AFN Analysis is needed for the following scenario:

Company Information:

Hildebrand Consumer Products, Inc.
Balance Sheet
Assets:			Liabilities:
Current Assets	$995,000		Accounts Payable	$300,000
			Notes Payable	$700,000
Fixed Assets	$3,000,000		Other Current Liabilities	$195,000
			Bonds Payable	$1,200,000
			Total Liabilities:	$2,395,000
			Equity	$1,600,000
Total Assets:	$3,995,000		Total Liabilities & Equity:	$3,995,000

Current Market Information:

700 Bonds - $1,000, 20 years, 10% stated rate, issued 8 years ago - currently selling at $970

500 Bonds - $1,000, 10 years, 15% stated rate, issued 3 years ago - currently selling at $1,050

100,000 shares of common stock - currently selling for $21.00 per share

Financial Analysis:

= 1.15, R_M = 22%, R_RF = 2.5% Tax Rate = 40%

Lender Requirements:

Funds will only be distributed in even amounts of $50,000. (50,000, 100,000, 150,000, etc.)

If AFN > $200,000 then the Pre-tax Cost of debt will be 15%; otherwise, it will be 18%

PROJECT SPECIFICATION

Term: 5 years

Outlay: $500,000 for Equipment, depreciable over 5 years, salvage value $30,000

$200,000 lost opportunity with an existing vendor

$100,000 required NWC recoverable in Year 5.

In the first year, sales will increase $1,400,000. Sales are currently $14,000,000. The current profit margin is 20% and the payout ratio is 30%. After Year 1, it is likely that sales will grow 8% per year, and Cost of Goods Sold will grow by 2% per year. The company will need to borrow any funds identified through AFN analysis.

Best Case: After Year 1, sales will increase 10% per year. The assumption regarding Cost of Goods Sold would remain as stated above.

Worst Case: After Year 1, sales would decrease 3% per year and Cost of Goods Sold would increase 1% per year.

Any detailed explanation and calculations are appreciated.