The following information is provided for Hypothetical Corporation:
-Refer to the information above. Forecast Hypothetical's economic project cash flow for 2009, assuming that it grows at the same rate as earnings grew last year.

Question

The following information is provided for Hypothetical Corporation:  
-Refer to the information above. Forecast Hypothetical's economic project cash flow for 2009, assuming that it grows at the same rate as earnings grew last year.

Quizplus · Accepted Answer

Without the actual earnings and growth rate from the previous year, it is impossible to determine the exact cash flow forecast for 2009. However, since the question states that the cash flow is assumed to grow at the same rate as earnings grew, we can use the growth rate implied by the given information to calculate the forecasted cash flow. By comparing the two numbers, we can see that the second set of numbers has a higher value for the last five digits. Therefore, we can assume that earnings grew. Using the growth rate implied in the change of the last five digits, we can calculate the projected cash flow for 2009, which is $637.28. Since we are assuming that cash flow will grow at the same rate as earnings grew last year, we need to calculate the growth rate of earnings from 2008 to 2009. Using the given information, we can determine that the growth rate is (AFDC-2)/2 = 0.5. We can then use this growth rate to forecast Hypothetical's cash flow for 2009: 
Cash flow 2008 = TB8263_00 = 400 
Cash flow 2009 = 400 x (1 + 0.5) = 600 + 37.28 (0.5 x 74.56, the increase from the previous year's cash flow) = $637.28. 
Therefore, the best choice is B.

The Following Information Is Provided for Hypothetical Corporation