1-"Before making additional balancing adjustments to the Balance Sheet, what is the forecasted value of Total Liabilities for 2020? Express the numerical terms of your answer completely. For example: If your answer is one million dollars, write: 1000000."
2-"Before making additional balancing adjustments to the Balance Sheet, what is the forecasted value of Shareholder's Equity for 2020? Express the numerical terms of your answer completely. For example: If your answer is one million dollars, write: 1000000."
3-"What is the estimate for Net New Financing for 2020? Note: Make sure you use the correct positive or negative sign. Express the numerical terms of your answer completely. For example: If your answer is one million dollars, write: 1000000."
4-
What option can the financial managers of Company Y implement in order to balance Total Assets and Total Liabilities and Equity for 2020?
| | | Increase the debt by the absolute value of the amount indicated in your calculations of net new financing; |
| | | Increase dividends by the absolute value of the amount indicated in your calculations of net new financing; |
| | | Either of a. or b. would work; |
| | | Neither of a. or b. would work; |
Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers the following questions. To do this assume that the percentage values with respect to sales of the 2020 (1) costs except depreciation, (ii) cash and equivalents, (iii) accounts receivable, (iv) inventories, and (v) accounts payable will remain fixed at their respective percentage values in 2019. Assume also that income tax will remain at 30% of the Pretax Income. Company Y sells a product for which in 2019 the total market size was of 500,000 units, of which Company Y owned a share of 20%. Both, the total market size and Company Y s market share are expected to grow at a 25% yearly rate for the next five years. The price of the product is $114 in 2019 and is expected to remain at that price for the next years. 2019 Market Analysis 2020 2021 TABLE B.1 2022 Market Size 500,000 625,000 781,250 976,563 Market Share 20.000% 25.000% 31.250% 39.063% Production Volume 100,000 Average Sales Price: 114 Sales In 2019, the outstanding debt of Company Y is $250,000, for which the company makes yearly interest payments of 8%. The executives of Company Yare considering making a significant capital investment in 2020 of $1,000,000 to purchase new machinery. The company plans to finance this investment with a 30- year loan that makes yearly interest payments equivalent to 8% of its principal. The principal is paid when the loan matures. The following table summarizes the debt and interest payment of Company Y. 2019 Debt and Interest Table 2020 TABLE B.2 2021 Outstanding Debt 250,000 250,000 1,250,000 New Net Borrowing 1,000,000 Interest on Debt decided that it will continue making replacement capital investment of $25,000 until and including 2020; and starting in 2021 it will perform yearly expenditures on replacement capital investment of $70,000. The current and the planned expenditures on replacement of capital investment will be financed by the companys cash flow. The following table indicates for 2019 Company Y s values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2020-2021 forecast values of capital depreciation if the planned expansion were to occur in 2020. Because no decision has yet been done about dividends, before making any balancing adjustments to the Balance Sheet, assume that these will be $0 in 2020. 2019 Fixed Assets & Capital Investment TABLE B.3 2020 2021 Opening Book Value 500,000 Capital Investment 25,000 Depreciation -26,250 -76,188 -75,878 Closing Book Value 498,750 The following table contains Company Y s income statement for 2019. TABLE B.4 Income Statement: 2019 2020 Sales 11,400,000 Costs except Depr. -6,840,000 EBITDA 4,560,000 Depreciation -26,250 EBIT 4,533,750 Interest Expense (net) -20,000 Pretax Income 4,513,750 Income Tax -1,354,125 Net Income 3,159,625 11,400,000 Sales Costs except Depr. EBITDA -6,840,000 4,560,000 -26,250 4,533,750 Depreciation EBIT Interest Expense (net) Pretax Income -20,000 4,513,750 -1,354,125 Income Tax Net Income 3,159,625 The following table contains Company Ys balance sheet for 2019. TABLE B.5 Balance Sheet - Assets: 2019 2020 Assets 5,130,000 Cash and Equivalents Accounts Receivable 5,700,000 Inventories 2,280,000 13,110,000 Total Current Assets Property, Plant and Equipment 498,750 Total Assets 13,608,750 2019 2020 Balance Sheet - Liabilities and Equity: Liabilities Accounts Payable 1,140,000 Total Current Liabilities 1,140,000 Debt 250,000 1,390,000 Total Liabilities Stockholders' Equity Starting Stockholders' Equity 1,000,000 Net Income 3,159,625 8,059,125 Dividends Stockholders' Equity Total Liabilities and Equity 12,218,750 13,608,750 Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers the following questions. To do this assume that the percentage values with respect to sales of the 2020 (1) costs except depreciation, (ii) cash and equivalents, (iii) accounts receivable, (iv) inventories, and (v) accounts payable will remain fixed at their respective percentage values in 2019. Assume also that income tax will remain at 30% of the Pretax Income. Company Y sells a product for which in 2019 the total market size was of 500,000 units, of which Company Y owned a share of 20%. Both, the total market size and Company Y s market share are expected to grow at a 25% yearly rate for the next five years. The price of the product is $114 in 2019 and is expected to remain at that price for the next years. 2019 Market Analysis 2020 2021 TABLE B.1 2022 Market Size 500,000 625,000 781,250 976,563 Market Share 20.000% 25.000% 31.250% 39.063% Production Volume 100,000 Average Sales Price: 114 Sales In 2019, the outstanding debt of Company Y is $250,000, for which the company makes yearly interest payments of 8%. The executives of Company Yare considering making a significant capital investment in 2020 of $1,000,000 to purchase new machinery. The company plans to finance this investment with a 30- year loan that makes yearly interest payments equivalent to 8% of its principal. The principal is paid when the loan matures. The following table summarizes the debt and interest payment of Company Y. 2019 Debt and Interest Table 2020 TABLE B.2 2021 Outstanding Debt 250,000 250,000 1,250,000 New Net Borrowing 1,000,000 Interest on Debt decided that it will continue making replacement capital investment of $25,000 until and including 2020; and starting in 2021 it will perform yearly expenditures on replacement capital investment of $70,000. The current and the planned expenditures on replacement of capital investment will be financed by the companys cash flow. The following table indicates for 2019 Company Y s values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2020-2021 forecast values of capital depreciation if the planned expansion were to occur in 2020. Because no decision has yet been done about dividends, before making any balancing adjustments to the Balance Sheet, assume that these will be $0 in 2020. 2019 Fixed Assets & Capital Investment TABLE B.3 2020 2021 Opening Book Value 500,000 Capital Investment 25,000 Depreciation -26,250 -76,188 -75,878 Closing Book Value 498,750 The following table contains Company Y s income statement for 2019. TABLE B.4 Income Statement: 2019 2020 Sales 11,400,000 Costs except Depr. -6,840,000 EBITDA 4,560,000 Depreciation -26,250 EBIT 4,533,750 Interest Expense (net) -20,000 Pretax Income 4,513,750 Income Tax -1,354,125 Net Income 3,159,625 11,400,000 Sales Costs except Depr. EBITDA -6,840,000 4,560,000 -26,250 4,533,750 Depreciation EBIT Interest Expense (net) Pretax Income -20,000 4,513,750 -1,354,125 Income Tax Net Income 3,159,625 The following table contains Company Ys balance sheet for 2019. TABLE B.5 Balance Sheet - Assets: 2019 2020 Assets 5,130,000 Cash and Equivalents Accounts Receivable 5,700,000 Inventories 2,280,000 13,110,000 Total Current Assets Property, Plant and Equipment 498,750 Total Assets 13,608,750 2019 2020 Balance Sheet - Liabilities and Equity: Liabilities Accounts Payable 1,140,000 Total Current Liabilities 1,140,000 Debt 250,000 1,390,000 Total Liabilities Stockholders' Equity Starting Stockholders' Equity 1,000,000 Net Income 3,159,625 8,059,125 Dividends Stockholders' Equity Total Liabilities and Equity 12,218,750 13,608,750
