This document contains pro forma financial statements for Best Buy Co., Inc. including income statements, balance sheets, and cash flow statements for the years 2015-2018 with and without a proposed strategy. It also includes a discounted cash flow analysis and calculation of net present value to analyze the strategy. The strategy aims to increase revenues and profits through sales growth and cost reductions.

1. Appendix 7-ABest Buy Co., Inc.Pro Forma Financial
StatementsDiscounted Cash Flow
Analysis120152016201720182016201720182Sales
Revenue42,355,95044,473,74846,697,4353Sales Forecastless:
Cost of Goods Sold30,692,00030,092,00029,492,0004My
strategyWithout my strategyGROSS
PROFIT11,663,95014,381,74817,205,4355Income
Statement6Sales
Revenue40,339,00042,355,95044,473,74846,697,43541,549,170
42,795,64544,079,514General and Administrative
Expenses7,492,0007,392,0007,292,0007less: Cost of Goods
Sold31,292,00030,692,00030,092,00029,492,00031,492,00031,6
92,00031,892,0008GROSS
PROFIT9,047,00011,663,95014,381,74817,205,43510,057,1701
1,103,64512,187,514EBITDA4,166,9506,984,7489,908,4359less
: Selling Expenses10General and Administrative
Expenses7,592,0007,492,0007,392,0007,292,0007,705,8807,821
,4687,938,790Less: D&A556,000556,000556,00011Depreciation
Expense12Other Operating
Expenses5,0005,0005,0005,0005,0005,0005,000EBIT3,610,9506
,428,7489,352,43513Total Operating
Expenses7,597,0007,497,0007,397,0007,297,0007,710,8807,826
,4687,943,790Less:
Taxes433,314771,4501,122,29214OPERATING
PROFIT1,450,0004,166,9506,984,7489,908,4352,346,2903,277,
1774,243,724EBIAT3,177,6365,657,2988,230,14315less:
Interest and Other
Expenses90,00091,80093,63695,50990,00090,00090,00016plus:
Interest and Other
Revenues27,00027,00027,00027,00027,27027,54327,818Plus:
D&A556,000556,000556,00017PRE-TAX
INCOME1,387,0004,102,1506,918,1129,839,9262,283,5603,214
,7204,181,542Less:Capital
Exp.176,350185,168194,42618Income

2. Tax141,000492,258830,1731,180,791342,534482,208627,231Le
ss: Inc. in WC4,179,3504,417,3004,666,36319NET
INCOME1,246,0003,609,8926,087,9388,659,1351,941,0262,732
,5123,554,311Unlevered Free Cash
Flow(622,064)1,610,8313,925,3542021Cash Flow
Statement22Net
Income3,609,8926,087,9388,659,1351,941,0262,732,5123,554,3
1123Depreciation
Expense656,000556,000556,000556,000675,680695,950716,829
24Net Income plus Depreciation
Expense4,165,8926,643,9389,215,1352,616,7063,428,4624,271,
14025plus: Increase in Accounts Payable26Increase in Other
Payables(19,000)(19,000)(19,000)(19,000)(19,000)(19,000)27le
ss: Increases in Accounts Receivable28Increase in
Inventory29OPERATING CASH
FLOW4,146,8926,624,9389,196,1352,597,7063,409,4624,252,1
4030plus: Net Cash from Financing Activities31less: Net
Investment
Outlays(223,000)(111,500)(55,750)(27,875)(229,690)(236,581)(
243,678)32NET CASH
FLOW4,258,3926,680,6889,224,0102,827,3963,646,0434,495,8
1833plus: Beginning
Cash2,432,0003,648,0005,472,0002,432,0002,432,0002,432,000
34ENDING CASH
BALANCE6,690,39210,328,68814,696,0105,259,3966,078,0436
,927,8183536Balance Sheet37ASSETS38Cash and
Equivalents2,432,0002,553,6002,681,2802,815,3442,504,9602,5
80,1092,657,51239Accounts
Receivable1,280,0001,305,6001,331,7121,358,3461,318,4001,3
57,9521,398,69140Short-Term
Investments1,456,0001,528,8001,605,2401,685,5021,499,6801,5
44,6701,591,01141Other Current
Assets1,387,0001,456,3501,529,1681,605,6261,428,6101,471,46
81,515,61242Inventory5,174,0005,432,7005,704,3355,989,5525,
329,2205,489,0975,653,76943CURRENT
ASSETS11,729,00012,277,05012,851,73513,454,37012,080,870

3. 12,443,29612,816,59544Net Fixed
Assets3,527,0003,703,3503,888,5184,082,9433,632,8103,741,79
43,854,04845TOTAL
ASSETS15,256,00015,980,40016,740,25217,537,31315,713,680
16,185,09016,670,64346LIABILITIES AND
EQUITY47Accounts
Payable6,414,0006,734,7007,071,4357,425,0076,606,4206,804,
6137,008,75148Notes
Payable41,00041,00041,00041,00041,00041,00041,00049Wages
Payable50Taxes Payable51Other Current
Liabilities1,322,0001,322,0001,322,0001,322,0001,322,0001,32
2,0001,322,00052CURRENT
LIABILITIES7,777,0008,097,7008,434,4358,788,0077,969,4208
,167,6138,371,75153Long-Term
Debt2,484,0002,608,2002,738,6102,875,5412,558,5202,635,276
2,714,33454TOTAL
LIABILITIES10,261,00010,705,90011,173,04511,663,54710,52
7,94010,802,88811,086,08555Common
Stock472,000495,600520,380546,399486,160500,745515,76756
Retained
Earnings4,523,0004,749,1504,986,6085,235,9384,658,6904,798,
4514,942,40457TOTAL
EQUITY4,995,0005,244,7505,506,9885,782,3375,144,8505,299,
1965,458,17158TOTAL LIABILITIES AND
EQUITY15,256,00015,950,65016,680,03317,445,88415,672,790
16,102,08416,544,256Note: Cells with zeros are computed from
other inputs.
Pro-Forma Financial Statements (I/S, B/S and Statement of
Cash Flows) with deltas out three years and analysis
Each year must have two columns: one with your strategy and
one without your strategy.
Include Pro-Forma ratios for the first year out with deltas
contrasting from the most current year’s ratios.
Net Present Value analysis of proposed strategy’s new cash
flow and EPS/EBIT analysis

4. NOTE: To construct the first cash flow (cf1) at the very
minimum, the new revenue from your strategy(s) must be
discounted back to the present value by calculating EBIT and
that figure will be your cfn for each year. cf0 (initial cost of
your strategy), cf1 (discounted cash flow first year), r
(opportunity cost of capital, the rate of the next best alternative
use of cash/debt/equity resources).
NPV=-〖 cf〗 _0+ 〖 cf〗 _1/(1+r)^1 +〖 cf〗 _2/(1+r)^2
+〖 cf〗 _3/(1+r)^3 …〖 cf〗 _n/(1+r)^n
Specific recommended strategy and long term objectives
Explain why you chose the strategy, and discuss how much the
strategy will cost to implement and how much new revenue your
strategy will create. Include your action timetable agenda for
accomplishing your strategy.
Proposed new business model
There are three classes of alternatives strategy:
1. Stability Strategy
2. Expansion Strategy
3. Retrenchment Strategy
Stability Strategy
Stability strategymeans when a firm is not changing its current
activities. Generally, firms who are operating in stable
environment do not change strategy frequently. If a firm is not
making any change in strategy and doing well that means they
are using stability Strategy.
Prerequisite for stability strategy:
· Company will exist in the same market and will deal in the
same product and services.
· The strategy focuses on incremental improvement of
functional performance.

5. Stability strategy does not mean “Do nothing Strategy”. It
involves the process of keeping track of new development to
ensure that strategy continues to make sense by making the
business stable. This strategy is typical for nature business
organization.
The features of stable strategy are as follows:
· Safeguard of existing interest.
· Safeguard of existing strength.
· It focuses on self-objective.
· Return on resources.
Advantages of Stability Strategy:
· All decisions making through top management
· It provides clear directions to all employees
· It allows large organization to use economics of scale.
Disadvantages of Stability Strategy:
· This lead to poor communication between departments.
· Customers also affected due to lack of cooperation.
Expansion Strategy
Horizontal Diversification:
Type of diversification under which firm develops or acquires
new products that are different from its core business or
technology, but which may appeal to its current customers.
In an expansion strategy, the focus point is enhancement of
current business. This action can be equated with dynamism,
vigour, promise and success of current existing business. A
corporation on the move is more dynamic and enterprising
rather than a corporation on hold and stand. Because, if you

6. stand on the right place, you will be run over by somebody else
in case you do not move. Expansion focuses on reformation of
goal and directions, it measures initiatives, and it measures
investment, exploration and interest in new product.
The reasons for Expansion are:
· For acquiring better market share.
· Optimum utilization of available resources.
Ways of Expansion
· Expansion through diversifications.
· Expansion through acquisition of and merger with other
companies.
Advantages of Expansion Strategy:
· Economics of scale
· New customers
Disadvantages of Expansion Strategy:
· Capital requirements
· Spread too thin
Expansion takes the company to new path where there are lots
of promises and pitfalls.
Diversification:
It empowers the business to go into new products, new product
line, new services and new market. It involves substantially
different kinds of skills, different kinds of knowledge, and
different kinds of technology.
Retrenchment Strategy:

7. A strategy used by corporations to reduce the diversity or the
overall size of the operations of the company. This strategy is
often used in order to cut expenses with the goal of becoming a
more financialstablebusiness. The strategy involves
withdrawing from certain markets or the discontinuation
of selling certain products or service in order to make a
beneficial turnaround.
Types of retrenchment:
· Turnaround
· Divestment
· Liquidation
Advantages of retrenchment strategy:
· Poor performance of firm
· Better opportunities in the environment
Disadvantages of retrenchment strategy:
· High cost
· Competition from government subsidized industries.
Competitive Strategy:
In an industry, company does want to gain a competitive
advantage that will work against rivalry and achieve
profitability.
Porter’s suggests three generic strategies for creating
defendable position in the long run and out forming
competitors:
1) Cost Leadership
2) Differentiation
3) Focus or Niche Strategy

8. Cost Leadership
· In Cost Leadership Strategy, company has lowest per unit cost
in the industry.
· Lowest per unit cost among rivals is highly competitive and
return or profits will be low.
· Lowest cost among rivals where each firm enjoys pricing
power and high profits.
· Cost leadership is independent of market structure.
Cost leadership is a defendable strategy because:
· It defends the firm against powerful buyers. Buyers can down
the price.
· If defends the firm against powerful suppliers. It provides
flexibility to increase in input costs.
· Cost leadership strategy also provides entry barriers.
Differentiation
· A firm is offering unique product.
· A firm is creating its own market.
· There are different approaches of differentiation which are as
follows:
· Different design
· Brand image
· Number of features
· New Technology
Differentiation is a defendable strategy because:
· It reduces competitive rivalry by creating brand loyalty.
· Uniqueness creates barriers and reduces substitutes.
· Higher margins provide deal with powerful suppliers.
· Differentiation also mitigates buyer power.

9. Focus or Niche Strategy
· In this strategy, firms focus on a particular buyer group,
product segment or geographical markets.
· When firms focus on low cost and differentiation at achieving
their objectives industry wide, the focus or niche strategy is
built.
· Focus strategy is to achieve either a low cost advantage or
differentiation.
Income Statement
2015-16
2016-17
2017-18
Revenues
$2,96,679.50
$3,26,347.45
$3,58,982.20
Cost
Maintenance Cost
$1,20,000.00
$1,20,000.00
$1,20,000.00
Filing Fees
$160.00

10. $0.00
$0.00
Business Insurance
$1,000.00
$1,000.00
$1,000.00
Worker Cost (10 nos.)
$62,000.00
$65,100.00
$68,355.00
Depreciation
$1,010.00
$1,010.00
$1,010.00
Office Expenses
$1,000.00
$1,000.00
$1,000.00
Interest Cost
$1,045.00
$1,045.00
$1,035.00
Total Cost
$1,86,215.00
$1,89,155.00
$1,92,400.00
Profit before tax
$1,10,464.50
$1,37,192.45
$1,66,582.20
Tax @ 25%
$27,616.13
$34,298.11
$41,645.55
Profit
$82,848.38

11. $1,02,894.34
$1,24,936.65
Balance Sheet
2015-16
2016-17
2017-18
Assets
$10,450.00
$10,450.00
$10,450.00
Less : Accumulated Depreciation
$1,010.00
$2,020.00
$3,030.00
$9,440.00
$8,430.00
$7,420.00
Cash
$83,858.38
$1,87,762.71
$3,13,609.36
$93,298.38
$1,96,192.71
$3,21,029.36
Liabilities

12. Loan
$10,450.00
$10,450.00
$10,350.00
Retained Earnings
$82,848.38
$1,85,742.71
$3,10,679.36
$93,298.38
$1,96,192.71
$3,21,029.36
Cash Flows Statement
2015-16
2016-17
2017-18
Inflow
Cash Accural
$83,858.38
$1,03,904.34
$1,25,946.65
Loan from Bank
$10,450.00
$94,308.38
$1,03,904.34

13. $1,25,946.65
Outflow
Fixed Assets
$10,450.00
Repayment of loan
$100.00
$10,450.00
$0.00
$100.00
Opening Balance
$0.00
$83,858.38
$1,87,762.71
Net Surplus
$83,858.38
$1,03,904.34
$1,25,846.65
Closing Balance
$83,858.38
$1,87,762.71

14. $3,13,609.36
NPV analysis
2015-16
2016-17
2017-18
Outflow
$10,450
$0
$100
Inflow
$94,308
$1,03,904
$1,25,947
Cash Flow
$83,858
$1,03,904
$1,25,847
PVF @ 10%
$1
$1
$1

15. NPV
$76,227
$85,825
$94,511