Question

Refine Cash Balance and Consider Capital Structure
Consider the following actual FY2017 data and a forecast of FY2018 selected balance sheet and income statement numbers.

$ millions	FY2017 Actual	FY2018 Est.
Net sales	$29,009	$32,102
Total assets	14,592	16,051
Total liabilities	8,755	9,923
Total equity	5,837	6,128
Cash	2,918	4,378
Marketable securities	730	730
Total liabilities (inc. long-term debt)	8,755	9,923
Treasury stock	(2,189)	(2,627)

a. Calculate the company's normal cash level as a percentage of sales.
Round answer to one decimal place (ex: 0.2345 = 23.5%)
Answer%

b. Determine the amount of adjustment needed to return cash to a normal level. Is an adjustment warranted? If an adjustment is not warranted, enter zero as the amount needed to return cash to a normal level.
If the adjustment is a decrease, use a negative sign with your answer.
Round answer to the nearest whole number, if applicable.
$Answer

For parts d through h, complete the table below.

d. Adjust marketable securities so the forecasted cash balance is at its normal level. What affect does this have on the forecasted liabilities-to-equity ratio?

e. Adjust long-term debt so the forecasted cash balance is at its normal level. What effect does this have on the forecasted liabilities-to-equity ratio? f. Adjust treasury stock so the forecasted cash balance is at its normal level. What effect does this have on the forecasted liabilities-to-equity ratio?

g. Adjust both long-term debt and marketable securities so as to adjust the forecasted cash balance. In so doing, make sure we preserve the company’s liabilities-to-equity ratio. (Hint: Use “Goal Seek” under the “What-If Analysis” in Excel to determine the proportion of long-term debt versus treasury stock needed to ensure the forecasted liabilities-to-equity ratio remains at its historical level.)

h. Adjust both long-term debt and treasury stock so as to adjust the forecasted cash balance. In so doing, make sure we preserve the company’s liabilities-to-equity ratio. (Hint: Use “Goal Seek” under the “What-If Analysis” in Excel to determine the proportion of long-term debt versus treasury stock needed to ensure the forecasted liabilities-to-equity ratio remains at its historical level.)

Do not use any negative signs with your answers.

Round liabilities to equity ratios to two decimal places.

Hints

Part g. - Marketable securities is adjusted by $704. Debt is adjusted by $704.

Part h. - Debt is adjusted by $966. Treasury stock is adjusted by $170.

	d.			g. Debt and	h. Debt and
	Marketable		f. Treasury	Marketable	Treasury
$ millions	Securities	e. Debt	Stock	securities	stock
Total assets	$Answer	$Answer	$Answer	$Answer	$Answer
Total liabilities	Answer	Answer	Answer	Answer	Answer
Total equity	Answer	Answer	Answer	Answer	Answer
Cash	Answer	Answer	Answer	Answer	Answer
Marketable securities	Answer	Answer	Answer	Answer	Answer
Total liabilities (inc. LT debt)	Answer	Answer	Answer	Answer	Answer
Treasury stock	Answer	Answer	Answer	Answer	Answer
Liabilities	Answer	Answer	Answer	Answer	Answer

Answer 1