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 sales (e.g. Inventory/Sales). Assume a tax rate of 35%. Income Statement Sales Cost of Goods Sold R&D Expense SG&A Expense Operating Income (EBIT) Interest Expense Earnings before Tax Income Taxes Earnings (NI) Dividends to Retained Eamings Balance Sheet Cash Accounts Receivable Inventory Prepaid Expenses Current Assets EXHIBIT 1 BUCKEYE COMPUTERS, INC. (5 millions) Plant, Property & Equipment (net) Total Assets Accounts Payable Accrued Expenses Short Term Debt Current Liabilities Long Term Debt Net Worth Liabilities & Net Worth 2001 1,604 842 158 367 237 8 229 85 144 0 144 2001 103 219 282 18 622 442 1,064 145 30 41 216 55 793 1,064 2002 2003 2004 1,950 2,240 1,020 1,226 203 240 446 479 281 295 5 290 107 183 6 275 108 167 18 149 2002 58 283 348 22 711 28 155 2003 45 328 420 24 817 521 581 1,232 1,398 177 32 31 240 2005 2,456 3,017 1,517 1,739 278 327 549 402 203 34 522 139 13 126 40 86 45 41 2004 17 349 500 28 894 233 18 19 124 256 375 50 45 40 942 1.097 1.138 1,232 1,398 1,553 659 1,553 14 388 141 247 49 198 2005 30 431 584 32 1,077 747 1,824 285 31 35 351 137 1.336 1,824 EXHIBIT 2 BUCKEYE COMPUTER, INC. Projected Ratics for Future Operation Ratio Cost of Good Sold/Sales R&D Expense/Sales SG&A Expense/Sales Accounts Receivable/Sales Inventory/Sales Prepaid Expenses/Sales Accounts Payable/Sales Accrued Expenses/Sales Net PP&E/Sales Tax Rate Projected Level 55% 10% 21% 14% 18% 1% 9% 1% 25% 35%