18 Questions
What is the primary focus of the sensitivity analysis discussed in the text?
Analyzing the impact of changes in assumptions on financing requirements, return on assets and equity
If capital expenditures increase to 7.5% of sales, what would happen to the cash balance according to the text?
The cash balance will decline to $845 million, 2.4% of total assets
What does the text state is central to security analysis?
Prospective analysis
What would also result in similar increases in financing requirements?
Both (a) and (b)
What is the purpose of the residual income valuation model mentioned in the text?
To define equity value as the sum of current book value and the present value of all future expected residual income
What is the primary purpose of the projected financial statements discussed in the text?
To be based on expected relations between income statement and balance sheet accounts
What percentage of sales is used in the projection for SG&A expense?
22.49%
How is the gross profit calculated in the income statement projection?
$17,157= $52,204 X 32.866%
What ratio was used to calculate the historical interest expense relative to beginning-of-year interest-bearing debt?
5.173%
What amount is projected for tax expense based on the given information?
$493
Which item is NOT included in the calculation of income before tax in the income statement projection?
Tax expense
Which balance sheet item is used to calculate depreciation and amortization in the income statement projection?
Beginning-of-year balance of property, plant, and equipment
Which financial statement is typically projected first when conducting prospective analysis?
Income statement
What is the first step in projecting the income statement?
Projecting the expected growth in sales
Which of the following is NOT typically used to project the expected growth in sales?
Dividend payout ratio
Based on the information provided, what was Target's projected gross profit margin for 2006?
32.866%
What is the purpose of conducting sensitivity analysis after completing the initial financial statement projections?
To assess the impact of changes in key assumptions on the projected financial statements
Which of the following financial statements is NOT explicitly mentioned as part of the projection process in the given text?
Statement of stockholders' equity
Learn about conducting sensitivity analysis on projected financial statements by varying assumptions to analyze impact on financing requirements, return on assets, and equity. Explore how changing factors like capital expenditures can affect financial stability.
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