Problem One:
Using the data in the student spreadsheet file P&G.xlsx forecast the June 30, 2011, income statement and balance sheet for Procter and Gamble. Use the percent of sales method and the following assumptions:
(1) Sales in FY 2011 will be $81,000
(2) The tax rate will be 27.26%.
(3) Each item that changes with sales will be the five-year average percentage of sales.
(4) The preferred dividend will be 219.
(5) The common dividend payout ratio will be 42% of income available to common stockholders.
Questions:
a. What is the discretionary financing needed in 2011? Is this a surplus or deficit?
b. Assume that the DFN will be absorbed by long-term debt and that the total interest rate is 4.50% of LTD. Set up an iterative worksheet to eliminate it.
c. Create a chart of cash vs. sales and add a linear trend line. Is the cash balance a consistent percentage of sales? Does the relationship fit your expectations?
d. Use the regression tool to verify your results from part c. Is the trend statistically significant? Use at least three methods to show why or why not.
e. Turn off iteration, and use the Scenario Manager to set up three scenarios:
1.) Best Case - Sales are 5% higher than expected.
2.) Base Case - Sales are exactly as expected.
3.) Worst Case - Sales are 5% less than expected.
What is the DFN under each scenario?
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The Procter & Gamble Company
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Pro-Forma Annual Income Statement
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Jun-10
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Jun-09
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Jun-08
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Jun-07
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Jun-06
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Total Revenue
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78,938
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76,694
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79,257
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72,441
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64,416
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Cost of Goods Sold
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37,919
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38,690
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39,261
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35,376
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31,867
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Gross Profit
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41,019
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38,004
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39,996
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37,065
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32,549
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Selling / General / Administrative Expense
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24,998
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22,630
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24,017
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22,580
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19,998
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Net Operating Income
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16,021
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15,374
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15,979
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14,485
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12,551
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Interest Expense
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946
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1,358
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1,467
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1,304
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1,120
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Other Non-Operating Expense (Income)
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28
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-397
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-373
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-481
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-221
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Earnings Before Taxes
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15,047
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14,413
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14,885
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13,662
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11,652
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Income Taxes
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4,101
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3,733
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3,594
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4,000
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3,465
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Income Before Extraordinary Items
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10,946
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10,680
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11,291
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9,662
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8,187
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Total Extraordinary Items
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1,790
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2,756
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784
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678
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497
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Net Income
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12,736
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13,436
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12,075
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10,340
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8,684
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Preferred Dividends
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219
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192
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176
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161
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148
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Income Available to Common Stocks
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12,517
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13,244
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11,899
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10,179
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8,536
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Basic Weighted Average Shares
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2,900.80
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2,952.20
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3,080.80
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3,159.00
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3,112.93
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Basic EPS Excluding Extraordinary Items
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3.70
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3.55
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3.61
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3.01
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2.58
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Basic EPS Including Extraordinary Items
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4.32
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4.49
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3.86
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3.22
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2.74
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Common Dividends per Share
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1.80
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1.64
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1.45
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1.28
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1.15
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Gross Dividends - Common Stock
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5,239.00
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4,852.00
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4,479.00
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4,048.00
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3,555.00
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The Procter & Gamble Company
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Pro-Forma Annual Balance Sheet
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Jun-10
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Jun-09
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Jun-08
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Jun-07
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Jun-06
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Assets
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Cash & Equivalents
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2,879
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4,781
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3,313
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5,354
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6,693
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Short Term Investments
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0
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0
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228
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202
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1,133
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Accounts Receivable
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5,335
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5,836
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6,761
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6,629
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5,725
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Inventory
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6,384
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6,880
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8,416
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6,819
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6,291
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Prepaid Expenses
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3,194
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3,199
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3,785
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3,300
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2,876
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Other Current Assets, Total
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990
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1,209
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2,012
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1,727
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1,611
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Total Current Assets
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18,782
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21,905
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24,515
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24,031
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24,329
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Gross Plant and Equipment
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37,012
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36,651
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38,086
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34,721
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31,881
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Accumulated Depreciation, Total
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17,768
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17,189
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17,446
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15,181
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13,111
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Net Plant and Equipment
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19,244
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19,462
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20,640
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19,540
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18,770
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Goodwill, Net
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54,012
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56,512
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59,767
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56,552
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55,306
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Intangibles - Gross
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35,194
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35,812
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36,904
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35,537
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35,004
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Accumulated Intangible Amortization
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3,558
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3,206
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2,671
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1,911
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1,283
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Intangibles, Net
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31,636
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32,606
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34,233
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33,626
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33,721
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Other Long Term Assets
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4,498
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4,348
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4,837
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4,265
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3,569
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Total Assets
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128,172
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134,833
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143,992
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138,014
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135,695
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Liabilities
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Accounts Payable
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7,251
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5,980
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6,775
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5,710
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4,910
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Accrued Expenses
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4,679
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4,361
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4,544
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9,586
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9,587
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Notes Payable / Short Term Debt
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7,908
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9,379
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11,338
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9,495
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198
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Current Portion of Long Term Debt / Capital Leases
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564
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6,941
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1,746
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2,544
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1,930
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Income Taxes Payable
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622
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722
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945
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3,382
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3,360
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Other Current Liabilities
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3,258
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3,518
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5,610
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0
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0
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Total Current Liabilities
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24,282
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30,901
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30,958
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30,717
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19,985
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Long Term Debt
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21,360
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20,652
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23,581
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23,375
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35,976
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Deferred Income Tax
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10,902
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10,752
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11,805
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12,015
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12,354
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Minority Interest
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324
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283
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290
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0
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0
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Pension Benefits - Underfunded
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6,616
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5,314
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3,658
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0
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0
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Other Long Term Liabilities
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3,573
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3,832
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4,206
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5,147
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4,472
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Total Long Term Liabilities
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42,775
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40,833
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43,540
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40,537
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52,802
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Total Liabilities
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67,057
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71,734
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74,498
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71,254
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72,787
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Owner's Equity
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Redeemable Convertible Preferred Stock
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1,277
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1,324
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1,366
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1,406
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1,451
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Common Stock
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4,008
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4,007
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4,002
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3,990
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3,976
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Additional Paid-In Capital
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61,697
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61,118
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60,307
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59,030
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57,856
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Retained Earnings
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64,614
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57,309
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48,986
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41,797
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35,666
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Less: Treasury Stock and Other
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70,481
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60,659
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45,167
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39,463
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36,041
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Total Equity
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61,115
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63,099
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69,494
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66,760
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62,908
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Total Liabilities & Shareholders' Equity
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128,172
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134,833
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143,992
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138,014
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135,695
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Total Common Shares Outstanding
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2,843.47
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2,917.04
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3,032.72
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3,131.95
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3,178.84
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Problem Two
Using the same data as in Problem 1:
Questions:
a. Recalculate the percentage of sales income statement, but this time use the TREND function to forecast other income and interest expense.
b. Recalculate the percentage of sales balance sheet, but this time use the TREND function to forecast cash, gross property plant and equipment, gross intangibles, and other long-term assets.
c. Do these new values appear to be more realistic than the original values? Does this technique make sense for each of these items? Might other income statement or balance sheet items be forecast in this way?