administrative expense			2,251	1,728
Depreciation and amortization expense			167	103
Income before tax			641	562
Income tax expense			245	215
Net income			396	347

 

 

Forecasting assumptions (income statement)
Sales growth	0.2267
Gross profit margin	0.1996
Selling, general and administrative expense/sales	0.1469
Depreciation expense/Gross prior year PPE	0.1528
Income tax expense/pretax income	0.3822

 

1. PROJECTED BALANCE SHEET (40 points)

Best Buy Balance Sheet
($ in millions)	Forecasting step	Year 3 Estimate	Year 2	Year 1
Cash			746	751
Receivables			313	262
Inventories			1,767	1,184
Other current assets			102	41
Total current assets			2,928	2,238
PPE			1,987	1,093
Accumulated depreciation			543	395
Net PPE			1,444	698
Other assets			466	59
Total assets			4,838	2,995
Accounts payable			2,473	1,704
Short term debt and current portion of long-term debt			114	16
Income tax liabilities			127	65
Total current liabilities			2,714	1,785
Long-term debt			303	115
Total long-term liabilities			303	115
Common stock			20	20
Additional paid in capital			576	247
Retained earnings			1,225	828
Shareholders’ Equity			1,821	1,095
Total liabilities and SHs’ Equity			4,838	2,995

 

 

 

 

 

 

 

Forecasting assumptions (balance sheet)
Accounts receivable turnover rate	48.96
Inventory turnover rate	6.94
Other current assets	no change
CAPEX (in millions)	1,262
Other assets	no change
Accounts payable turnover rate	4.96
Short term debt and current portion of LT debt	no change
Taxes payable/tax expense	0.5184
Long term debt	189
Common stock	no change
Additional paid in capital	no change
Dividend payments	0

 

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 Estimate	Year 2	Change from Year 2 to Year 3	cash inflow or outflow	operating, investing or financing
Cash		746
Receivables		313
Inventories		1,767
Other current assets		102
Total current assets		2,928
PPE		1,987
Accumulated depreciation		543
Net PPE		1,444
Other assets		466
Total assets		4,838
Accounts payable		2,473
Short term debt and current portion of long-term debt		114
Income tax liabilities		127
Total current liabilities		2,714
Long-term debt		303
Total long-term liabilities		303
Common stock		20
Additional paid in capital		576
Retained earnings		1,225
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