Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224
Expert Answer:
Answer rating: 100% (QA)
The Balance Sheet of 1996 and 1997 would be as below Balance Shee... View the full answer
Related Book For
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
Posted Date:
Students also viewed these accounting questions
-
On January 31, a firm learns that it will have additional funds available on May 31. It will use the funds to purchase $5,000,000 par value of the APCO 9 1/2 percent bonds maturing in about 21 years....
-
A well-known financial institution expects that it will have no earnings for the next three years as the result of restructuring activities. Then it will begin to return to earnings of $3.00 a share....
-
Jabar Corporation, a C corporation, projects that it will have taxable income of $300,000 before incurring any lease expenses. Jabar's tax rate is 35 percent. Abdul, Jabar's sole shareholder, has a...
-
20 -101 10 in- laminate substrate Fig.2 Q2: The tool shown in Fig.2 is used in a gluing operation to press a thin laminate to a thicker substrate. If the wheels at points A and B both have 2 in...
-
Is a European put on the same stock with the same maturity worth more or less if the strike price increases? Explain your answer.
-
Explain how zero-based budgeting assists with planning in discretionary cost centres.
-
Question: Winona owns a tropical fish store. To buy a spectacular new tank, she borrows $25,000 from her sister, Pauline, and signs an agreement giving Pauline a security interest in the tank....
-
Manning Company entered into these transactions during May 2014, its first month of operations. 1. Stockholders invested $40,000 in the business in exchange for common stock of the company....
-
Task la - Identify the clients' complex broking needs Prepare a list of questions that you would need to ask Ray and Steve about their history, experience, business performance and the intended...
-
Project Alpha has two phases. You may invest in the first, in both, or in neither. The first phase requires an investment of $100 today. One year later, Alpha will deliver either $120 or $80, with...
-
Consider the three stocks in the following table.Pt represents price at time t, andQt represents shares outstanding at timet. Stock C splits two-for-one in the lastperiod.P0Q0P1Q1P2Q2 2 answers
-
1. Decontamination is defined as the a. killing of all microorganisms in a given area. b. reduction or removal of unwanted chemical or biological agents. c. stopping of the growth of microorganisms...
-
On January 2, 20x5, Beaver Corp. purchased machinery for $135,000. The entire cost was incorrectly recorded as an expense. The machinery has a nine-year life and a $5,000 residual value. Beaver uses...
-
10. Which of the following media is often used to grow Mycobacterium tuberculosis? a. Blood agar b. MacConkey agar c. Heart infusion broth d. Middlebrooks medium 11. Media that contain complex...
-
Eileen is a cash basis taxpayer Early in the day on December 31, 2023, a client comes into her office with a check for $6,000. The client asks Eileen not to deposit the check until January 4, 2024,...
-
Summary: The following data is provided for a product to cost-volume-profit analysis. Original Data Sales price per unit $50.00 Variable costs per unit $23.00 Fixed Costs $5,500 Monthly Volume 250...
-
The Meadows Corporation needs to raise $75 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The...
-
Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2012 is: Joint cost of production in July 2012 was $50. A...
-
Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. Complete the Amount and % columns to be used in a horizontal analysis of American Eagles...
-
Who pays Social Security taxes: the employer, the employee, or both? How is the deduction for Social Security and Medicare (FICA) computed?
-
Refer to the information in BE515, but now assume that the balance of Allowance for Uncollectible Accounts before adjustment is $4,000 (debit). The company still estimates future uncollectible...
-
From the following information you are required to prepare a statement apportioning the ~ unappropriated profit between the pre-incorporation and post-incorporation periods, showing the basis of...
-
Rowlock Ltd was incorporated on 1 October 2008 to acquire Rowlocks mail order business, with effect from 1 June 2008. The purchase consideration was agreed at 35,000 to be satisfied by the issue on 1...
-
Camden Lock Ltd has just finished its first year of trading to 31 December 2006. Corporation tax throughout was 40 per cent and income tax 20 per cent. You are given the following information: (i)...
Study smarter with the SolutionInn App