This spreadsheet assignment is a continuation of the spreadsheet assignments given in earlier chapters.
If you completed those spreadsheets, you have a head start on this one.
This assignment is based on the spreadsheet prepared in part (1) of the spreadsheet assignment for Chapter 7. Review that assignment for a summary of the assumptions made in preparing a forecasted balance sheet and income statement for 2013 for Handyman Company. Using those financial statements, complete the following two independent sensitivity exercises.
1. Handyman is involved in a class-action lawsuit in which a number of customers allege that they injured their thumbs while using hammers purchased at Handyman. These customers are seeking $50 million in compensatory and punitive damages.  In making the financial statement projections for Handyman for 2013, it has been assumed that losing this lawsuit is possible, but not probable. Compute how each of the following quantities would be affected if a loss in this lawsuit becomes probable during 2013:
a. Debt ratio (total liabilities/total assets) as of the end of 2013.
b. Return on equity (net income/ending stockholders’ equity) for 2013.
2. Ignore the lawsuit described in (1). It is expected that Handyman’s total “other operating expenses’’ will be $217 million in 2013. Of this amount, $20 million is for expected development costs that would be capitalized if Handyman were allowed to use International Financial Reporting Standards. Compute how the capitalization of these development costs in 2013 would affect the following quantities. (Note: Th is is a hypothetical exercise because, as a U.S. company, Handyman is not currently allowed to use International Financial Reporting Standards in preparing its financial statements.)
a. Debt ratio (total liabilities/total assets) as of the end of 2013.
b. Return on equity (net income/ending stockholders’ equity) for 2013.