(1) Calculate the ROA, ROE, Leverage (using total Liabilities instead of debt) and interest coverage in year 1-5 under two options. (2) By comparing these ratios, answer how these financial statement ratios are 
different in two options?
Magnet Beauty[1 741],pdf Magnet Beauty[1741],p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf of 16 Fit to page A) Read aloud EPage view Add notes 8 Exhibit 3 Balance sheet under the proposed accounting model for the 3 plus 2 year lease Year 5 Item Year 0 Year 1 Year 2 Year 3 Year 4 ASSETS Cash $2,690,260 $3,013,091 $2,402,018 $3,374,662 $3,779,622 $4,233,17 Accounts Recevable 29,732,911 33,300,860 34,174,261 37,296,964 41,772,599 46,785,311 48,012,376 31,470,387 52,399,548 53,773,861 42,868,193 Inventory 30,512,733 20,000,000 (1,000,000) 38,275,172 25,088,000 PP&E 22,400,000 28,098,560 35,246,834 Less: Accum Depreciation (2,120,000) (3,480,400) 8,100,765 41,001,974 (5,059,348) (6,885,835) 10,161,599 (8,992,468 11,380,991 9,072,856 Intangible Assets Right-of-Use Asset 6,457,880 7,232,826 41,001,974 (8,200,395) 41,001,974 (32,801,579) 41,001,974 41,001,974 (41,001,974 (24,601,185) Less: Accum Amort: Right-of-Use Asset (16,400,790) $132,894,777 $136,528,313 Total Assets $88,105,542 $130,479,787 $141,523,856 $148,041,943 LIABILITIES Accounts Payable Lease Obligation Less: Accum. Principal Lease Obligation $22,488,440 $35,385,995 $20,078,964 $25,187,052 $28,209,499 $31,594,639 41.001.974 41,001,974 41,001,974 41,001,974 41,001,974 (41,001,974 (31,656,180) Payments (7,129,862) 57,383,262 (14,758,814) (22,921,793) Debt 52,099,665 62,282,037 66,679,143 70,418,765 73,318,115 111,359,198 Total Liabilities 72,178,629 113,743,814 113,712,250 112,968,824 108,704,110 EQUITY Share capital 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 Retained earnings 29,337,833 5,926,913 6,735,972 9,182,527 13,559,489 20,164,657 Shareholders' Equity 30,164,657 15,926,913 16,735,972 19,182,527 23,559,489 39,337,833 $141,523,856 Total Liabilities and Equity $132,894,777 $136,528,313 $148,041,943 $88,105,542 $130,479,787 11:20 PM Type here to search 100% X 11/11/2019 O Magnet Beauty[1 741],pdf Magnet Beauty[1741],p X Lease_Magnet Beauty Ques PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf Fit to page A) Read aloud EPage view Add notes of 16 8 Exhibit 3 Balance sheet under the proposed accounting model for the 3 plus 2 year lease Year 5 Item Year 0 Year 1 Year 2 Year 3 Year 4 ASSETS Cash $2,690,260 $3,013,091 $2,402,018 $3,374,662 $3,779,622 $4,233,17 Accounts Recevable 29,732,911 33,300,860 34,174,261 37,296,964 41,772,599 46,785,311 48,012,376 31,470,387 52,399,548 53,773,861 42,868,193 Inventory 30,512,733 20,000,000 (1,000,000) 38,275,172 25,088,000 PP&E 22,400,000 28,098,560 35,246,834 Less: Accum Depreciation (2,120,000) (3,480,400) 8,100,765 41,001,974 (5,059,348) (6,885,835) 10,161,599 (8,992,468 11,380,991 9,072,856 Intangible Assets Right-of-Use Asset 6,457,880 7,232,826 41,001,974 (8,200,395) 41,001,974 (32,801,579) 41,001,974 41,001,974 (41,001,974 (24,601,185) Less: Accum Amort: Right-of-Use Asset (16,400,790) $132,894,777 $136,528,313 Total Assets $88,105,542 $130,479,787 $141,523,856 $148,041,943 LIABILITIES Accounts Payable Lease Obligation Less: Accum. Principal Lease Obligation $22,488,440 $35,385,995 $20,078,964 $25,187,052 $28,209,499 $31,594,639 41.001.974 41,001,974 41,001,974 41,001,974 41,001,974 (41,001,974 (31,656,180) Payments (7,129,862) 57,383,262 (14,758,814) (22,921,793) Debt 52,099,665 62,282,037 66,679,143 70,418,765 73,318,115 111,359,198 Total Liabilities 72,178,629 113,743,814 113,712,250 112,968,824 108,704,110 EQUITY Share capital 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 Retained earnings 29,337,833 5,926,913 6,735,972 9,182,527 13,559,489 20,164,657 Shareholders' Equity 30,164,657 15,926,913 16,735,972 19,182,527 23,559,489 39,337,833 $141,523,856 Total Liabilities and Equity $130,479,787 $132,894,777 $136,528,313 $148,041,943 $88,105,542 11:22 PM Type here to search 100% X 11/11/2019 X O Magnet Beauty[1741].pdf Magnet Beauty[17411.p X Lease_Magnet Beauty Ques PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf Fit to page + A) Read aloud EPage view Add notes of 16 7 111-039 -7 Exhibit 2 Income statement under the proposed accounting model for the '3 plus 2 year lease Item Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Revenues $82,398,496 $52,365,734 $58,649,622 $65,687,577 $73,570,086 $92,286,316 28,277,451 31,670,745 Cost of sales 20,127,331 22,542,611 25,247,724 35,471,234 Gross Profit 45,292,635 32,238,403 36,107,011 40,439,853 50,727,751 56,815,081 R&D Expenses 794.566 889.914 1,116,308 1,250,265 1,400,297 996,704 Distribution Expenses 15,654,265 12,087,965 13,175,882 14,361,711 17,063,149 18,598,833 Administrative Expenses 4.977.859 5,425,866 5,914,194 6,446,472 4,566,843 8,000,000 7,026,654 Rent Total operating expenses 25,449,374 27,025,783 19,043,655 20,784,281 22,684,767 24,759,886 22,607,868 EBITDA 6,789,029 17,063,357 19,655,572 25,967,866 29,789,298 Depreciation 1,000,000 1,120,000 1,360,400 1,578,948 1,826,487 2,106,633 3,646,977 4,667,540 4.929,314 Interest on Debt 3,646,977 4,016,828 4,359,743 2,870,138 654,206 Interest on Lease 2,371,048 1,837,021 1.265.613 Amortization 8,200,395 8,200,395 8,200,395 8,200,395 8,200,395 Net Income before taxes 2,142,052 1,225,847 3,706,901 6,631,76 10,007,831 13,898,751 3,402,663 es 728,298 416,788 1,260,346 2,254,799 4,725,575 $2,446,554 Net income $1,413,755 $809,059 $4,376,962 $6,605,169 $9,173,175 11:18 PM Type here to search 100% X 11/11/2019 X O Magnet Beauty[1741],pdf Magnet Beauty[1741].p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf Fit to page A) Read aloud EPage view Add notes of 16 111-039 Exhibit 4 Cash flow statemant under the proposed accounting model for the 3 plus 2 year lease Year 5 Year 3 Item Year 0 Year 1 Year 2 Year 4 CASH FLOWS FROMOPERATING ACTIVITIES Net Income $809,059 $4,378,982 $6,605,169 $9,173,175 $1,413,755 $2.446,554 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Amortization 8,200,395 8,200,395 8,200,395 8,200,395 8.200,395 1,120,000 Depreciation 1,000,000 1,360,400 1,578,948 1,826,487 2,108,833 (5.012,712) (5,144,183) (4,475,638) (1.883,000) (1,800,300) Decrease (Increase) in Accounts Recevable Decrease (Increase) in Inventory Increase (Decrease) in Accounts Payable (3,567,940) (3,661,528) (5.614.237) (5,761,485) (3,908,103) (4.100,911) (4,593,021) 3,022,446 3,385,140 1,205,800 2,409,478 2,808,813 3,791,357 8,110,095 0,880,205 Net Cash Provided by (Used in) Operating Activities 158,255 5,309.452 8,808,948 11,805,838 CASH FLOWS FROM INVESTING ACTMTIES: (3,010,580) (972,092) (3,776,446) Purchase of tangible assets Purchase of intangible assets (1,800,873) (270,000) (2.400,000) (774,040) (3.371,827) (1.088,743) (2,888,000) (887,930) (1,219,392) Net Cash Provided by (Used in) Investing Activities (4.460,570) (4,095,838) (3,082,652) (2,070,873) (3,174,940) (3.555,939) CASH FLOWS FROM FINANCING ACTNITIES: Principal Payments Under Lease Obligations Net Debt ssues (Repayments) (7.120,802) 5,283,507 (8,182,979) (8,734,387) (7.828,952) (9,345,794) 4,307,108 3,739,622 990,030 4,808,775 2,899,350 Net Cash Provided by (Used in) Financing Activities (8,446,445) 90,030 (2,730,177) (3,785,872) (4.004,760) (1,848,205) $381,571 $404,050 Net Increase in Cash $288.242 ($024,582) $322,831 $453,555 $3,013,091 $3,779.622 $2,402,018 $3,374,662 Cash, January 1 $3,328,000 2.402,018 $2,690,200 3,779,622 3,374,082 4,233,170 3013,001 Cash, December 31 2,890,200 Source: Casewriters 11:23 PM Type here to search 100% X 11/11/2019 Magnet Beauty[1741],pdf Magnet Beauty[1741].p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204%20 Mgt%20Beauty/Magnet%20Beauty[1741].pdf Fit to page A) Read aloud EPage view Add notes of 16 10 111-039 40 Exhibit 5 Income statement under the proposed accounting model for five 1-year leases Item Year 0 Year 1 Year Year 4 Year 2 Year 5 Revenues $52,385,734 $58,840,622 $85,687,577 S73,570,088 $82,398,406 S02,288,316 Cost of sales 20,127,331 22,542,611 25,247,724 28,277,451 31,670,745 35,471,234 Gross Profit 32,238.403 36,107,011 40.439,853 45,292,835 50,727,751 58,815,081 R&D Expenses Distribution Expenses Administrative Expenses 794,566 889,914 996,704 1,116,308 1,250,265 1,400,297 13,175,882 18,598,833 7,026,654 12,155,083 12,087,965 14,361,711 15,854,285 5,914,194 17,083,140 6,446.472 4,588,843 4,977,859 10,000,000 5,425,800 10,500,000 Rent 8,000,000 11,025,000 11,576,250 33,709,767 Total operating expenses 38,338,136 39,180,848 25.440,374 29,043,655 31,284,281 7,083,357 9,155,572 BITDA 8,789,029 11,582,888 14,301,816 17,834,238 Depreciation 1,000,000 1,120,000 1,360,400 1,578,048 1,828.487 2,108,633 4.423,099 Interest on Debt 3,848,977 3,846,077 4,042,307 4,782,089 5,109,247 Interest on Lease Amortization 3,752,885 5,580,821 7.783,080 10,418,355 Net Income before taxes 2.142,052 2,298,380 728,298 780,709 es 1,275,974 1,897.479 2.648,240 3,542,241 Net income $1,413,755 S1,515,611 $2.478,891 S3,883,342 $5,138,820 S8,876,114 11:24 PM Type here to search 100% X 11/11/2019 O Magnet Beauty[1741],pdf Magnet Beauty[1741].p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204%20 Mgt%20Beauty/Magnet%20Beauty[1741].pdf Fit to page A) Read aloud EPage view Add notes of 16 10 111-039 40 Exhibit 5 Income statement under the proposed accounting model for five 1-year leases Item Year 0 Year 1 Year Year 4 Year 2 Year 5 Revenues $52,385,734 $58,840,622 $85,687,577 S73,570,088 $82,398,406 S02,288,316 Cost of sales 20,127,331 22,542,611 25,247,724 28,277,451 31,670,745 35,471,234 Gross Profit 32,238.403 36,107,011 40.439,853 45,292,835 50,727,751 58,815,081 R&D Expenses Distribution Expenses Administrative Expenses 794,566 889,914 996,704 1,116,308 1,250,265 1,400,297 13,175,882 18,598,833 7,026,654 12,155,083 12,087,965 14,361,711 15,854,285 5,914,194 17,083,140 6,446.472 4,588,843 4,977,859 10,000,000 5,425,800 10,500,000 Rent 8,000,000 11,025,000 11,576,250 33,709,767 Total operating expenses 38,338,136 39,180,848 25.440,374 29,043,655 31,284,281 7,083,357 9,155,572 BITDA 8,789,029 11,582,888 14,301,816 17,834,238 Depreciation 1,000,000 1,120,000 1,360,400 1,578,048 1,828.487 2,108,633 4.423,099 Interest on Debt 3,848,977 3,846,077 4,042,307 4,782,089 5,109,247 Interest on Lease Amortization 3,752,885 5,580,821 7.783,080 10,418,355 Net Income before taxes 2.142,052 2,298,380 728,298 780,709 es 1,275,974 1,897.479 2.648,240 3,542,241 Net income $1,413,755 S1,515,611 $2.478,891 S3,883,342 $5,138,820 S8,876,114 11:24 PM Type here to search 100% X 11/11/2019 O EMagnet Beauty[1 741],pdf Magnet Beauty[17411.p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf Fit to page A) Read aloud EPage view Add notes of 16 11 111-039 41 Exhibit 6 Balance sheet under the proposed accounting model for five 1-year leases Year 5 Ite Year 0 Year1 Year 2 Year Year 4 ASSETS Cash $2,000,200 $4,233,176 $2,402,018 29,732,011 $3,013,001 $3,374,002 $3,779,822 41,772,500 40,785,311 Accounts Recevable 33,300,880 37,290,004 52,300,548 34,174,261 42,808,193 53,773,801 Inventory PP&E 30,512,733 38,275,172 48,012,378 35,246,834 20,000,000 22,400,000 25,088,000 28,008,500 31,470,387 (6,885,835) 10,161,500 Less: Accum Depreciation Intangible Assets Right-of-Use Asset Less: Accum Amort: Right-of-Use Ass et (1,000,000) 6,457,880 (2,120,000) 7,232,826 (3,480,400) 8,100,705 (5,059,348) (8,992.408) 11,380,001 9,072,856 Total Assets $07,878,207 $108,203,592 $120,127,523 $148,041,943 $88,105,542 $133,323,401 LIABILITIES $35,386,095 Accounts Payable Lease Obligation $20,078,084 $22,488.440 $25,187,052 $28,200,400 $31,504,630 Less: Accum Principal Lease Obligation Payments Debt 77.040,257 63,187,125 72.980.240 52,099,685 57,747.243 68,315,268 112,420,252 Total Liabilties 72,178,620 80,235,683 88.374,177 98,524,766 104,583,885 EQUITY Share capital Retained earnings 10,000,000 0,919,415 10,000,000 25,615,000 10,000,000 5,926,013 10,000,000 10,000,000 10,000,000 18,739,576 7,442,524 13,602.756 35,015,600 Shareholders' Equity 15,926,013 17,442,524 10,919,415 23,602,756 28,739,576 $148,041,943 Total Liabilties and Equity S88,105,542 $07,678.207 $108,293,592 $120,127,523 $133.323,461 Source: Casewniters. 11:26 PM Type here to search 100% X 11/11/2019 O Magnet Beauty[1 741],pdf Magnet Beauty[17411.p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf A) Read aloud Fit to page EPage view Add notes of 16 12 111-039 -12- Exhibit 7 Cash flow statement under the proposed accounting model for five 1-year leases Year 5 Year 0 Year1 Year 2 Item Year Year 4 CASH FLOWS FROMOPERATING ACTMITIES: $8.876,114 $1,515,811 S2,478,891 S3,883,342 $5,138,820 Net Income S1,413,755 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Amortization Depreciation Decrease (hcrease) in Accounts Recevable 1,000,000 (1,863,000) 1.120,000 2,106,833 1,360.400 1,578,048 1,828,487 (3,996,103) (5.814.237 (5,781,485) (3,587.940) (4.475,638) (5,012,712) Decrease (Increase) in nventory Increase (Decrease) in Accounts Payable (1,800,300) 1,205,800 (3,881,528) 2.409.478 (4.100,911) 2.698.013 (4,503,021) 3,022.446 (5,144.183) 3,385,140 3,791,357 $1,398,382 Net Cash Provided by (Used in) Operating Activities $158,255 (S2,184,391) ($1,581,111) (S783,920) $191,551 CASH FLOWS FROM INVESTING ACTMITIES Purchase of tangble assets Purchase of intangible assets ($1,800,873) ($3.010,560) (972,092) (S2,400,000) (774.046) (52,888,000) (887,930) (S3,371,827) (53,776,446) (1.219.392) (1,088,743) (270,000) Net Cash Provided by (Used in) Investing Activities (S3,174,048) ($3,555,930) ($3.982652) ($2,070,873) ($4,480,570) (54,005,838) CASH FLOWS FROM FINANCING ACTMITIES: Principal Payments Under Lease Obligations Net Debt Issues (Repayments) 5,847,578 4.873.978 990,036 5,439,881 5,128,143 4,051,011 Net Cash Provided by (Used in) Financing Acivities $000,036 $5,847,578 $5,439,881 $5,128,143 $4,873.978 $4,051,011 Net Increase in Cash (S924,582) $288,242 $322,831 $381,571 $404,959 $453,555 $2.600.280 3,013.091 Cash, January 1 Cash, December 31 $3,013.091 3,374.682 $3,374,082 3,779.822 $2.402.018 2.800,260 S3,328,800 2,402,018 $3,779,822 4233.176 11:29 PM 11/11/2019 Type here to search 4 3 100% X O Magnet Beauty[1 741],pdf Magnet Beauty[1741],p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf of 16 Fit to page A) Read aloud EPage view Add notes 8 Exhibit 3 Balance sheet under the proposed accounting model for the 3 plus 2 year lease Year 5 Item Year 0 Year 1 Year 2 Year 3 Year 4 ASSETS Cash $2,690,260 $3,013,091 $2,402,018 $3,374,662 $3,779,622 $4,233,17 Accounts Recevable 29,732,911 33,300,860 34,174,261 37,296,964 41,772,599 46,785,311 48,012,376 31,470,387 52,399,548 53,773,861 42,868,193 Inventory 30,512,733 20,000,000 (1,000,000) 38,275,172 25,088,000 PP&E 22,400,000 28,098,560 35,246,834 Less: Accum Depreciation (2,120,000) (3,480,400) 8,100,765 41,001,974 (5,059,348) (6,885,835) 10,161,599 (8,992,468 11,380,991 9,072,856 Intangible Assets Right-of-Use Asset 6,457,880 7,232,826 41,001,974 (8,200,395) 41,001,974 (32,801,579) 41,001,974 41,001,974 (41,001,974 (24,601,185) Less: Accum Amort: Right-of-Use Asset (16,400,790) $132,894,777 $136,528,313 Total Assets $88,105,542 $130,479,787 $141,523,856 $148,041,943 LIABILITIES Accounts Payable Lease Obligation Less: Accum. Principal Lease Obligation $22,488,440 $35,385,995 $20,078,964 $25,187,052 $28,209,499 $31,594,639 41.001.974 41,001,974 41,001,974 41,001,974 41,001,974 (41,001,974 (31,656,180) Payments (7,129,862) 57,383,262 (14,758,814) (22,921,793) Debt 52,099,665 62,282,037 66,679,143 70,418,765 73,318,115 111,359,198 Total Liabilities 72,178,629 113,743,814 113,712,250 112,968,824 108,704,110 EQUITY Share capital 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 Retained earnings 29,337,833 5,926,913 6,735,972 9,182,527 13,559,489 20,164,657 Shareholders' Equity 30,164,657 15,926,913 16,735,972 19,182,527 23,559,489 39,337,833 $141,523,856 Total Liabilities and Equity $132,894,777 $136,528,313 $148,041,943 $88,105,542 $130,479,787 11:20 PM Type here to search 100% X 11/11/2019 O Magnet Beauty[1 741],pdf Magnet Beauty[1741],p X Lease_Magnet Beauty Ques PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf Fit to page A) Read aloud EPage view Add notes of 16 8 Exhibit 3 Balance sheet under the proposed accounting model for the 3 plus 2 year lease Year 5 Item Year 0 Year 1 Year 2 Year 3 Year 4 ASSETS Cash $2,690,260 $3,013,091 $2,402,018 $3,374,662 $3,779,622 $4,233,17 Accounts Recevable 29,732,911 33,300,860 34,174,261 37,296,964 41,772,599 46,785,311 48,012,376 31,470,387 52,399,548 53,773,861 42,868,193 Inventory 30,512,733 20,000,000 (1,000,000) 38,275,172 25,088,000 PP&E 22,400,000 28,098,560 35,246,834 Less: Accum Depreciation (2,120,000) (3,480,400) 8,100,765 41,001,974 (5,059,348) (6,885,835) 10,161,599 (8,992,468 11,380,991 9,072,856 Intangible Assets Right-of-Use Asset 6,457,880 7,232,826 41,001,974 (8,200,395) 41,001,974 (32,801,579) 41,001,974 41,001,974 (41,001,974 (24,601,185) Less: Accum Amort: Right-of-Use Asset (16,400,790) $132,894,777 $136,528,313 Total Assets $88,105,542 $130,479,787 $141,523,856 $148,041,943 LIABILITIES Accounts Payable Lease Obligation Less: Accum. Principal Lease Obligation $22,488,440 $35,385,995 $20,078,964 $25,187,052 $28,209,499 $31,594,639 41.001.974 41,001,974 41,001,974 41,001,974 41,001,974 (41,001,974 (31,656,180) Payments (7,129,862) 57,383,262 (14,758,814) (22,921,793) Debt 52,099,665 62,282,037 66,679,143 70,418,765 73,318,115 111,359,198 Total Liabilities 72,178,629 113,743,814 113,712,250 112,968,824 108,704,110 EQUITY Share capital 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 Retained earnings 29,337,833 5,926,913 6,735,972 9,182,527 13,559,489 20,164,657 Shareholders' Equity 30,164,657 15,926,913 16,735,972 19,182,527 23,559,489 39,337,833 $141,523,856 Total Liabilities and Equity $130,479,787 $132,894,777 $136,528,313 $148,041,943 $88,105,542 11:22 PM Type here to search 100% X 11/11/2019 X O Magnet Beauty[1741].pdf Magnet Beauty[17411.p X Lease_Magnet Beauty Ques PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf Fit to page + A) Read aloud EPage view Add notes of 16 7 111-039 -7 Exhibit 2 Income statement under the proposed accounting model for the '3 plus 2 year lease Item Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Revenues $82,398,496 $52,365,734 $58,649,622 $65,687,577 $73,570,086 $92,286,316 28,277,451 31,670,745 Cost of sales 20,127,331 22,542,611 25,247,724 35,471,234 Gross Profit 45,292,635 32,238,403 36,107,011 40,439,853 50,727,751 56,815,081 R&D Expenses 794.566 889.914 1,116,308 1,250,265 1,400,297 996,704 Distribution Expenses 15,654,265 12,087,965 13,175,882 14,361,711 17,063,149 18,598,833 Administrative Expenses 4.977.859 5,425,866 5,914,194 6,446,472 4,566,843 8,000,000 7,026,654 Rent Total operating expenses 25,449,374 27,025,783 19,043,655 20,784,281 22,684,767 24,759,886 22,607,868 EBITDA 6,789,029 17,063,357 19,655,572 25,967,866 29,789,298 Depreciation 1,000,000 1,120,000 1,360,400 1,578,948 1,826,487 2,106,633 3,646,977 4,667,540 4.929,314 Interest on Debt 3,646,977 4,016,828 4,359,743 2,870,138 654,206 Interest on Lease 2,371,048 1,837,021 1.265.613 Amortization 8,200,395 8,200,395 8,200,395 8,200,395 8,200,395 Net Income before taxes 2,142,052 1,225,847 3,706,901 6,631,76 10,007,831 13,898,751 3,402,663 es 728,298 416,788 1,260,346 2,254,799 4,725,575 $2,446,554 Net income $1,413,755 $809,059 $4,376,962 $6,605,169 $9,173,175 11:18 PM Type here to search 100% X 11/11/2019 X O Magnet Beauty[1741],pdf Magnet Beauty[1741].p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf Fit to page A) Read aloud EPage view Add notes of 16 111-039 Exhibit 4 Cash flow statemant under the proposed accounting model for the 3 plus 2 year lease Year 5 Year 3 Item Year 0 Year 1 Year 2 Year 4 CASH FLOWS FROMOPERATING ACTIVITIES Net Income $809,059 $4,378,982 $6,605,169 $9,173,175 $1,413,755 $2.446,554 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Amortization 8,200,395 8,200,395 8,200,395 8,200,395 8.200,395 1,120,000 Depreciation 1,000,000 1,360,400 1,578,948 1,826,487 2,108,833 (5.012,712) (5,144,183) (4,475,638) (1.883,000) (1,800,300) Decrease (Increase) in Accounts Recevable Decrease (Increase) in Inventory Increase (Decrease) in Accounts Payable (3,567,940) (3,661,528) (5.614.237) (5,761,485) (3,908,103) (4.100,911) (4,593,021) 3,022,446 3,385,140 1,205,800 2,409,478 2,808,813 3,791,357 8,110,095 0,880,205 Net Cash Provided by (Used in) Operating Activities 158,255 5,309.452 8,808,948 11,805,838 CASH FLOWS FROM INVESTING ACTMTIES: (3,010,580) (972,092) (3,776,446) Purchase of tangible assets Purchase of intangible assets (1,800,873) (270,000) (2.400,000) (774,040) (3.371,827) (1.088,743) (2,888,000) (887,930) (1,219,392) Net Cash Provided by (Used in) Investing Activities (4.460,570) (4,095,838) (3,082,652) (2,070,873) (3,174,940) (3.555,939) CASH FLOWS FROM FINANCING ACTNITIES: Principal Payments Under Lease Obligations Net Debt ssues (Repayments) (7.120,802) 5,283,507 (8,182,979) (8,734,387) (7.828,952) (9,345,794) 4,307,108 3,739,622 990,030 4,808,775 2,899,350 Net Cash Provided by (Used in) Financing Activities (8,446,445) 90,030 (2,730,177) (3,785,872) (4.004,760) (1,848,205) $381,571 $404,050 Net Increase in Cash $288.242 ($024,582) $322,831 $453,555 $3,013,091 $3,779.622 $2,402,018 $3,374,662 Cash, January 1 $3,328,000 2.402,018 $2,690,200 3,779,622 3,374,082 4,233,170 3013,001 Cash, December 31 2,890,200 Source: Casewriters 11:23 PM Type here to search 100% X 11/11/2019 Magnet Beauty[1741],pdf Magnet Beauty[1741].p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204%20 Mgt%20Beauty/Magnet%20Beauty[1741].pdf Fit to page A) Read aloud EPage view Add notes of 16 10 111-039 40 Exhibit 5 Income statement under the proposed accounting model for five 1-year leases Item Year 0 Year 1 Year Year 4 Year 2 Year 5 Revenues $52,385,734 $58,840,622 $85,687,577 S73,570,088 $82,398,406 S02,288,316 Cost of sales 20,127,331 22,542,611 25,247,724 28,277,451 31,670,745 35,471,234 Gross Profit 32,238.403 36,107,011 40.439,853 45,292,835 50,727,751 58,815,081 R&D Expenses Distribution Expenses Administrative Expenses 794,566 889,914 996,704 1,116,308 1,250,265 1,400,297 13,175,882 18,598,833 7,026,654 12,155,083 12,087,965 14,361,711 15,854,285 5,914,194 17,083,140 6,446.472 4,588,843 4,977,859 10,000,000 5,425,800 10,500,000 Rent 8,000,000 11,025,000 11,576,250 33,709,767 Total operating expenses 38,338,136 39,180,848 25.440,374 29,043,655 31,284,281 7,083,357 9,155,572 BITDA 8,789,029 11,582,888 14,301,816 17,834,238 Depreciation 1,000,000 1,120,000 1,360,400 1,578,048 1,828.487 2,108,633 4.423,099 Interest on Debt 3,848,977 3,846,077 4,042,307 4,782,089 5,109,247 Interest on Lease Amortization 3,752,885 5,580,821 7.783,080 10,418,355 Net Income before taxes 2.142,052 2,298,380 728,298 780,709 es 1,275,974 1,897.479 2.648,240 3,542,241 Net income $1,413,755 S1,515,611 $2.478,891 S3,883,342 $5,138,820 S8,876,114 11:24 PM Type here to search 100% X 11/11/2019 O Magnet Beauty[1741],pdf Magnet Beauty[1741].p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204%20 Mgt%20Beauty/Magnet%20Beauty[1741].pdf Fit to page A) Read aloud EPage view Add notes of 16 10 111-039 40 Exhibit 5 Income statement under the proposed accounting model for five 1-year leases Item Year 0 Year 1 Year Year 4 Year 2 Year 5 Revenues $52,385,734 $58,840,622 $85,687,577 S73,570,088 $82,398,406 S02,288,316 Cost of sales 20,127,331 22,542,611 25,247,724 28,277,451 31,670,745 35,471,234 Gross Profit 32,238.403 36,107,011 40.439,853 45,292,835 50,727,751 58,815,081 R&D Expenses Distribution Expenses Administrative Expenses 794,566 889,914 996,704 1,116,308 1,250,265 1,400,297 13,175,882 18,598,833 7,026,654 12,155,083 12,087,965 14,361,711 15,854,285 5,914,194 17,083,140 6,446.472 4,588,843 4,977,859 10,000,000 5,425,800 10,500,000 Rent 8,000,000 11,025,000 11,576,250 33,709,767 Total operating expenses 38,338,136 39,180,848 25.440,374 29,043,655 31,284,281 7,083,357 9,155,572 BITDA 8,789,029 11,582,888 14,301,816 17,834,238 Depreciation 1,000,000 1,120,000 1,360,400 1,578,048 1,828.487 2,108,633 4.423,099 Interest on Debt 3,848,977 3,846,077 4,042,307 4,782,089 5,109,247 Interest on Lease Amortization 3,752,885 5,580,821 7.783,080 10,418,355 Net Income before taxes 2.142,052 2,298,380 728,298 780,709 es 1,275,974 1,897.479 2.648,240 3,542,241 Net income $1,413,755 S1,515,611 $2.478,891 S3,883,342 $5,138,820 S8,876,114 11:24 PM Type here to search 100% X 11/11/2019 O EMagnet Beauty[1 741],pdf Magnet Beauty[17411.p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf Fit to page A) Read aloud EPage view Add notes of 16 11 111-039 41 Exhibit 6 Balance sheet under the proposed accounting model for five 1-year leases Year 5 Ite Year 0 Year1 Year 2 Year Year 4 ASSETS Cash $2,000,200 $4,233,176 $2,402,018 29,732,011 $3,013,001 $3,374,002 $3,779,822 41,772,500 40,785,311 Accounts Recevable 33,300,880 37,290,004 52,300,548 34,174,261 42,808,193 53,773,801 Inventory PP&E 30,512,733 38,275,172 48,012,378 35,246,834 20,000,000 22,400,000 25,088,000 28,008,500 31,470,387 (6,885,835) 10,161,500 Less: Accum Depreciation Intangible Assets Right-of-Use Asset Less: Accum Amort: Right-of-Use Ass et (1,000,000) 6,457,880 (2,120,000) 7,232,826 (3,480,400) 8,100,705 (5,059,348) (8,992.408) 11,380,001 9,072,856 Total Assets $07,878,207 $108,203,592 $120,127,523 $148,041,943 $88,105,542 $133,323,401 LIABILITIES $35,386,095 Accounts Payable Lease Obligation $20,078,084 $22,488.440 $25,187,052 $28,200,400 $31,504,630 Less: Accum Principal Lease Obligation Payments Debt 77.040,257 63,187,125 72.980.240 52,099,685 57,747.243 68,315,268 112,420,252 Total Liabilties 72,178,620 80,235,683 88.374,177 98,524,766 104,583,885 EQUITY Share capital Retained earnings 10,000,000 0,919,415 10,000,000 25,615,000 10,000,000 5,926,013 10,000,000 10,000,000 10,000,000 18,739,576 7,442,524 13,602.756 35,015,600 Shareholders' Equity 15,926,013 17,442,524 10,919,415 23,602,756 28,739,576 $148,041,943 Total Liabilties and Equity S88,105,542 $07,678.207 $108,293,592 $120,127,523 $133.323,461 Source: Casewniters. 11:26 PM Type here to search 100% X 11/11/2019 O Magnet Beauty[1 741],pdf Magnet Beauty[17411.p X Lease_Magnet Beauty Ques X PDF file:///C:/Users/SHERIF/Desktop/Corporate%20Finance/Case%204% 20 Mgt% 20Beauty/Magnet%20Beauty[1741],pdf A) Read aloud Fit to page EPage view Add notes of 16 12 111-039 -12- Exhibit 7 Cash flow statement under the proposed accounting model for five 1-year leases Year 5 Year 0 Year1 Year 2 Item Year Year 4 CASH FLOWS FROMOPERATING ACTMITIES: $8.876,114 $1,515,811 S2,478,891 S3,883,342 $5,138,820 Net Income S1,413,755 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Amortization Depreciation Decrease (hcrease) in Accounts Recevable 1,000,000 (1,863,000) 1.120,000 2,106,833 1,360.400 1,578,048 1,828,487 (3,996,103) (5.814.237 (5,781,485) (3,587.940) (4.475,638) (5,012,712) Decrease (Increase) in nventory Increase (Decrease) in Accounts Payable (1,800,300) 1,205,800 (3,881,528) 2.409.478 (4.100,911) 2.698.013 (4,503,021) 3,022.446 (5,144.183) 3,385,140 3,791,357 $1,398,382 Net Cash Provided by (Used in) Operating Activities $158,255 (S2,184,391) ($1,581,111) (S783,920) $191,551 CASH FLOWS FROM INVESTING ACTMITIES Purchase of tangble assets Purchase of intangible assets ($1,800,873) ($3.010,560) (972,092) (S2,400,000) (774.046) (52,888,000) (887,930) (S3,371,827) (53,776,446) (1.219.392) (1,088,743) (270,000) Net Cash Provided by (Used in) Investing Activities (S3,174,048) ($3,555,930) ($3.982652) ($2,070,873) ($4,480,570) (54,005,838) CASH FLOWS FROM FINANCING ACTMITIES: Principal Payments Under Lease Obligations Net Debt Issues (Repayments) 5,847,578 4.873.978 990,036 5,439,881 5,128,143 4,051,011 Net Cash Provided by (Used in) Financing Acivities $000,036 $5,847,578 $5,439,881 $5,128,143 $4,873.978 $4,051,011 Net Increase in Cash (S924,582) $288,242 $322,831 $381,571 $404,959 $453,555 $2.600.280 3,013.091 Cash, January 1 Cash, December 31 $3,013.091 3,374.682 $3,374,082 3,779.822 $2.402.018 2.800,260 S3,328,800 2,402,018 $3,779,822 4233.176 11:29 PM 11/11/2019 Type here to search 4 3 100% X O
