Assume you just attended an Equity Research Conference where Merck's CFO discussed the firm's strategic plan...

 

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Assume you just attended an Equity Research Conference where Merck's CFO discussed the firm's strategic plan for the upcoming fiscal year YY11, which ends on 12/31/YY11. During the conference, the CFO stated that management believes that in the fiscal year ending 12/31/YY11 Merck's Sales will increase by 5.85% from the Sales reported for the fiscal year ending 12/31/YY10 (YY10). Required: Calculate the predictable incremental operating cash flow (OCF) effect caused by the Change in Sales, Per Se, for the year ending 12/31/YY11 (YY11). (100 points) Merck's Income Statements Income Statement Sales Cost of sales Selling, general & administrative expenses Research & development expenses Restructuring costs Equity income (loss) from affiliates Interest income Interest expense Other income (expense), net Income (loss) before taxes (benefit) Taxes on income Net income (loss) Less: net (loss) income attributable to noncontrolling interests Net income (loss) attributable to Merck & Co., Inc. Less: income allocated to participating securities Net income allocated to common shareholders YY10 YY09 YY08 Thousands Thousands Thousands $47,994,000.0 $46,840,000.0 $42,294,000.0 $15,485,000.0 $14,112,000.0 $13,509,000.0 $10,468,000.0 $10,615,000.0 $10,102,000.0 $13,558,000.0 $9,872,000.0 $9,752,000.0 $578,000.0 $638,000.0 $632,000.0 $1,338,000.0 $170,000.0 $324,000.0 $59,000.0 $274,000.0 $343,000.0 $831,000.0 $893,000.0 $772,000.0 $442,000.0 $561,000.0 $290,000.0 $8,791,000.0 $11,464,000.0 $8,701,000.0 $1,709,000.0 $1,687,000.0 $2,508,000.0 $7,082,000.0 $9,777,000.0 $6,193,000.0 ($15,000.0) $27,000.0 $6,220,000.0 $66,000.0 $7,067,000.0 $9,843,000.0 $0.0 $0.0 $7,067,000.0 $9,843,000.0 $0.0 $6,220,000.0 Merck's Balance Sheets Balance Sheet Cash & cash equivalents Short-term investments Accounts receivable Inventories Other current operating assets Total current assets Investments Property, plant & equipment, net Goodwill Other intangibles, net Other assets Total assets Loans payable & current portion of long-term debt Trade accounts payable Accrued & other current liabilities Income taxes payable Interest payable Total current liabilities Long-term debt Deferred income taxes & noncurrent liabilities Other noncurrent liabilities Common stock Other paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Less treasury stock, at cost Total Merck & Co., Inc. stockholders' equity Noncontrolling interests Total equity OLL YY10 Thousands $8,062,000.0 YY09 Thousands $9,676,000.0 YY08 Thousands $7,965,000.0 $774,000.0 $899,000.0 $7,851,000.0 $6,778,000.0 $7,071,000.0 $6,310,000.0 $5,978,000.0 $5,440,000.0 $5,541,000.0 $4,277,000.0 $4,500,000.0 $27,764,000.0 $27,483,000.0 $25,875,000.0 $0.0 $785,000.0 $1,469,000.0 $6,233,000.0 $17,986,000.0 $15,053,000.0 $13,291,000.0 $20,238,000.0 $19,425,000.0 $18,253,000.0 $14,604,000.0 $14,196,000.0 $11,431,000.0 $10,211,000.0 $6,771,000.0 $7,554,000.0 $91,588,000.0 $84,397,000.0 $82,637,000.0 $5,308,000.0 $6,431,000.0 $3,610,000.0 $4,594,000.0 $3,738,000.0 $3,318,000.0 $13,053,000.0 $12,549,000.0 $10,151,000.0 $1,575,000.0 $736,000.0 $1,971,000.0 $1,674,000.0 $1,587,000.0 $1,458,000.0 $27,327,000.0 $22,220,000.0 $22,206,000.0 $25,360,000.0 $22,736,000.0 $19,806,000.0 $1,015,000.0 $1,470,000.0 $1,702,000.0 $12,482,000.0 $11,970,000.0 $12,041,000.0 $1,788,000.0 $1,788,000.0 $1,788,000.0 $39,588,000.0 $39,660,000.0 $38,808,000.0 $47,362,000.0 $46,602,000.0 $42,579,000.0 ($6,634,000.0) ($6,193,000.0) ($5,545,000.0) $56,787,000.0 $55,950,000.0 $50,929,000.0 $25,317,000.0 $25,907,000.0 $26,701,000.0 $94,000.0 $181,000.0 $87,000.0 $25,404,000.0 $26,001,000.0 $26,882,000.0 T Select Information from Merck's Statement of Cash Flows Select Statement of Cash Flow Information Depreciation & amortization Noncash Intangible asset impairment charges (included in SG&A) Noncash Charge for the acquisition of VelosBio Inc. (included in SG&A) Share-based compensation (included in SG&A) Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities YY10 YY09 YY08 Thousands Thousands Thousands $3,625,000.0 $3,652,000.0 $4,519,000.0 $1,718,000.0 $1,040,000.0 $296,000.0 $2,660,000.0 $0.0 $0.0 $475,000.0 $417,000.0 $348,000.0 $10,253,000.0 $13,440,000.0 $10,922,000.0 ($9,443,000.0) ($2,629,000.0) $4,314,000.0 ($2,832,000.0) ($8,861,000.0) ($13,160,000.0) Assume you just attended an Equity Research Conference where Merck's CFO discussed the firm's strategic plan for the upcoming fiscal year YY11, which ends on 12/31/YY11. During the conference, the CFO stated that management believes that in the fiscal year ending 12/31/YY11 Merck's Sales will increase by 5.85% from the Sales reported for the fiscal year ending 12/31/YY10 (YY10). Required: Calculate the predictable incremental operating cash flow (OCF) effect caused by the Change in Sales, Per Se, for the year ending 12/31/YY11 (YY11). (100 points) Merck's Income Statements Income Statement Sales Cost of sales Selling, general & administrative expenses Research & development expenses Restructuring costs Equity income (loss) from affiliates Interest income Interest expense Other income (expense), net Income (loss) before taxes (benefit) Taxes on income Net income (loss) Less: net (loss) income attributable to noncontrolling interests Net income (loss) attributable to Merck & Co., Inc. Less: income allocated to participating securities Net income allocated to common shareholders YY10 YY09 YY08 Thousands Thousands Thousands $47,994,000.0 $46,840,000.0 $42,294,000.0 $15,485,000.0 $14,112,000.0 $13,509,000.0 $10,468,000.0 $10,615,000.0 $10,102,000.0 $13,558,000.0 $9,872,000.0 $9,752,000.0 $578,000.0 $638,000.0 $632,000.0 $1,338,000.0 $170,000.0 $324,000.0 $59,000.0 $274,000.0 $343,000.0 $831,000.0 $893,000.0 $772,000.0 $442,000.0 $561,000.0 $290,000.0 $8,791,000.0 $11,464,000.0 $8,701,000.0 $1,709,000.0 $1,687,000.0 $2,508,000.0 $7,082,000.0 $9,777,000.0 $6,193,000.0 ($15,000.0) $27,000.0 $6,220,000.0 $66,000.0 $7,067,000.0 $9,843,000.0 $0.0 $0.0 $7,067,000.0 $9,843,000.0 $0.0 $6,220,000.0 Merck's Balance Sheets Balance Sheet Cash & cash equivalents Short-term investments Accounts receivable Inventories Other current operating assets Total current assets Investments Property, plant & equipment, net Goodwill Other intangibles, net Other assets Total assets Loans payable & current portion of long-term debt Trade accounts payable Accrued & other current liabilities Income taxes payable Interest payable Total current liabilities Long-term debt Deferred income taxes & noncurrent liabilities Other noncurrent liabilities Common stock Other paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Less treasury stock, at cost Total Merck & Co., Inc. stockholders' equity Noncontrolling interests Total equity OLL YY10 Thousands $8,062,000.0 YY09 Thousands $9,676,000.0 YY08 Thousands $7,965,000.0 $774,000.0 $899,000.0 $7,851,000.0 $6,778,000.0 $7,071,000.0 $6,310,000.0 $5,978,000.0 $5,440,000.0 $5,541,000.0 $4,277,000.0 $4,500,000.0 $27,764,000.0 $27,483,000.0 $25,875,000.0 $0.0 $785,000.0 $1,469,000.0 $6,233,000.0 $17,986,000.0 $15,053,000.0 $13,291,000.0 $20,238,000.0 $19,425,000.0 $18,253,000.0 $14,604,000.0 $14,196,000.0 $11,431,000.0 $10,211,000.0 $6,771,000.0 $7,554,000.0 $91,588,000.0 $84,397,000.0 $82,637,000.0 $5,308,000.0 $6,431,000.0 $3,610,000.0 $4,594,000.0 $3,738,000.0 $3,318,000.0 $13,053,000.0 $12,549,000.0 $10,151,000.0 $1,575,000.0 $736,000.0 $1,971,000.0 $1,674,000.0 $1,587,000.0 $1,458,000.0 $27,327,000.0 $22,220,000.0 $22,206,000.0 $25,360,000.0 $22,736,000.0 $19,806,000.0 $1,015,000.0 $1,470,000.0 $1,702,000.0 $12,482,000.0 $11,970,000.0 $12,041,000.0 $1,788,000.0 $1,788,000.0 $1,788,000.0 $39,588,000.0 $39,660,000.0 $38,808,000.0 $47,362,000.0 $46,602,000.0 $42,579,000.0 ($6,634,000.0) ($6,193,000.0) ($5,545,000.0) $56,787,000.0 $55,950,000.0 $50,929,000.0 $25,317,000.0 $25,907,000.0 $26,701,000.0 $94,000.0 $181,000.0 $87,000.0 $25,404,000.0 $26,001,000.0 $26,882,000.0 T Select Information from Merck's Statement of Cash Flows Select Statement of Cash Flow Information Depreciation & amortization Noncash Intangible asset impairment charges (included in SG&A) Noncash Charge for the acquisition of VelosBio Inc. (included in SG&A) Share-based compensation (included in SG&A) Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities YY10 YY09 YY08 Thousands Thousands Thousands $3,625,000.0 $3,652,000.0 $4,519,000.0 $1,718,000.0 $1,040,000.0 $296,000.0 $2,660,000.0 $0.0 $0.0 $475,000.0 $417,000.0 $348,000.0 $10,253,000.0 $13,440,000.0 $10,922,000.0 ($9,443,000.0) ($2,629,000.0) $4,314,000.0 ($2,832,000.0) ($8,861,000.0) ($13,160,000.0)

Answer rating: 100% (QA)

SOLUTION To calculate the predictable incremental operating cash flow OCF effect caused by the ... View the full answer