Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Can you please solve question A1 through question A5? FOR EACH PROBLEM LABEL THE QUESTION AND PUT EACH QUESTION ON A DIFFERENT PAGE. SHOW YOUR
Can you please solve question A1 through question A5?
FOR EACH PROBLEM LABEL THE QUESTION AND PUT EACH QUESTION ON A DIFFERENT PAGE. SHOW YOUR WORK PROBLEM A. (35 Points) You have been hired to evaluate whether investors should purchase a company called "USB Music Cards to Roll". You have been told that this business would likely perform financially exactly like "Video to Roll" did for the years 1980, 1981 and 1982. Your investors are looking to invest in a business for three years and then sell the same. In your analysis assume the following: A. The "Video to Roll" cash flows for 1980,1981 and 1982 would be exactly the same as the projected "USB Music Cards to Roll" cash flows for the years 2023, 2024 and 2025. For purposes of this exercise, treat the net income from each year as a cash flow. B. The income tax rate for any calculations on any proposed financial statements for each year for "USB Music Cards to Roll" is 20%. C. For 1980 only, the cost of goods sold for "Video to Roll" was 60% of Sales. D. Dividends for "Video to Roll" were 50% of net income for each year 1980, 1981 and 1982. E. Video to Roll had current assets of $10,000 for each of the years 1980, 1981 and 1982 You have been given common-sized_income statements and balance sheets for "Video to Roll" for the years 1980, 1981 and 1982 that collectively depict: (In no specific order): taxes paid, taxable income, interest paid, current assets, fixed assets, current liabilities, long term debt, depreciation, costs of goods sold, gross sales, net income, dividends and additions to retained earnings, earnings before interest and taxes and owner equity and liability. However, because of water stains on the documents, you can only read the entry on the common-sized income statement for taxes paid and it was 2% for each year (1980, 1981 and 1982). You were told and can rely on the fact that the cost of goods sold for "Video to Roll" decreased by 10% each year commencing 1980 and the depreciation was 10% for 1980 and increased by 10% each of the following two years. Interest paid stayed the same at 20% for each year and taxable income stayed the same at 10% each year. Also, net income stayed the same for each year at 8% and the current assets of "Video to Roll" was $10,000.00 for each year commencing in 1980. 1 However, you also have access to the 1980,1981 and 1982 tax returns for Video to Roll which shows the following The common-sized balance sheets for "Video to Roll" were not damaged. It showed the following: Question A1. Put together a projected Income statement and Balance sheet for "USB Music Cards to Roll" for 2023, 2024 and 2025 (remember the numbers are projected to be the same for Video to Roll for 1980,1981 and 1982 and use the categories listed above: taxes paid, taxable income, interest paid, current assets, fixed assets, current liabilities, long term debt, depreciation, costs of goods sold, gross sales, net income, dividends and additions to retained earnings, earnings before interest and taxes and owner equity and liability). PRINT NEATLY. ONLY USE FACTS WHICH ARE SUPPLIED ABOVE AND NOT FACTS FROM SUBSEQUENT QUESTIONS. Question A2. What formulas can you employ to determine how much debt "Video to Roll" used in 1980, how well its interest obligations were covered, and how well it can use cash to pay interest obligations. Be specific as to what each ratio will tell you. Question A3. Calculate each formula for 1980, 1981, 1982. (Show your work) Question A4. Assume the annual rate of inflation is 3%. Using the net income figure from 1980 from "Video to Roll", you calculated in question A1, how much would you need to earn in 2022 from the business to have the same net income as the owners did from 1980 from operating "Video to Roll". (Show your work). 2 Question A5. You are trying to figure out what a smart investor should have paid for Video to Roll in 1980. You know that smart investors were looking for an investment for three years at a 15% rate of return which would have paid them $8,000 per year. [Assume 1980 was a typical year for "Video to Roll" for net income (cash flows).] What type of investment does this most look like? What was this three-year investment worth it for those investors? (Show your work)Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started