a- What will be the main sources and uses of funds between the end of 2017 and the end of 2020 if the company goes on with the new division? Please, fill in the numbers for 2020, calculate sources & uses next to the table, explain briefly below the table and say what you think about it (4 sentences max).

b- The introduction of the new product line changes the profitability. i-What is the last reported return on equity? What would it be in 2020 if they go on with producing motorbikes? What would it be if they did not decide to produce motorbikes? Comment with 1 -2 sentences on your observations. ii-As Bikeee's investor, would you be worried about the scenario when Bikeee decides to produce motorbikes? Why or why not? (3 sentences max)

c- The introduction of the new product line will change the cash management of the company. i- What would be the length of the cash cycle without the introduction of the new product line at the end of the projected period? ii- What would be the length of the cash cycle with the introduction of the new product line at the end of the projected period? iii- What does such change in the cash cycle imply for the cash management of the firm? Which positions of the cash cycle change the most? How do you interpret these changes? (4 sentences max)

d- The introduction of the new product line changes the capital structure. i- What is the last reported book leverage (D/E)? What will it be in 2020 if they do not decide to produce motorbikes? What will it be if they go on with producing motorbikes? ii- Do you view these developments as favorable for the company's shareholders? Please explain which factors you consider and how you trade them off against each other. (max 3 sentences) iii- What is the last reported interest coverage ratio? What will it be in 2020 if they do not decide to produce motorbikes? What will it be if they go on with producing motorbikes?

iv- As a bank, would you be worried about the scenario when Bikeee decides to produce motorbikes? Why or why not? What do you expect bank to do, if Bikeee asks for another loan in the future? (3 sentences max)

Bikeee Inc. has been in the business of producing electric bicycles for the past decade. The company established itself in the industry and has reached a steady growth path. Exhibit 1 shows the income statements for the years 2015 to 2017 . As was noted in a conversation with their bank's loan officer, Steven Walker, last year, the company is financed solidly. For recent balance sheets, see Exhibit 2 . Bikeee is one of Walker's prime clients and he has full faith in the Bikeee's management. He had reviewed the pro-forma income statements (Exhibit 3) and balance sheets (Exhibit 4) of Bikeee for the coming years and was very satisfied. In January 2018, Bikeee's CFO approached Walker and informed him about the company's expansion plans. Bikeee wants to enter and shape the market for electric motorbikes. Walker, himself an avid motorcyclist, was taken for a test ride on a prototype that was produced by Bikeee's research team. He was excited about the performance of the motorcycle which was ready to go into production the same year. As a result, he wanted to grant Bikeee an extension of their credit line from currently $2m to $10m at an interest rate of 6%. Therefore, he would want to see an update of the pro-forma statements and balance sheets for the company. Bikeee's financing strategy had always been very conservative. In addition to the bank loans, the company had only one long-term debt financing of $200k which it had privately placed with a friend of the CEO. This debt contract carries an interest rate of 4% and was not due at any time soon. Given past negative experiences, Bikeee's board of directors as well as management firmly believe that issuing equity carries substantial costs. As a result, further equity issuances do not come into question. Bikeee's established a policy of paying out 43% of its net profits as dividends which it wants to continue in the future. After their conversation with Walker, Bikeee discussed its plans to produce their new product line. It would purchase machines necessary for the production of motorbikes for a total of $1.4m and maintain the equipment such that its book value increases by 6% per year. Extra general and administrative expenses would amount to $1m for 2018 and would grow by 6% annually thereafter. These machines could be placed in unused space in their current factory and no new land was needed. Bikeee estimated that accounts payable would be 3% of purchases and accounts receivables 14% of net sales of motorbikes. Bikeee would hold additional cash balances of 1% of net motorbike sales. It further built expectation about net sales and purchases which are listed in Exhibit 5. None of these plans would alter the projections for the electric bicycles. The company continues to face a tax rate of 34%. The line of credit would be used for all financing in the near future so that the team could focus on the production and sale of its new product line. In 2021, when the company will hopefully be back on a steady growth path, some resources will be devoted to restructuring the financial positions. Additionally, finance team prepared the pro-forma income statements and balance sheets for Bikeee Inc for the years 2018 to 2020 taking into account the new division (Exhibit 6.) \begin{tabular}{|l|r|r|r|r|} \hline \multicolumn{2}{|c|}{ Exhibit 5: Projections for motorbike production } \\ \hline & 2018 & 2019 & 2020 & after 2020 \\ \hline Net Sales & 4,000 & 16,000 & 20,000 growth at 6% \\ \hline Purchases & 8,000 & 10,000 & 18,000 growth at 6% \\ \hline End Inv & 5,000 & 1,000 & 1,000 5\% of net sales \\ \hline Expenses (G\&A) & 1,000 & 1,060 & 1,124 growth at 6% \\ \hline \end{tabular} Exhibit 6. Pro-forma income statements and balance sheets for Bikeee Inc for the years 2018 to 2020 taking into sronlunt tho now, matorhile divicinn Bikeee Inc. has been in the business of producing electric bicycles for the past decade. The company established itself in the industry and has reached a steady growth path. Exhibit 1 shows the income statements for the years 2015 to 2017 . As was noted in a conversation with their bank's loan officer, Steven Walker, last year, the company is financed solidly. For recent balance sheets, see Exhibit 2 . Bikeee is one of Walker's prime clients and he has full faith in the Bikeee's management. He had reviewed the pro-forma income statements (Exhibit 3) and balance sheets (Exhibit 4) of Bikeee for the coming years and was very satisfied. In January 2018, Bikeee's CFO approached Walker and informed him about the company's expansion plans. Bikeee wants to enter and shape the market for electric motorbikes. Walker, himself an avid motorcyclist, was taken for a test ride on a prototype that was produced by Bikeee's research team. He was excited about the performance of the motorcycle which was ready to go into production the same year. As a result, he wanted to grant Bikeee an extension of their credit line from currently $2m to $10m at an interest rate of 6%. Therefore, he would want to see an update of the pro-forma statements and balance sheets for the company. Bikeee's financing strategy had always been very conservative. In addition to the bank loans, the company had only one long-term debt financing of $200k which it had privately placed with a friend of the CEO. This debt contract carries an interest rate of 4% and was not due at any time soon. Given past negative experiences, Bikeee's board of directors as well as management firmly believe that issuing equity carries substantial costs. As a result, further equity issuances do not come into question. Bikeee's established a policy of paying out 43% of its net profits as dividends which it wants to continue in the future. After their conversation with Walker, Bikeee discussed its plans to produce their new product line. It would purchase machines necessary for the production of motorbikes for a total of $1.4m and maintain the equipment such that its book value increases by 6% per year. Extra general and administrative expenses would amount to $1m for 2018 and would grow by 6% annually thereafter. These machines could be placed in unused space in their current factory and no new land was needed. Bikeee estimated that accounts payable would be 3% of purchases and accounts receivables 14% of net sales of motorbikes. Bikeee would hold additional cash balances of 1% of net motorbike sales. It further built expectation about net sales and purchases which are listed in Exhibit 5. None of these plans would alter the projections for the electric bicycles. The company continues to face a tax rate of 34%. The line of credit would be used for all financing in the near future so that the team could focus on the production and sale of its new product line. In 2021, when the company will hopefully be back on a steady growth path, some resources will be devoted to restructuring the financial positions. Additionally, finance team prepared the pro-forma income statements and balance sheets for Bikeee Inc for the years 2018 to 2020 taking into account the new division (Exhibit 6.) \begin{tabular}{|l|r|r|r|r|} \hline \multicolumn{2}{|c|}{ Exhibit 5: Projections for motorbike production } \\ \hline & 2018 & 2019 & 2020 & after 2020 \\ \hline Net Sales & 4,000 & 16,000 & 20,000 growth at 6% \\ \hline Purchases & 8,000 & 10,000 & 18,000 growth at 6% \\ \hline End Inv & 5,000 & 1,000 & 1,000 5\% of net sales \\ \hline Expenses (G\&A) & 1,000 & 1,060 & 1,124 growth at 6% \\ \hline \end{tabular} Exhibit 6. Pro-forma income statements and balance sheets for Bikeee Inc for the years 2018 to 2020 taking into sronlunt tho now, matorhile divicinn