Description
Determine assumptions for use in forecasting a 10-year pro forma income statement and balance sheet for the target. Submission files: Report in Word file and spreadsheet in Excel file.
The first thing to do will be to determine a growth rate in sales. It should not be the same rate for each year. The whole purpose of having a planning period is that you can change assumptions each year to get a more realistic view of how the firm evolves through time in the near-term.
Synergies should be accounted for. If you think a synergy will be increased sales, then adjust the sales growth rate you decided upon. If you think a synergy will be decreased costs, then perhaps you will adjust your profit margins. These synergies should be consistent with those you discussed in Part 1 (paper below). Make sure that where synergies are accounted for is clearly labeled.
You will be turning in your Excel sheets (attached), so make sure everything is clearly labeled and the formulas are accessible by the instructor. Your process should be clear and your worksheets should be well organized. You can make use of cell comments and/or text boxes, or put very short explanations into nearby cells. Any comments in the spreadsheet are not considered part of your report.
You must assume there is long-term debt in your target’s pro forma balance sheet (it cannot be zero for all years).
In a report, discuss all assumptions you are making and why you are making them. This report should be in paragraph format. It should look neat and professional, with clear and detailed explanations of your reasoning process for determining assumptions and for how you applied those assumptions to the numbers.