Chapter 4
Financial Forecasting
1.Eli Lilly
Beginning Balance
$120,000
Less: Asset build up
-300,000
Add: Profit (8% * 1,200,000)
96,000
Ending cash balance/deficit
-$84,000
Eli’s optimistic outlook for his cash position is incorrect. His cash balance is -$84,000.
2. Philip Morris
Beginning Balance
$150,000
Less: Asset build up
0
Add: Profit (12% * 550,000)
66,000
Ending cash balance/deficit
$216,000
3. Galehouse Gas Station Inc.
A. 45%
Beginning Balance
0
Less: Asset build up
-100,000
Add: Profit (8% * 1,750,000)
140,000
Dividend (45% * 140,000)
-63,000
Ending balance/deficit
-23,000
Beginning Balance
0
Less: Asset build up
-100,000
Add: Profit (8% 8 1,750,000)
140,000
Dividend (25% * 140,000)
-35,000
Ending balance/deficit
5,000
Outcome
Probability
Units
Price
A
0.70
225
$20
B
0.10
370
$35
C
0.20
510
$45
projection
A
0.70
225
20
4,500
3,150
B
0.10
370
35
12,950
1,295
C
0.20
510
45
22,950
4,590
Total expected value
9035
