After Ed completed the ratio analysis for Tuxedo Air (see Chapter 3)Mark and Jack approached him about planning for next year's sales. The company had historically used little planning for investment needs. As a result, the company experienced some challenging times because of cash flow problems. The lack of planning resulted in missed sales, as well as periods where Mark and Jack were unable to draw salariesTo this end, they would like Ed to prepare a financial plan for the next year so the company can begin to address any outside investment requirements. The statements of comprehensiv income and financial position shown here: Questions Calculate the internal growth rate and sustainable growth rate for Tuxedo What do these numbers mean? 2. Tuxedo Air is planning for a growth rate of percent next year. Calculate the EFN for the company assuming the company is operating at full capacity. Can the company's sales increase at this growth rate? 3. Most assets can be increased as a percentage of sales. For instancecash can be increased by any amount. However, fixed assets must be increased in specific amounts because it is impossible, as a practical matter, to buy part a new plant or machine. In this case, a company has a "staircase" or "lumpyfixed cost structureAssume Tuxedo Air is currently producing at 100 percent capacityAs a result, to increase production, the company must set up an entirely new line at a cost of \$5,000,000 Calculate the new EFN with this assumption. What does this imply about capacity utilization for the company next year? Inc. 2015 Statement of Comprehensive Income Sotes $ Cost of Othe expenses Depreciation Interest Table income (409 162 income 5560,000 retained Click here for a description of Table: Mim-CaseTuxedo Air Statement of Comprehensive Income Tuxedo 2015 Statement of Financial Position Current Assets $ Account Accounts 637,560 Inventory2773,050 Total Longterm Net Common stock Retained Total 480 Tool and we $ Click here of Table MiniTuxedoStatement of Financial Position 5 5050,000

2-MINI CASE Nepean Boards is a small company that manufactures and sells snowboards in Ottawa Scott Redknapp, the founder of the company is in charge of the design and sale of the snowboards, but he is not from a business backgroundAs a result, the company's financial records are not well maintained The initial investment in Nepean Boards was provided by Scott and his friends and familyBecause the initial investment was relatively smalland the company has made snowboards only for its own store, the investors have not required detailed financial statements from Scott. But thanks to word of mouth among professional boarders, sales have picked up recentlyand Scott considering a major expansionHis plans include opening another snowboard store in Calgaryas well as supplying his sticks(bourder lingo for boards) to other sellers. Scott's expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from the banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Scott previously preparedAt the urging of his investorsScott has hired financial analyst Jennifer Bradshaw to evaluate the performance of the company over the past year. Page 68 After rooting through old bank statements, sales receipts, tax returnsand other records, Jennifer has assembled the following information: 2014 32.223 of goods sold Depreciation Selling and administrative Sales Notes New 2015 $ 206,886 35.721 52.282 47,325 248.625 21732 20,796 20.500 16,753 1906 203.006 Click here for description of TableMini Case Nepean Boards currently pays out percent of net income as dividends to Scott and the other original investors, and has a 20 percent tax rate. You are Jennifer's assistant, and has asked you to prepare the following: A statement of comprehensive income for 2014 and 2015 . 2. A statement of financial position for 2014 and 2015. 3. Operating cash flow for the year. 4. Cash flow from assets for 2015 S. Cash flow to creditors for 2015. 6. Cash flow to shareholders for 2015

MINI CASE Ferdinand Gold Mining Rio Ferdinand, the owner of Ferdinand Gold Mining, is evaluating a new gold mine in Fort MeMurray Paul Pogba, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined Cash Flow -450.000.000 120.000.000 185.000.000 175.000.000 120.000.000 5.000.000 1 2 3 4 5 6 7 Click for descriptions Mini Paul has taken an estimate of the gold deposits to Julia Davids, the company's financial officer Juli has been asked by to perform an analysis of the new and present her recommendation on whether the company should open the new mine. Julia has used the estimates provided by Paul to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expense company opens the mine, it will cost 450 million today it will have a cash outflow million nine years from today costs associated with closing the mine and reclaiming the area surrounding itThe expected cash flows each year from the mine are shown in the table Ferdinand Mining has a 12 percent required return on all of its gold mines. Construct a spreadsheet to calculate the payback period, internal rate of , modified internal rate of and net present value of the proposed mine. 2. Based on your analysis, should the company open the mine?