Ch 09 - Prospective Analysis

Chapter 09 - Prospective Analysis

Chapter 9 Prospective Analysis REVIEW Prospective analysis is the final step in the financial statement analysis process. It includes forecasting of the balance sheet, income statement and statement of cash flows. Prospective analysis is central to security valuation. Both the free cash flow and residual income valuation models described in Chapter 1 require estimates of future financial statements. We provide a detailed example of the forecasting process to project the income statement, the balance sheet, and the statement of cash flows. We describe the relevance of forecasting for security valuation and provide an example utilizing forecasted financial statements to implement the residual income valuation model. We discuss the concept of value drivers and their reversion to long-run equilibrium levels. In the appendix, we provide a detailed example of short-term cash flow forecasting.

9-1


OUTLINE 

The Projection Process Projecting Financial Statements Application of Prospective Analysis in the Residual Income Valuation Model Trends in Value Drivers

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Short-term Forecasting (Appendix)

9-2


ANALYSIS OBJECTIVES 

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Describe the importance of prospective analysis. Explain the process of projecting the income statement, the balance sheet and the statement of cash flows. Discuss and illustrate the Importance of Sensitivity Analysis. Describe the implementation of the projection process in the valuation of equity securities. Discuss the concept of value drivers and their reversion to long-run equilibrium levels.

9-3


QUESTIONS 1. Prospective analysis is central to security valuation. All valuation models rely on forecasts of earnings or cash flows that are, then, discounted back to the present to arrive at the estimated value of the security. Prospective analysis is also useful to examine the viability of companies’ strategic plans, that is, whether they will be able to generate sufficient cash flows from operations to finance expected growth or whether they will be required to seek external financing. In addition, prospective analysis is useful to examine whether announcing strategies will yield the benefits expected by management. Finally, prospective analysis can be used by creditors to assess companies’ ability to meet debt service requirements. 2. Prior to the forecasting process, financial statements can be recast to better portray economic reality. Adjustments might include elimination of transitory items or reallocating them to past or future years, capitalizing (expensing) items that have been expensed (capitalized) by management, capitalizing operating leases and other forms of off-balance sheet financing, and so forth. 3. In addition addition to trend analysis, analysts frequently incorporate incorp orate external (non-financial) (non-fin ancial) information into the prospective process. Some examples are the expected level of macroeconomic activity, the degree to which the competitive landscape is changing, any strategic initiatives that have been announced by management, and so forth. 4. The forecast horizon is the period for which specific estimates are made. It is usually 5-7 years. Forecasts beyond the forecast horizon are of dubious value since estimates are uncertain. 5. Since all valuation models are infinite horizon models, analysts frequently frequentl y assume a steady state into perpetuity after the forecast horizon. A common assumption is that the company will grow at the long-run rate of inflation, that is, remaining constant in real terms. 6. The projection process begins with an expected growth in sales. Gross profit and operating expenses are, then, estimated as a percentage of forecasted sales using historical ratios and external information. Depreciation expense is usually estimated as a percentage of beginning gross depreciable assets under the assumption that depreciation policies will remain constant. Interest expense is usually estimated at an average borrowing rate applied to the beginning balance of interest bearing liabilities. Projections of expected interest rates are used for variable rate indebtedness and new borrowings. Finally, tax expense is estimated using the effective tax rate on pretax income. 7. In the first step, balance sheet items are projected using forecasted income sales (COGS) and relevant turnover ratios. Long-term assets are projected using forecasted capital expenditures. Long-term liabilities are projected from current maturities of long-term debt disclosed in the debt footnote, and paid-in-capital is assumed to be constant in this stage. Retained earnings are projected adding (subtracting) projected profits (losses) and subtracting projected dividends. Once total liabilities and equities are forecasted, total assets is set equal to this amount and forecasted cash is computed as the plug figure.

9-4


In the second step, long-term liabilities and equities are adjusted to yield the desired level of cash. The analyst must be careful to maintain the historical leverage ratio and adjust liabilities and equities proportionately. 8. The residual income model expresses stock price as the book value of stockholders’ equity plus the present value of expected residual income (RI). Residual income can be expressed in ratio form as, RI = (ROEt – k ) * BVt-1 Where ROE=NI /BV t t-1. This form highlights the fact that stock price is only impacted so long as ROE k . In equilibrium, competitive forces will tend to drive rates of return (ROE) to cost (k ) so that abnormal profits are competed away. The estimation of stock price, then, amounts to the projection of the reversion of ROE to its long-run value for a particular company and industry. ROE is a value driver since it impacts our valuation of the stock price. Its components (asset turnover and profit margin) are also value drivers 9. We can make two observations regarding the reversion of ROE: a. ROEs tend to revert to a long-run equilibrium. This reflects the forces of competition. Furthermore, the reversion rate for the least profitable firms is greater than that for the most profitable firms. And finally, reversion rates for the most extreme levels of ROE are greater than those for firms at more moderate levels of ROE. b. The reversion is incomplete. That is, there remains a difference of about 12% between the highest and lowest ROE firms even after ten years. This may be the result of two factors: differences in risk that are reflected in differences in their costs of capital ( k ); or, greater (lesser) degrees of conservatism in accounting policies. The reversion of ROA and NPM are similar. While some reversion of TAT is evident, it is much less than that of the other value drivers. 10. Short-term cash forecasts are key to assessments of short-term liquidity. An asset is called "liquid" because it will or can be b e converted into cash within the current period. p eriod. The analysis of short-term cash forecasts will reveal whether an entity will be able to repay short-term loans as planned. This also means such analysis is extremely important for a potential short-term credit grantor. Short-term cash forecasts often are relatively realistic and accurate because of the shortness of the time span covered. 11. A cash forecast, to be most meaningful, must be for a relatively short-term period of time. There are many unpredictable variables involved in the preparation of a reliable forecast for a highly liquid asset such as cash. Over a long period of time (that is, beyond the time span of one year), the difference in the degree of liquidity among items in the current assets group is usually insignificant. What is more important for long time spans are the projections of net income and other sources and uses of funds. The focus should be shifted to working capital (and other accrual measures), and away from cash flows, for longer forecast horizons of, say, thirty months —where the time required to convert current assets into cash is insignificant.

9-5


9-6


12. Cash inflows and outflows are highly interrelated. These two flows are crucial to a company’s ―circulation system." A deficiency in any part of the system can affect the entire system. For example, a reduction or cessation of sales affects the vital conversion of finished goods into receivables or cash, which in turn leads to a drop in the cash reservoir. If the system is not strengthened by "transfusion" (such as additional investment by owners or creditors), production must be curtailed or discontinued. Lack of cash inflows also will reduce other expenses such as advertising, promotion, and marketing expenses, which will further adversely affect sales. This can yield a vicious cycle leading to business failure. 13. Most would agree with this assertion. assertion. Cash is the most liquid asset and when management urgently needs to purchase assets or incur expenses, a cash exchange is the quickest and easiest means to execute a transaction. Moreover, unless management has a credit line established with a reliable outsider (such as a revolving account at a bank), lack of cash can mean a permanent loss of profitable opportunities. 14. Ratio analysis is a static measurement tool. Ratios measure relations among financial statement items as of a given moment and time. In contrast, funds flow analysis is a dynamic measure covering a period of time. A dynamic model of funds flow analysis uses the present only as a starting point and utilizes the best available estimates of future plans and conditions to forecast the future availability and disposition of cash or working capital. Analyzing funds flow also encompasses the projected operations of a company. Since one of the fundamental assumptions of accounting is the going-concern concept, some assert that the dynamic model is more realistic and is superior to static representations. However, care should be taken in placing too much reliance on funds flow analysis as it is primarily based on estimates, and not on realized observations. 15. Except for transactions involving the raising of money from external sources (such as through loans or additional investments) and the investments of money in long-term assets, almost all internally generated cash flows relate to and depend on sales. Accordingly, the usual first step in preparing a cash forecast is to estimate sales for the period under consideration. The reliability of any cash forecast depends on the accuracy of this forecast of sales. In arriving at the sales forecast, the analyst should consider: (1) past trends of sales volume, (2) market share, (3) industry and general economic conditions, (4) productive and financial capacity, and (5) competitive factors, among other variables.

9-7


EXERCISES Exercise 9-1 (45 minutes) Projected Income Statement for Year 12 Quaker Oats Company Forecasted Income Statement For Year Ended June 30, Year 12 Revenues Revenues [given].............................. [given]........................................................ ................................... .........

$6,000.0

Costs and expenses Cost of goods sold [a] .................................................. ....................................................

$3,186.0

Selling, general, and administrative [b] ................ ........ ............... .......

2,439.4

Other expenses expenses [c]................................................ ......................................................... .........

35.2

Interest, net [d] ................................................. ............................................................... ..............

91.4

Total costs and expenses expenses.................................................. ....................................................

5,752.0

Income from continuing continuing operations operations ................................. .................................

248.0

Income taxes [e] ................................................ .................................................................. ..................

105.9

Income before discontinued operations ............... ....... ................ ........... ...

142.1

(Loss) on disposal of discontinued operations [given] ...

(2.0)

Net income ................................................. ........................................................................... ..........................

$ 140.1

Notes: [a] Cost of sales is estimated to be at a level representing the average percentage of cost of sales to sales as prevailed in the four-year period ending June 30, Year 11, which is 53.1% (19,909.2 – 9,331.3)/19,909.2. Therefore, 6,000 x .531 = $3,186. [b] Selling, general & administrative expenses in Year 12 are expected to increase by the same percentage as these expenses increased from Year 10 to Year 11, which is 15%. Therefore, $2,121.2 x 1.15 = $2,439.4. [c] Other expenses are expected to be 8% higher in Year 12. Therefore, 32.6 x 1.08 = $35.2. [d] Interest expense (net of interest capitalized) and interest income will increase by 6% due to increased financial needs. Therefore, $86.2 x 1.06 = $91.4 [e] The effective tax rate r ate in Year 12 1 2 will equal that of Year Ye ar 11, which is 42.7% ($175.7/$411.5). Therefore, tax expense = $248 x .427 = $105.9.

9-8


Exercise 9-2 (25 minutes) Spreadsheet to Compute Forecasts of Sales and Income

Date Dec-Y1 Mar-Y2 Jun-Y2 Sep-Y2 Dec-Y2 Mar-Y3 Jun-Y3 Sep-Y3 Dec-Y3 Mar-Y4 Jun-Y4 Sep-Y4 Dec-Y4 Mar-Y5 Jun-Y5 Sep-Y5 Dec-Y5 Mar-Y6 Jun-Y6 Sep-Y6 Dec-Y6 Mar-Y7 Jun-Y7 Sep-Y7 Dec-Y7 Mar-Y8 Jun-Y8 Sep-Y8 Dec-Y8 Mar-Y9 Jun-Y9 Average change for each quarter

Forecast Sep.Y9* Forecast Dec.Y9* Forecast Mar. Y0* Forecast Jun. Y0*

Sales $17,349 12,278 13,984 13,972 16,040 12,700 14,566 14,669 17,892 12,621 14,725 14,442 17,528 14,948 17,630 17,151 19,547 16,931 18,901 19,861 22,848 19,998 21,860 21,806 24,876 22,459 24,928 23,978 28,455 24,062 27,410

N.I. $1,263 964 1,130 996 1,215 1,085 656 1,206 1,477 1,219 1,554 1,457 1,685 1,372 1,726 1,610 1,865 1,517 1,908 1,788 2,067 1,677 2,162 2,014 2,350 1,891 2,450 2,284 2,671 2,155 2,820

Change In Dec. Sales

-$1,309

Change in Dec. NI

Change In March Sales

in March

Change

$422

$121

NI

Change In June Sales

2,709

153

2,710

178

1,945

226

2,172

270

$1,667.67

$214.67

25,645.67

2,498.67

172

182

202 3,067

160 2,959

254

283 2,461

214 3,068

288

321 1,603

30,041.57

251

145 1,271

$1,586.57

-227

898

180 1,983

3,579

$210

153 2,905

2,028

$697

208 2,327

3,301

-$474

134 159

2,019

Change in Sept. NI

262 -79

-364

Change In Sept. Sales

-$48 $582

1,852

Change In June NI

$201.14 $1,683.43

264

$170.14

2,482

370

$1,918.00

$241.43

2,872.14 25,745.43

2,325.14 29,328.00

* Most recent actual quarter + average average change for the quarter. Note: Reported quarterly sales and net income for General Electric are: Sales Net income Sep Y9 $27,200 $2,653 Dec Y9 32,855 3,089 Mar Y0 29,996 2,592

9-9

3,061.43


Exercise 9-3 (40 minutes) a. To illustrate how predictions of market share and total market sales can be used in the forecasting process, consider the following example. If an analyst, for instance, predicts that (i) Cough.com will maintain its 0.08% share of the market for children's cough medicine and (ii) total Industry sales of children's cough medicine for year 2006 is $3.2 billion, then a reasonable estimate of Cough.com's year 2006 sales is $2.56 million. This is computed as 0.08% market share multiplied by the expected $3.2 billion of industry sales. b. All relevant data should be sought out, subject to cost-benefit cost-benefi t considerations, in the prediction of sales. The importance of sales to predictions of financial performance and financial condition cannot be overemphasized. Accordingly, companies invest considerable research and effort in predicting sales. Regarding what types of data to seek and how to obtain them, let’s consider a

retailer. To project the sales of a retailer, an analyst might consider visiting -buying patterns outlets that sell the retailers’ products and observe customer -buying versus the patterns observed for key competing products. This activity can be done using anecdotal observation or using formal statistical sampling depending upon the analysts' perceived need for accuracy. Moreover, the analyst can seek information from insiders via interview or interpretation of formal or informal disclosures made by the company. The analyst can also review company strategies and industry trends. In sum, good predictions involve more than sophisticated models —they demand that the analyst take the perspective of a customer constrained by the economic environment predicted to exist. c. Relying on predicted year 2006 total industry sales of $3.2 billion, the sales of Cough.com are predicted to be as follows 2006 Market share is 5% greater [105% x .08%] x $3.2 billion = $2.688 million

2006 Market share is 5% worse [95% x .08%] x $3.2 billion = $2.432 million

What-If indu stry s ales are 10% higher: d. What-If [105% x .08%] x [110% x $3.2 billion] = $2.9568 million

[95% x .08%] x [110% x $3.2 billion] = $2.6752 million

What-If What-If indu stry s ales are 10% lower:



9-10


Exercise 9 –4A (30 minutes) Lyon Corporation Cash Forecast For July, Year 6 Beginning Beginning cash balance ................................................ ..................................................... ..... Cash collections Beginning accounts receivable ................ ........ ................ ............... ....... Sales for month ................................................... ........................................................ ..... Less: Ending accounts receivable ............... ....... ................ ........... ... Cash available available ................................................... ..................................................................... .................. Cash disbursements Beginning Beginning accounts accounts payable ................................... ................................... Purchases Purchases (note a) .................................................. .................................................... Ending accounts payable (25% of purchases)....... Miscellaneous Miscellaneous outlays ............................................. ............................................. Cash balance ................................................... ............................................................ ......... Minimum cash balance desired............................... ...............................

$ 20 $ 20 150 170 21

18 115 133 29

Excess cash ................................................ .............................................................. ..............

[a] Ending inventory................................................. ....................... .................................................... .................................................. ........................ Cost of goods sold (5/6 of sales).................................................. ........................ .................................................. ........................ Less beginning inventory ..................................................... .......................... ........................... ................................ .......................... ...... Purchases .................................................. ........................ .................................................... ..................................................... ........................... ......

9-11

149 $169

104 11 $ 54 30 $ 24

$ 15 125 140 25 $115


PROBLEMS Problem 9-1 (90 minutes) a. Coca-Cola Year 3 Estimate 20,297

Year 2 20,092

Year 1 19,889

6,106

6,044

6,204

14,191

14,048

13,685

7,972

7,893

9,221 9, 221

Depreciation & amortization expense

863

803

773

Interest expense

-66

-308

292

Income before tax

5,422

5,660

3,399

Income tax expense

1,620

1,691

1,222

Net income

3,802

3,969

2,177

Outstanding shares

3,491

3,491

3,481

1.02%

1.02%

Gross Profit Margin

69.92%

69.92%

Selling General & Administrative Exp / Sales

39.28%

39.28% 39 .28%

Depreciation (depn exp / pr yr PPE gross)

12.14%

12.14%

INT (int / pr yr LTD)

-5.45%

-5.45%

Tax (Inc Tax / Pre-tax inc)

29.88%

29.88%

INCOME STATEMENT Net sales Cost of goods Gross profit Selling general & administrative expense

RATIOS Sales growth

9-12


Problem 9-1 — continued Year 3 Estimate 587 1,901 1,066 2,300 5,854

Year 2 1,934 1,882 1,055 2,300 7,171

Year 1 1,892 1,757 1,066 1,905 6,620

8,305 3,515 4,791 10,793 21,438

7,105 2,652 4,453 10,793 22,417

6,614 2,446 4,168 10,046 20,834

3,717 3,899 815 8,431

3,679 3,899 851 8,429

3,905 4,816 600 9,321

Deferred income, taxes & other Long term debt Total liabilities

1,403 1,219 11,053

1,403 1,219 2,622

1,362 835 2,197

Common stock Capital surplus Retained earnings Treasury stock Shareholder equity Total liabilities & net worth

873 3,520 19,674 13,682 10,385 21,438

873 3,520 20,655 13,682 11,366 22,417

870 3,196 18,543 13,293 9,316 20,834

RATIOS AR turn INV turn AP turn Tax Pay (Tax pay / tax exp) FLEV Div/sh

10.68 5.73 1.64 50.33% 2.06 $1.37

10.68 5.73 1.64 50.33% 1.97 $1.37

11.32 5.82 1.59 49.10% 2.24 $1.21

1,200 5.91%

1188 5.91%

1165 5.86%

BALANCE SHEET Cash Receivables Inventories Other Total current assets Property, plant & equipment Accumulated depreciation Net property & equipment Other assets Total assets Accounts payable & accrued liabilities Short-term debt & cmltd Income taxes Total current liab

CAPEX CAPEX/Sales

9-13


Problem 9-1 — continued Year 3 Estimate

Statement of Cash Flows Net income

3,802

Depreciation

863

Accounts receivable

-19

Inventories

-11

Accounts payable

38

Income taxes

-36

Net cash flow from operations

4,636

CAPEX Net cash flow from investing activities

-1,200 -1,200

Long term debt Additional paid in capital Dividends Net cash flow from financing activities

0 0 -4,783 -4,783 _____ -1,347 1,934 587

Net change in cash Beginning cash Ending cash

b. Based on our initial projection of Coca- Cola’s balance sheet, it appears that the company will require approximately $1.5 billion of external financing in Year 3. This amount will yield a cash balance of approximately approximately $2 billion, consistent with prior years.

9-14


Problem 9-2 (95 minutes) a. Best Buy Year 3 Estimate

Year 2

Year 1

Net sales

18,800

15,326

12,494

Cost of goods

15,048

12,267

10,101

Gross profit

3,752

3,059

2,393

Selling general & administrative expense

2,761

2,251

1,728


304

167

103

Income before tax

688

641

562

Income tax expense

263

245

215

Net income

425

396

347

Outstanding shares

208

208

200

Sales growth

22.67%

22.67%

Gross Profit Margin

19.96%

19.96%


14.69%

14.69%

DEPRECIATION (depn exp / pr yr PPE gross)

15.28%

15.28%


38.22%

38.22%

Income statement

RATIOS

9-15


Problem 9-2 — continued Year 3 Estimate 196 384 2,168 102 2,850

Year 2 746 313 1,767 102 2,928

Year 1 751 262 1,184 41 2,238

Property, plant & equipment Accumulated depreciation Net property & equipment Other assets Total assets

3,249 847 2,403 466 5,719

1,987 543 1,444 466 4,838

1,093 395 698 59 2,995

Accounts payable & accrued liabilities Short-term debt & cmltd Income taxes Total current liab

3,034 114 136 3,284

2,473 114 127 2,714

1,704 16 65 1,785

122 67 189

122 181 303

100 15 115

Common stock Capital surplus Retained earnings Shareholder equity Total liabilities & net worth

20 576 1,650 2,246 5,719

20 576 1,225 1,821 4,838

20 247 828 1,095 2,995

RATIOS AR turn INV turn AP turn Tax Pay (Tax pay / tax exp) FLEV Div/sh

48.96 6.94 4.96 51.84% 2.55 $0.00

48.96 6.94 4.96 51.84% 2.66 $0.00

47.69 8.53 5.93 30.23% 2.74 $0.00

1,262 6.71%

1029 6.71%

416 3.33%

BALANCE SHEET Cash Receivables Inventories Other Total current assets

Long term liabilities Long term debt Total long-term liabilities

CAPEX CAPEX/Sales

9-16


Problem 9-2 — continued Year 3 Estimate 425 304 -71 -401 561 9 827

Statement of Cash Flows Net income Depreciation Accounts receivable Inventories Accounts payable Income taxes Net cash flow from operations CAPEX Net cash flow from investing activities

-1,262 -1,262

Long term debt Additional paid in capital Dividends Net cash flow from financing activities

-114 0 0 -114 ____ -550 746 196


b. Based on our projection, it appears that Best Buy will require about $550 Million of external financing to yield a cash balance of approximately $750 million. Analysts must allocate this external financing between debt and equity so as to preserve the financial leverage level presently used by Best Buy.

9-17


Problem 9-3 (90 minutes) a. Merck Year 3 Estimate

Year 2

Year 1

Net sales

56,435

47,716

40,343

Cost of goods

34,272

28,977

22,444

Gross profit

22,164

18,739

17,900

Selling general & administrative expense

7,725

6,531

6,469


1,661

1,464

1,277

237

342

329

12,541

10,403

9,824

Income tax expense

3,762

3,121

3,002

Net income

8,779

7,282

6,822

Outstanding shares

2,976

2,976

2,968

Sales growth

18.27%

18.27%

Gross Profit Margin

39.27%

39.27%


13.69%

13.69%

DEPRECIATION (depn exp / pr yr PPE gross)

8.76%

8.76%

INT (int / pr yr LTD)

4.94%

4.94%

30.00%

30.00%

INCOME STATEMENT

Interest expense Income before tax

RATIOS


9-18


Problem 9-3 — continued Year 3 Estimate 5,254 6,168 4,233 880 16,536

Year 2 3,287 5,215 3,579 880 12,961

Year 1 4,255 5,262 3,022 1,059 13,598


24,056 7,514 16,543 17,942 51,020

18,956 5,853 13,103 17,942 44,007

16,707 5,225 11,482 15,075 40,155

Accounts payable & accrued liabilities Short-term debt & cmltd Income taxes Total current liab

6,983 4,067 1,897 12,947

5,904 4,067 1,573 11,544

5,391 3,319 1,244 9,954

Deferred income, taxes and other Long term debt Total liabilities

11,614 4,787 29,347

11,614 4,799 27,957

11,768 3,601 25,323


30 6,907 37,123 22,387 21,673 51,020

30 6,907 31,500 22,387 16,050 44,007

30 6,266 27,395 18,858 14,832 40,155

RATIOS AR turn INV turn AP turn Tax Pay (Tax pay / tax exp) FLEV Div/sh CAPEX CAPEX/Sales

9.15 8.10 4.91 50.41% 2.35 $1.06 5,100 9.04%

9.15 8.10 4.91 50.41% 2.74 $1.06 4312 9.04%

7.67 7.43 4.16 41.45% 2.71 $0.98 3641 9.03%

BALANCE SHEET Cash Receivables Inventories Other Total current assets

9-19


Problem 9-3 — continued Year 3 Estimate

Statement of Cash Flows Net income

$ 8,779

Depreciation

1,661

Accounts receivable

-953

Inventories

-654

Accounts payable

1,079

Income taxes

323


10,235

CAPEX

-5,100

Net cash flow from investing activities

-5,100

Long term debt

-12

Additional paid in capital

0

Dividends

-3,156

Net cash flow from financing activities

-3,168 _____

Net change in cash

1,967

Beginning cash

3,287

Ending cash

5,254

b. Based on our initial projections, it appears that Merck will have excess cash of approximately $2 billion in year 3. This excess cash should be used to reduce both debt and equity so as to maintain historical financial leverage.

9-20


Problem 9-4 (90 minutes) Historical figures Year 2 Year 3 Sales growth Net profit Margin (Net income/Sales) NWC turn (Sales/avg NWC) FA turn (Sales/avg FA) Total operating assets/Total equity Cost of equity ($ Thousands) Sales Net income ($ Mil) Net working capital Fixed assets Total Operating assets L-T Liabilities Total Stockholder's Equity ($ Mil)

8.50% 6.71% 8.98 1.67 1.96

10.65% 8.22% 9.33 1.64 2.01

Forecast

Terminal Year 20x8

Horizon Year 4 Year 5

Year 6

Year 7

20x8

10.65%

10.65%

10.65%

10.65%

10.65%

3.50%

8.22%

8.22% 8.22%

8.22%

8.22% 8.22%

8.22% 8.22%

8.22%

9.33

9.33 9.33

9.33

9.33

9.33 9.33

9.33

1.64

1.64 1.64

1.64

1.64

1.64 1.64

1.64

2.01

2.01 2.01

2.01

2.01

2.01 2.01

2.01

31,127 2,558 3,336 18,961 22,297 11,211 11,086

34,443 2,831 3,692 20,981 24,673 12,405 12,267

38,112 3,132 4,085 23,216 27,301 13,727 13,574

42,171 3,466 4,520 25,689 30,209 15,189 15,020

46,663 3,835 5,001 28,425 33,426 16,807 16,619

48,297 3,969 5,176 29,420 34,596 17,395 17,201

2,558 10,019 12.5% 1,252 1,306 0.89

2,831 11,086 12.5% 1,386 1,445 0.79

3,132 12,267 12.5% 1,533 1,599 0.70

3,466 13,574 12.5% 1,697 1,769 0.62

3,835 15,020 12.5% 1,877 1,958 0.55

3,969 16,619 12.5% 2,077 1,892

1,161 1,161

1,142 2,303

1,123 3,425

1,105 4,530

1,086 5,616 11,665 10,019 27,301 1,737 $15.72

12.5%

25,423 1,706 2,832 15,232 18,064 8,832 9,232

Residual Income Computation Net Income Beginning Equity Required Equity Return Expected Earnings Residual Income Discount factor Present value of residual income Cum PV residual income Terminal value of abnormal earnings Beg book value of equity Value of equity - Abnormal Earnings Common shares outstanding (mil) per share

28,131 2,312 3,015 17,136 20,151 10,132 10,019

9-21


Problem 9-5 (90 minutes) a. Telnet Corporation Pro Forma Income Statement ($000s) Six Months Ended June 30, Year 2 Sales revenue ($250 x 6 mos.) ................................................... ................................................................... ................

$1,500

Cost of goods sold (note [a]) ................................................. ..................................................................... ....................

1,199

Gross margin ................................................. ........................................................................... .............................................. ....................

301

Selling and administrative expenses ($47.5 x 6 mos.) ............... ....... ................ .............. ......

285

Expected pre-tax income ............................................... ........................................................................ ............................. ....

16

Estimated income taxes (at 50%)................................................... ............................................................... ............

8

Expected net income ................................................. .......................................................................... ................................. ........

$

8


Problem 9-5 (90 minutes) a. Telnet Corporation Pro Forma Income Statement ($000s) Six Months Ended June 30, Year 2 Sales revenue ($250 x 6 mos.) ................................................... ................................................................... ................

$1,500

Cost of goods sold (note [a]) ................................................. ..................................................................... ....................

1,199

Gross margin ................................................. ........................................................................... .............................................. ....................

301

Selling and administrative expenses ($47.5 x 6 mos.) ............... ....... ................ .............. ......

285

Expected pre-tax income ............................................... ........................................................................ ............................. ....

16

Estimated income taxes (at 50%)................................................... ............................................................... ............

8

Expected net income ................................................. .......................................................................... ................................. ........

$

8

Note [a]: We use T-accounts to compute c ost of goods sold ($ thousands) Raw Material Inventory Beginning (given) Material purchases ($125 x 6 mos.) Ending (given)

0 750

715

To W.I.P. inventory [a] (plug)

35 Work in Process Inventory

Beginning (given) From raw materials inventory [a] Labor ($30.5 x 6 mos.) Variable overhead ($22.5 x 6 mos.) Rent ($10 x 6 mos.) Depreciation ($35 x 6 mos.) Patent amortization ($.5 x 6 mos.) Ending (given)

0 715 183 135 60 210 3

7 1,299

Prepaid expenses (given) To F.G. inventory [b] (plug)

0 Finished Goods Inventory

Beginning (given) From W.I.P. inventory [b] Ending (given)

0 1,299

1,199

100

9-22

Cost of goods sold (plug)


Problem 9-5 — continued b. Telnet Corporation Pro forma Balance Sheet ($000s) June 30, Year 2 ASSETS Cash............................................ ............................................................................. ................................. $

40

(minimum cash)

Accounts receivable ............................................ ................................................... .......

375

(45 days' sales)*

Inventories ($35 + $100) .............................................

135

(given)

Prepaid expenses ................................................ ....................................................... .......

7

(given)

Total current assets..................................................

557

(subtotal)

Equipment ........................................... ................................................................... ........................

1,200

(given)

Less accumulated depreciation ................................

210

($35 x 6 mos.)

Equipment, net ................................................... .......................................................... .......

990

(subtotal)

Patents ................................................ ........................................................................ ........................

40

(given)

Less amortization ................................................ ....................................................... .......

3

($500 x 6 mos.)

Patents, net ............................................... ............................................................... ................

37

(subtotal)

Total Assets ................................................ ................................................................ ................ $1,584 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable ................................................ ....................................................... ....... $ 125

(30 days' purchases)**

Accrued taxes ............................................. ............................................................. ................

8

(from Inc. Stmt.)

Stockholders' equity............................................ equity................................................... .......

1,300

(given)

Retained earnings........................................ earnings....................................................... ...............

8

(from Inc. Stmt.)

Additional funds needed ............................................

143

"plug"

Total liabilities and equity equity .......................................... $1,584 * ($250,000 x 6) / 180 days = $8,333 per day x 45 days = $375,000 ** ($125,000 x 6) / 180 days = $4,166 per day x 30 days = $125,000

9-23


Problem 9-5 — continued c. Telnet Corporation Forecasted Statement of Cash Flows For Six Months Ended June 30, Year 2 Cash balance, beginning ........................................... .................................................. ....... Add collection of accounts receivable * ...........................

$

60,000

1,125,000

$1,185,000

Less disbursements for Material purchases ** ............................................. .................................................... .......

625,000

Labor .............................................. .............................................................................. ................................

183,000

Rent ................................................ ................................................................................ ................................

60,000

Overhead ............................................... ....................................................................... ........................

135,000

Selling expense .............................................. ............................................................. ...............

285,000

Tentative cash balance ............................................... ...................................................... .......

(1,288,000) $ (103,000)

Minimum cash balance required .......................................

40,000

Additional borrowing required ..........................................

$ 143,000

Ending cash balance .................................................. ......................................................... .......

$

Loan balance............................................... ....................................................................... ........................

$ 143,000

40,000

* Collection of accounts receivable Sales .................................................... .......................... ............................................. ................... Collections.................................................... .......................... .................................... .......... Accumulated Collections ....................................... ........................ ...............

Jan. Feb. Mar. Apr. May June 250 250 250 250 250 250 0 125 125 250 250 250 250 0 125 375 625 875 1,125

** Payment of accounts payable Purchases ........................... .................................... .......................... .......... Payments ................................................. ........................ ........................................ ............... Accumulated Payments ........................... ..............

Jan. Feb. Mar. 125 125 125 0 125 125 0 125 250

9-24

Apr. May 125 125 125 125 375 500

June 125 125 625


Problem 9-6 (95 minutes) Quaker Oats Forecasted Statement of Cash Flows For Year Ended June 30, Year 12 Cash provided by (used for) operations Net income (a) ............................................. ............................................................................................. ................................................ Items in income not affecting cash

$ 238.8

Depreciation & amortization (b) ................................................. ............................................................... ..............

196.6

Deferred income taxes (c) ................................................. ........................................................................ .......................

54.7

Provision for restructuring charges (given) ........................................... Increase in receivables (d) .......................................... ......................................................................... ...............................

0.0 (8.9)

Increase in inventories (e)........................................................... (e).......................................................................... ...............

(45.2)

Increase in other current assets (f) ............................................. ........................................................... .............. Increase in accounts payable (g) ................................................ .............................................................. ..............

(25.6) 42.1

Increase in other current liabilities (h) ................................................ ...................................................... ...... Cash provided by operating activities ................................................ ...................................................... ......

24.5 $ 477.0

Cash provided by (used for) investment activities Capital expenditures, PP&E (given) ............................................ .......................................................... ..............

$ (300.0)

Asset retirements (given) ............................................ ........................................................................... ............................... Other changes (given) ................................................. ................................................................................ ............................... Cash used for investing activities ............................................... ............................................................. ..............

20.0 (30.0) $ (310.0)

Cash provided by (used for) financing activities Repayments of L-T debt (given) .................................................. ................................................................ ..............

$ (45.0)

Net decrease in S-T debt (given) ................................................. ............................................................... ..............

(40.0)

Cash dividend paid (given) ................................................. ........................................................................ .......................

(135.0)

Additions to L-T debt —plug (i) ............................................ .................................................................. ......................

55.8

Cash provided by financing activities................................................. ....................................................... ......

$(164.2)

Net increase in cash (j) ................................................ ............................................................................... ...............................

$

2.8

Cash, beginning balance ............................................ ........................................................................... ...............................

30.2

Cash, balance at end of year .............................................. ..................................................................... .......................

$ 33.0

Notes: (a) Average percent of income from continuing operations operations to sales, Years 9-11 ($235.8 +$228.9 + $148.9) / ($5,491.2 + $5,030.6 + $4,879.4) = 3.98% Net income in Year 12 = $6,000 x .0398 .0 398 = $238.8

9-25


Problem 9-6 – continued (b) Depreciation and amortization amortization in Year 12 = $238.8 x .8233 = $196.6 (c) Average percent of deferred income taxes (noncurrent) and other items to income from continuing operations, Years 9-11: $140.4 / $613.6 = 22.9% Noncurrent deferred income tax in Year 12 = $238.8 x .229 = $54.7 (d) Ending accounts accounts receivable = $6,000 x (42/360) = $700.0 For Year 12: Accounts receivable, beg $691.1 Accounts receivable, end 700.0 Increase $ 8.9 (e) Year 12 cost of sales = $6,000 x .51 = $3,060 Ending inventory = $3,060 x (55/360) = $467.5 For Year 12: Inventory, beg $422.3 Inventory, end 467.5 Increase $ 45.2 (f) ($13.7 + $14.1 + $48.9)/3 = $25.6 (g) Year 12 purchases = $2,807.2 $2,807.2 x 1.12 = $3,144.1 Accounts payable, end = $3,144.1 x (45/360) = $393.0 For Year 12: Accounts payable, beg $350.9 Accounts payable, end 393.0 Increase $ 42.1 (h) ($43.2 + $83.4 - $53.1)/3 = $24.5 (i) Amount required to balance balance statement. statement. (j) Percent of cash to revenues in Year 11 = $30.2 $30.2 / $5,491.2 = 0.55% Year-end cash in Year 12 = $6,000 x 0.55% = $33 Increase in cash for Year 12 = $33 - $30.2 = $2.8

9-26


CASES Case 9-1 (60 minutes) Kodak INCOME STATEMENT

20x7 Est

20x6

20x5

12,515

13,234

13,994

Cost of goods

8,199

8,670

8,375

Gross profit

4,316

4,564

5,619

Selling general & administrative expense (except depreciation)

1,761

1,862

1,776

Depreciation expense

766

765

738

Research & development costs

737

779

784

Goodwill amortization

0

154

151

Restructuring costs (credits)

0

659

-44

1,052

345

2,214

208

219

178

18

18

-96

Income before tax

827

108

2,132

Income tax expense

245

32

725

Net income

582

76

1,407

Outstanding shares

290

290

290

-5.43% 34.49% 14.07% 5.90% 5.89% 6.49% 29.63%

-5.43% 34.49% 14.07% 5.90% 5.89% 6.49% 29.63%

Net sales

Earnings from operations Interest expense Other expense (income)

RATIOS Sales growth Gross Profit Margin Selling General & Administrative Exp / Sales DEPRECIATION (depn exp / pr yr PPE gross) R&D/sales INT (int / pr yr STD and LTD) Tax (Inc Tax / Pre-tax inc)

9-27


Case 9-1 – continued BALANCE SHEET Cash Receivables Inventories Other Total current assets

20x7 Est $ 17 2,210 1,075 761 4,064


20x6 $ 448 2,337 1,137 761 4,683

20x5 $ 246 2,653 1,718 874 5,491

13,972 12,982 12,963 (NOTE 4) 8,089 7,323 7,044 5,883 5,659 5,919 3,020 3,020 2,802 $12,967 $13,362 $14,212

Accounts payable & accrued liabilities Short-term debt Current maturities of l-t debt Income taxes Total current liab

3,098 1,378 13 544 5,033

3,276 1,378 156 544 5,354

Long term debt Postemployment liabilities liabiliti es Other long-term liabilities Total liabilities

1,653 2,728 720 10,134

1,666 2,728 720 10,468

1,166 2,722 681 10,784


978 849 6,773 5,767 2,833 12,967

978 849 6,834 5,767 2,894 13,362

978 871 7,387 5,808 3,428 14,212

5.66 7.63 2.65 4.58 $2.22

5.66 7.63 2.65 4.62 $2.22

5.27 4.87 2.46 4.15 $1.88

990 7.91%

1047 7.91%

783 5.60%

RATIOS AR turn INV turn AP turn FLEV Div/sh CAPEX CAPEX/Sales

9-28

3,403 2,058 148 (NOTE 8) 606 6,215


Case 9-1 – continued Statement of Cash Flows

20x7 Estim.

Net income

$ 582

Depreciation

766

Accounts receivable

127

Inventories

62

Accounts payable

(178)


1,359

CAPEX Net cash flow from investing activities

(990) (990)

Long term debt Dividends Net cash flow from financing activities

(156) (643) (799) _____ (431) 448 $ 17


9-29


Case 9-2 (120 minutes) Miller Company Cash Forecast For Years Ended December 31, Years 2 through 4 Year 2 Year 3 Cash balance at beginning of period ............... ....... ........... ... $ 0 $1,929,000 Cash received from stockholders ............... ....... ................ ........ 100,000 0 Proceeds of loan (see [a]) ................ ........ ................ ................ ............ .... 1,700,000 100,000 Cash receipts less cash payments (see [b]) ...... 129,000 125,500 Payments Payments for construction construction .................................. .................................. 0 (1,700,000) (1,700,000) Payments on loan (see [a]) ............... ........ ............... ................ ........... ... 0 (200,000) Cash balance at end of period ................ ........ ................ ............. ..... $1,929,000 $ 254,500

Year 4 $254,500 0 0 146,500 (100,000) (200,000) $101,000

Supporting Schedules for the Cash Forecast [a] Schedule of interest and commitment fees Am ount of Loan

I n t e r es es t or Fee

Year 2:

To be borrowed 1/1 ................................................................ To be borrowed 4/1 ................................................................ Commitment fee due 4/1 ($1,000,000 x 1% x 1/4) ............ ...... ........... ..... To be borrowed 7/1 ................................................................ Commitment fee due 7/1 ($500,000 x 1% x 1/4) ............ ...... ............ ........ .. To be borrowed 12/31 ............................................................ Commitment fee due 12/31 ($200,000 x 1% x 1/2) ............ ...... .......... .... Interest due on loan: On $800,000 $800,000 @ 5% ............................................................ On $500,000 $500,000 @ 5% x 3/4 ................................................... On $300,000 $300,000 @ 5% x 1/2 ................................................... Total at 12/31/Year 12/31/Year 2 ...............................................................

$ 800,000 800,000 500,000 $ 2,500 300,000 1,250 100,000 1,000

$1,700,000 $1,700,000

40,000 18,750 7,500 $71,000

Year 3:

To be borrowed 4/1 ................................................................ Commitment fee due 4/1 ($100,000 x 1% x 1/4) ............ ...... ............ ........ .. Repayment Repayment of loan: Due 6/30 ............................................................................ Due 12/31 .......................................................................... Interest due on loan: On $1,700,000 $1,700,000 @ 5% x 1/4 ................................................ On $1,800,000 $1,800,000 @ 5% x 1/4 ................................................ On $1,700,000 $1,700,000 @ 5% x 1/2 ................................................ Total at 12/31/Year 12/31/Year 3 ...............................................................

100,000 250 (100,000) (100,000) (100,000) (100,000)

$1,600,000 $1,600,000

21,250 22,500 42,500 $86,500

Year 4:

Repayment Repayment of loan: Due 6/30 ............................................................................ Due 12/31 .......................................................................... Interest due on loan: On $1,600,000 $1,600,000 @ 5% x 1/2 ................................................ On $1,500,000 $1,500,000 @ 5% x 1/2 ................................................ Total at 12/31/Year 12/31/Year 4 ...............................................................

9-30

(100,000) (100,000) (100,000) (100,000)

$1,400,000 $1,400,000

40,000 37,500 $77,500


Case 9-2 – continued [b] Schedule of Operating Results Year 2

Year 3

Year 4

Results of operations Operating profit (at $.04 per ton handled) ............ ...... ........... .....

$200,000

$212,000

$224,000

Interest and commitment commitment fees (above) ......................

71,000

86,500

77,500

Cash derived from operations....................................

129,000

125,500

146,500

Depreciation Depreciation (at $.03 per ton handled).......................

150,000

159,000

168,000

Operating loss .............................................................

$ 21,000

33,500

21,500

Operating loss from prior year(s) year(s)...............................

21,000

54,500

Accumulated Accumulated operating loss ......................................

$ 54,500

$ 76,000

Interpretation and Evaluation As revealed in note [b], reporting on the "results of operations," Miller Company is expected to record operating losses for each of the next three years under analysis. Nevertheless, the analysis also reveals that Miller is expected to generate sufficient cash flow to cover the various cash commitments.

9-31


Case 9-3 (100 minutes) Royal Company Cash Forecast For Years Ending March 31, Years 6 and 7 Year 6

Beginning Beginning balance of cash ...................................... ......................................

$

Year 7

0

$

75,000

Cash receipt from customers (see Schedule A) .... Cash disbursements Direct materials (see Schedule B)................ ........ ................ .......... Direct labor .................................................. ............................................................. ........... Variable overhead overhead .................................................. .................................................. Fixed costs .................................................. ............................................................ .......... Total cash disbursements ................ ........ ................ ................ ............. ..... Operating cash receipts less disbursements ........

825,000

1,065,000

220,000 300,000 100,000 130,000 750,000 75,000

245,000 360,000 120,000 130,000 855,000 210,000

Cash from sale of receivables and inventories ..... Total cash available available ................................................. .................................................

90,000 $165,000

0 $ 285,000

Payments to general creditors ............... ....... ................ ................ .......... Ending balance of cash ........................................... ...........................................

90,000 $ 75,000

270,000 $ 15,000

1

2

1

This amount could have been used to pay general creditors or carried forward to the beginning of the next year. 2 Computed as: ($600,000 ($600,000 x 60%) - ($50,000 + $40,000). $40,000). Schedule A

Cash Receipts from Customers Year 6

Sales ....................................................................................... Beginning accounts receivable receivable ............................................. Total ...................................................................................... Less: Ending accounts receivable receivable ........................................ Cash receipts from customers customers ..............................................

$900,000 0 900,000 75,000 $825,000

Year 7

$1,080,000 $1,080,000 75,000 1,155,000 1,155,000 90,000 $1,065,000 $1,065,000

Schedule B

Cash Disbursements for Direct Materials Year 6

Direct materials required for production ................... Required ending inventory ......................................... Total ........................................................................... Less: Beginning inventory ......................................... Purchases ................................................................. Beginning accounts payable ...................................... Total ........................................................................... Less: Ending accounts payable ................................. Disbursements Disbursements for direct materials ........................... 3 4

$200,000 40,000 3 240,000 0 240,000 0 240,000 20,000 $220,000

Computed as: 12,000 12,000 units x 2/12 2/12 = 2,000; 2,000 x $20 $20 per unit = $40,000. Computed as: 15,000 15,000 units x 2/12 2/12 = 2,500; 2,500 x $20 $20 per unit = $50,000.

9-32

Year 7

$240,000 $240,000 50,000 290,000 40,000 250,000 20,000 270,000 25,000 $245,000 $245,000

4


Case 9-4 (115 minutes) a. (1) Estimated Total Cash Receipts Sep.

Total sales............................................. ............................................. $40,000 Credit sales (25%) ................ ........ ................ ............... ......... 10,000 Cash sales ............................... ............................... $30,000 36,000 Receipts of past month's credit sales Total cash receipts............................... ...............................

Oct.

$48,000 12,000 $45,000 10,000 $46,000

Nov .

$60,000 15,000 $60,000 12,000 $57,000

Dec.

$80,000 20,000 15,000 $75,000

(2) Estimated Cash Disbursements for Purchases Oct.

Nov.

Dec.

Total

Total Sales ....................................... .......................................

$48,000

$60,000 $60,000

$80,000

Purchases (70% next mo. sales) .... Less: 2% purchase discount .......... ........ .. Cash disbursements ................ ........ ............... .......

$42,000 840 $41,160

$56,000 1,120 $54,880

$25,200 $123,200 504 2,464 $24,696 $120,736

—

(3) Estimated Cash Disbursements for Operating Expenses Oct.

Nov.

Dec.

Total

Sales................................................. ................................................. $48,000

$60,000

$80,000

—

Salaries and Wages (15%) .............. ........ ...... Rent (5%).......................................... .......................................... Other Expenses (4%) ................ ........ .............. ...... Cash disbursements ................ ........ ............... .......

$ 9,000 3,000 2,400 $14,400

$12,000 4,000 3,200 $19,200

$28,200 9,400 7,520 $45,120

$ 7,200 2,400 1,920 $11,520

(4) Estimated Total Cash Disbursements Oct.

Purchases [part (2)]......................... (2)] ......................... $41,160 Operating expenses [part (3)] ........ 11,520 Plant and equipment (given) .......... ........ .. 600 Total cash disbursements .............. ........ ...... $53,280

Nov.

$54,880 14,400 400 $69,680

Dec.

$24,696 19,200 $43,896

Total

$120,736 $120,736 45,120 1,000 $166,856

(5) Estimated Net Cash Receipts and Disbursements Oct.

Total cash receipts ................ ........ ................ .......... .. Total cash disbursements .............. ........ ...... Net cash increase............................ ............................ Net cash decrease decrease ........................... ...........................

Nov.

$46,000 53,280

$57,000 69,680

$ 7,280

$12,680

9-33

Dec.

$75,000 43,896 $31,104

Total

$178,000 166,856 $ 11,144


Case 9-4 — continued (6) Estimated Financing Required Oct. Nov.

Beginning cash balance ................ ........ ..........

$12,000

$ 8,720

Dec.

$ 8,040

$12,000

31,104

11,144

$39,144

$23,144

Net cash increase............................ ............................ Net cash decrease decrease ........................... ...........................

7,280

12,680

Cash position before financing ......

$ 4,720

$(3,960)

Financing required ................ ........ ................ .......... ..

4,000

12,000

Total

16,000

Interest expense 1............................ ............................

(180)

(180)

Financing retired ............................. .............................

(16,000)

(16,000)

$22,964

$22,964

Ending cash balance................ ........ ............... .......

$ 8,720

$ 8,040

1

Computed as: ($4,000 x .06 x 3/12) + ($12,000 x .06 x 2/12).

b. (1) Union Corporation Forecasted Income Statement For the Quarter Ended December 31, Year 6

Sales [see (1) in part a] .................................................. ...................................................... ....

$188,000 $188,000

Deduct Cost of goods sold (70% of sales) ................ ........ ................ ............... .......

$131,600

Less: Purchase discounts taken [see (2) in part a] ....

2,464

Gross profit................................................ ......................................................................... .........................

129,136 58,864

Selling and administrative expenses Salaries and wages [see (3) in part a] .........................

28,200

Rent [see (3) in part a] .................................................. ..................................................

9,400

Other expenses [see (3) in part a] ................ ........ ................ ............... .......

7,520

Depreciation Depreciation ($750 x 3 months) ................................... ...................................

2,250

Total selling and administrative expenses ................ ........ .............. ......

47,370

Operating income.................................................. ............................................................... .............

11,494

Interest expense expense ................................................ ................................................................. .................

180

Net income .................................................. ....................................................................... .....................

$ 11,314

9-34


Case 9-4 — continued (2) Union Corporation Forecasted Balance Sheet As of December 31, Year 6

ASSETS Current Assets Cash [see (6) in part a] ................................................. .................................................

$ 22,964

Accounts receivable (25% of Dec. sales) ............... ........ ............ .....

20,000

Inventory [($30,000 + 70% of $36,000) x 98%] ............ ....... .....

54,096

Total current assets ................................................... ........................................................... ........

$ 97,060

Plant and equipment equipment .................................................. .......................................................... ........

101,000

Less: Accumulated depreciation ............... ....... ................ ................ ............... .......

2,250

Total assets ................................................... ........................................................................ .....................

98,750 $195,810

LIABILITIES AND EQUITY Liabilities Liabilities................................................ ......................................................................... ............................. ....

$

0

Stockholders' Stockholders' equity .................................................. .......................................................... ........

195,810

Total liabilities and equity ................................................. .................................................

$195,810

9-35

Ch 09 - Prospective Analysis

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