Question: Buckeye Computer, Inc. produces high performance image generators for simulation (including PC-based visual system products) and visual workstations for high-end graphics applications. Its financial statements are shown in Exhibit 1 (excel filed posted on Canvas). You forecast that Buckeye's revenue will grow each year by 15%. Estimate the free cash flows each year for the next five years 2006-2010. Use the following information to make your projections: Use the forecasting ratios provided in Exhibit 2 to project all other items (i.e. apart from sales). Note that all ratios are measured directly relative to sales1 (e.g. Inventory/Sales). Assume a tax rate of 35%.

EXHIBIT 1 BUCKEYE COMPUTERS, INC. ($ millions} Income Statement 2001 2002 2003 2004 2005 Sales 1.604 1.950 2.240 2.456 3.01 7 Cost of Goods Sold 842 1.020 1.226 1.517 1.739 R&D Expense 158 283 240 278 327 368A Expense 36? 446 479 522 549 Operating Income (EBIT) 23? 281 295 139 402 Interest Expense 8 5 Q E Earnings before Tax 229 275 290 126 388 Income Taxes 8_5 E E Q m Earnings (NI) 144 18? 183 88 247 Dividends Q E g g Q to Retained Earnings 144 149 155 41 198 Balance Sheet 2001 2002 2003 2004 2005 Cash 1 03 58 45 1 T 30 Accounts Receivable 219 283 328 349 431 Inventory 282 348 420 500 584 Prepaid Expenses E Q E E Q Current Assets 622 7'1 1 81 7 894 1 .017 Plant, Property & Equipment (net) 442 521 581 I859 T47 Total Assets 1.064 1.232 1 .398 1.553 1.824 Accounts Payable 145 17? 203 233 285 Accrued Expenses 30 32 34 18 31 Short Term Debt Q E m E Current Liabilities 216 240 256 375 351 Long Term Debt 55 50 45 40 137 Net Worth T93 942 1.097 1.138 1.336 Liabilities & Net Worth 1.064 1.232 1.398 1.553 1.824 EXHIBIT 2 BUCKEYE COMPUTER, INC. Projected Ratios for Future Operation Ratio Projected Level Cost of Good Sold/Sales 55% R&D Expense/Sales 10% SG&A Expense/Sales 21% Accounts Receivable/Sales 14% Inventory/Sales 18% Prepaid Expenses/Sales 1% Accounts Payable/Sales 9% Accrued Expenses/Sales 1% Net PP&E/Sales 25% Tax Rate 35%