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Refine Assumptions for PPE Forecast Provided below is FY2016 information for Medtronic PLC. Medtronic plc Consolidated...

Refine Assumptions for PPE Forecast
Provided below is FY2016 information for Medtronic PLC.

Medtronic plc
Consolidated Statement of Income
($ millions) Apr. 29, 2016
Net sales $29,499
Costs and expenses
Cost of products sold 9,142
Research and development expenses 2,224
Selling, general, and administrative expense 9,469
Special charges (gains), net 70
Restructuring charge, net 290
Certain litigation charges, net 26
Acquisition-related items 283
Amortization of intangiable assets 1,931
Other expense, net 107
Operating profit 5,957
Interest expense, net 955
Income from operations before income taxes 5,002
Provision for income taxes 950
Net income $4,052


Medtronic plc
Consolidated Balance Sheets
($ millions) Apr. 29, 2016 Apr. 24, 2015
Current assets
Cash and cash equivalents $3,042 $5,009
Investments 9,758 14,637
Accounts receivable 5,562 5,112
Inventories 3,473 3,463
Tax assets 697 1,335
Prepaid expenses and other current assets 1,234 1,454
Total current assets 23,766 31,010
Property, plant, and equipment, net 5,007 4,865
Goodwill 41,500 40,530
Other intangible assets, net 26,899 28,101
Long-term tax assets 1,383 774
Other assets 1,559 1,737
Total assets $100,114 $107,017
Current liabilities
Short-term borrowings $1,159 $2,600
Accounts payable 1,709 1,610
Accrued compensation 1,712 1,611
Accrued income taxes 566 935
Deferred tax liabilities - 119
Other accrued expenses 2,185 2,464
Total current liabilities 7,331 9,339
Long-term debt 30,247 33,752
Long-term accrued compensation 1,759 1,535
Long-term accrued income taxes 2,903 2,476
Long-term deferred tax liabilities 3,729 4,700
Other long-term liabilities 1,916 1,819
Total liabilities 47,885 53,621
Shareholders' equity
Ordinary shares - -
Retained earnings 54,097 54,580
Accumulated other comprehensive (loss) (1,868) (1,184)
Total shareholders' equity 52,229 53,396
Total liabilities and shareholders' equity $100,114 $107,017



a. Use the financial statements along with the additional information below to forecast property, plant and equipment, net for FY2017.

CAPEX in FY2016 $1,101 million
Depreciation expense in FY2016 945 million
Forecasted FY2017 net sales 35,842 million



Round to the nearest million.

Forecasted PPE, net for FY2017 $Answer

million

b. Suppose the company discloses in a press release that accompanies its year-end SEC filing that anticipated CAPEX for FY2017 is $1.5 billion. Use the guidance to refine your forecast of property, plant and equipment, net for FY2017.

$Answer

million

Solutions

Expert Solution

Answer :

(a) Sales for 2016 = $29,499 million

CAPEX in 2016 = $1,101 million

Percentage of CAPEX of net sales = (1,101 / 29,499) x 100 = 3.7323%

Depreciation expense in 2016 = 945 million

Net PPE as on Apr. 24, 2015 = $4,865 million

Percentage of Depreciation expense of Net PPE = (945 / 4,865) x 100 = 19.425%

Forecasted net sales for 2017 = 35,842 million

Forecasted CAPEX for 2017 = 35,842 x 3.7323% = 1,338 million

Net PPE as on Apr. 29 2016 = $5,007 million

Forecasted Depreciation expense for 2017 = PPE net 2016 x 19.425%

= $5,007 x 19.425% = $973 million

Forecasted property, plant and equipment, net for FY2017 =

= Property, plant, and equipment, net as on Apr. 29, 2016 + Forecasted CAPEX for 2017 - Forecasted Depreciation expense for 2017

= 5,007 + 1,338 - 973 = $5,372 million

So, Forecasted property, plant and equipment, net for FY2017 = $5,372 million

(b)

Anticipated CAPEX for FY2017 = 1,500 million

Forecasted property, plant and equipment, net for FY2017 =

= Property, plant, and equipment, net as on Apr. 29, 2016 + Anticipated CAPEX for FY2017 - Forecasted Depreciation expense for 2017

= 5,007 + 1,500 - 973 = $5,534 million

So, Forecasted property, plant and equipment, net for FY2017 = $5,534 million


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