Refer to the financial statement data of ABEX Chemicals, Inc., reproduced in Case 10–5.

Required:

a. Prepare a forecast of ABEX’s total operating income for Year 10. (Hint: Refer to forecast data for volume, price, and cost.)

b. Identify additional information necessary to prepare a forecast of earnings per share (EPS) for Year 10, and identify five primary sources where you can obtain this information (you should identify primary sources and not necessarily external sources for the information needed).

c. Forecast and explain incremental changes in ABEX’s earnings per share based on each of the following two independent scenarios for the petrochemical division only.

(1) Price of polyethylene in Year 10 is 8% higher than shown in the selected key statistics.

(2) Volume of production and sales of polyethylene is 8% higher than shown in the selected key statistics.

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Exhibit I TOTAL U.S. POLYETHYLENE CAPACITY, PRODUCTION, AND PRICES Compound Projected Projected Annual Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Growth 15,600 16,100 Total production (Ibs. millions)... 17,600 19,800 18,900 19,700 19,700 Growth rate. 7.6% 9.3% 7.4% 3.2% 4.2% 0.0% 0.5% 4.1% Total capacity (Ibs. mllions) . Growth rate. 18,600 17,600 17,700 20,100 21,200 23,400 24,300 2.9% 0.6% 5.1% 3.8% 8.1% 5.5% 10.4% 5.5% Capacity operating rate. 88.6% 91.0% 94.6% 94.0% 92.9% 84.2% 81.5% Average price per pound. Percent change. $0.41 $0.37 $0.36 $0.51 $0.52 $0.47 $0.57 24.4% -9.8% -10.8% -2.7% 2.0% -9.6% 21.3% 5.6% ABEX CHEMICALS, INC. Selected Key Statistics Projected Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Polyethylene operations Production (Ibs. millions). 1,840 1,975 2,870 4,835 5,000 4,950 Approximate capacity (Ibs. millions). 1,900 2,100 2,950 5,000 5,500 5,500 Capacity operating rate.. Average price received. Average cost/pound produced. 97% 94% 97% 97% 91% 90% .$0.411 .$0.338 $0.367 $0.356 $0.511 $0.515 $0.470 $0.307 $0.285 $0.350 $0.394 $0.370 Pipeline transportation operations $/1,000 cubic feet (price).. $0.286 $0.253 $0.248 $0.221 $0.192 $0.187 Gas transported (trillion cubic feet). 4.64 4.88 4.67 5.00 5.85 6.29 Operating profit margin. 25.6% 27.2% 27.3% 25.9% 26.8% 27.0%