Using the data in the student spreadsheet file P&G.xlsx (to find the student spreadsheets for Financial Analysis with Microsoft Excel, seventh edition, go to www.cengagebrain.com) forecast the June 30, 2014, income statement and balance sheet for Procter & Gamble. Use the percent of sales method and the following assumptions: (1) Sales in FY 2014 will be $85,000; (2) The tax rate will be 25.24%; (3) Each item that changes with sales will be the five-year average percentage of sales; (4) No preferred dividends will be paid; and (5) The common dividend payout ratio will be 50% of income available to common stockholders. Use your judgment on all other items.
a. What is the discretionary financing needed in 2014? Is this a surplus or deficit?
b. Assume that the DFN will be absorbed by long-term debt and that the total interest rate is 4.38% of LTD. Set up an iterative worksheet to eliminate it.
c. Create a chart of cash vs. sales and add a linear trend line. Is the cash balance a consistent percentage of sales? Does the relationship fit your expectations?
d. Use the regression tool to verify your results from part c. Is the trend statistically significant? Use at least three methods to show why or why not.
e. Turn off iteration, and use the Scenario Manager to set up three scenarios:
1) Best Case — Sales are 5% higher than expected.
2) Base Case — Sales are exactly as expected.
3) Worst Case — Sales are 5% less than expected. What is the DFN under each scenario?