Case 26. Rockboro Machine Tool Corporation

The question is attached to the last photo:

Question 2. Find the impact of different payout levels on the need for external fund by 2021. This abbreviated approach uses the total cash-flow figures (that is, for 2015 through 2021) found in the right-hand column of case Exhibit 26.8. To find the amount of new debt, use the basic sources-and-uses-of-funds identity, as used in case Exhibit 26.8. What are the implications of different payout levels for Rockboro's capital structure and unused debt capacity?

Question 3. Based on the signaling and clientele consideratons, how will Rockboro's various providers of capital, such as its stockholders and debtholders, react to a declaration of no dividend? What about the announcement of a 40% payout?

For Question 2, I would like help with the table I uploaded. There are a few blanks such as dividend, retained earnings, net debt, and so on.

And question 3.

EXHIBIT 26.1 | Consolidated Income Statements (dollars in thousands, except per-share Projected 2012 2013 2014 2015 Net sales $1.287,394 $1,223,969 $1,134,956 $1,305.000 Cost of sales 811.121 752,186 748,319 824,625 Gross profit 476.273 471.782 386.638 480,375 Research and development 116,516 105,818 113.126 115,875 344,957 Selling. general, and administrative 335.450 346,511 317.250 98,172 Rostructuring costs 0 134,116 0 Operating profit floss) (83,372) 30,515 (207,115) 47.250 Other income (expense) (6.750) 1,598 (5.186) (6,300) Income (loss) before taxes (90,122) 32,112 (212,301) 40,950 Income taxos bonofit) 1,861 12.623 (1.125) 13.923 Net income (loss) ($91,982) 19,490 ($211,176) $ 27,027 Earnings (loss) per share ($3.25) $ 0.69 ($7.57) $ 0.98 Dividends per share $ 0.64 $ 0.64 $ 0.32 $ 0.39 Note: The dividends in 2015 assume a payout ratio of 40%. Source: Author estimates. EXHIBIT 26.2 Consolidated Balance Sheets (dollars in thousands) 2013 2014 Cash and equivalents Accounts receivable Inventories Prepaid expenses Other Total current assets Property, plant, and equipment Less depreciation Net property, plant, and equipment Intangible assets Other assets Total assets Bank loans Accounts payable Current portion of long-term debt Accruals and other Total current liabilities Deferred taxes Long-term debt Deferred pension costs Other liabilities Total liabilities Common stock, $1 par value Capital in excess of par Cumulative translation adjustment Retained earnings Loss treasury stock at cost Total shareholders' equity Total liabilities and equity $ 20.876 312,812 345.513 21.389 33.276 733.865 491,405 251,121 240.284 14,144 23.585 $1.011.876 $ 51.294 54,674 450 194,061 300,479 25,479 13,500 67,185 3.477 410,120 28,283 161.811 (9.849) 437,247 (15.735 601.757 $1,011,876 $ 33,345 280.853 305,832 19.524 31.071 670,625 538.262 275.229 263.033 3,149 26.532 $963,338 $ 107,018 51,359 225 242.450 401,051 20.654 13,163 96,488 8.166 539,520 28.283 161.861 30,312 219,098 (15.735 423,818 $963,338 Projected 2015 $ 38.498 326.265 325.832 22.517 31.500 744,611 616,482 308.295 308,187 2.273 26.954 $1,082,024 $ 112.472 56.291 2.273 274,521 445.556 24.789 45,032 105.240 11.258 631,874 28.253 161.834 40.485 235,313 (15.735 450.149 $1,082,022 Note: Projections assume a dividend payout ratio of 40% Source: Author estimates. 2016 Assumptions: 2015 2017 2018 2019 2020 2021 Sales Growth Rate: 15% 15% 15% 15% 15% 15% 15% Net Income as % of Sales 2.1% 4.0% 5.0% 5.5% 6.0% 6.5% 6.5% Dividend Payout Ratio 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Projections Total 2015 2016 2017 2018 2019 2020 2021 2015-21 Sales $1,305 $1.501 $1.726 $1,985 $2,283 $2,625 $3,019 $14.444 Sources: Net income 27.0 60.0 86.3 109.2 137.0 170.6 196.2 786.4 Depreciation 33.9 39.0 44.9 51.6 59.4 68.3 78.5 375.6 Total 61.0 99.1 131.2 160.8 196.3 238.9 274.7 1.161.9 Uses 65.3 75.0 86.3 99.3 102.7 118.1 Capital expend. 135.9 682.6 29.3 33.6 38.7 44.5 Change in working capital 51.2 58.8 67.7 323.7 94.5 108.7 125.0 143.7 153.9 177.0 203.5 Total 1,006,3 (33.6) Excess cash/(borrowing needs) (9.6) 6.2 17.1 42.4 61.9 71.2 155.7 10.8 24.0 34.5 43.7 54.8 68.3 78.5 Dividend 314.6 After dividend Excess cash/(borrowing needs) ($44.4) ($33.6) ($28.3) ($26.6) ($12.3) ($6.3) ($7.3) ($158.9) This analysis ignores the effects of borrowing on interest expense. Source: Author estimates. 2. Find the impact of different payout levels on the need for external funds by 2021. This abbreviated approach uses the total cash-flow figures (that is, for 2015 through 2021) found in the right-hand column of case Exhibit 26.8. To find the amount of new debt, use the basic sources-and-uses-of-funds identity, as used in case Exhibit 26.8. What are the implications of different payout levels for Rockboro's capital structure and unused debt capacity? Rockboro Machine Tools Corporation (dollars in millions) 0% $786.4 Targeted Dividend Payout 20% 40% 50% $786.4 $786.4 $786.4 Exhibit 26.8 Net Income Dividend Earnings retained 1,006.3 375.6 1,006.3 375.6 1,006.3 375.6 1,006,3 375.6 Exhibit 26.8 Exhibit 26.8 Increase in assets Depreciation Net debt Initial debt (2014) Ending debt (2021) 120.4 120.4 120.4 120.4 Exhibit 26.8 423.8 423.8 423.8 423.8 Exhibit 26.8 Initial equity (2014) Earnings retained Ending equity (2021) Total capital (2021) Debt/Equity (2021) Debt capacity Max debt / equity = 40% Debt capacity used Unused debt capacity 3. Based on the signaling and clientele considerations, how will Rockboro's various providers of capital, such as its stockholders and debtholders, react to a declaration of no dividend? What about the announcement of a 40% payout? EXHIBIT 26.1 | Consolidated Income Statements (dollars in thousands, except per-share Projected 2012 2013 2014 2015 Net sales $1.287,394 $1,223,969 $1,134,956 $1,305.000 Cost of sales 811.121 752,186 748,319 824,625 Gross profit 476.273 471.782 386.638 480,375 Research and development 116,516 105,818 113.126 115,875 344,957 Selling. general, and administrative 335.450 346,511 317.250 98,172 Rostructuring costs 0 134,116 0 Operating profit floss) (83,372) 30,515 (207,115) 47.250 Other income (expense) (6.750) 1,598 (5.186) (6,300) Income (loss) before taxes (90,122) 32,112 (212,301) 40,950 Income taxos bonofit) 1,861 12.623 (1.125) 13.923 Net income (loss) ($91,982) 19,490 ($211,176) $ 27,027 Earnings (loss) per share ($3.25) $ 0.69 ($7.57) $ 0.98 Dividends per share $ 0.64 $ 0.64 $ 0.32 $ 0.39 Note: The dividends in 2015 assume a payout ratio of 40%. Source: Author estimates. EXHIBIT 26.2 Consolidated Balance Sheets (dollars in thousands) 2013 2014 Cash and equivalents Accounts receivable Inventories Prepaid expenses Other Total current assets Property, plant, and equipment Less depreciation Net property, plant, and equipment Intangible assets Other assets Total assets Bank loans Accounts payable Current portion of long-term debt Accruals and other Total current liabilities Deferred taxes Long-term debt Deferred pension costs Other liabilities Total liabilities Common stock, $1 par value Capital in excess of par Cumulative translation adjustment Retained earnings Loss treasury stock at cost Total shareholders' equity Total liabilities and equity $ 20.876 312,812 345.513 21.389 33.276 733.865 491,405 251,121 240.284 14,144 23.585 $1.011.876 $ 51.294 54,674 450 194,061 300,479 25,479 13,500 67,185 3.477 410,120 28,283 161.811 (9.849) 437,247 (15.735 601.757 $1,011,876 $ 33,345 280.853 305,832 19.524 31.071 670,625 538.262 275.229 263.033 3,149 26.532 $963,338 $ 107,018 51,359 225 242.450 401,051 20.654 13,163 96,488 8.166 539,520 28.283 161.861 30,312 219,098 (15.735 423,818 $963,338 Projected 2015 $ 38.498 326.265 325.832 22.517 31.500 744,611 616,482 308.295 308,187 2.273 26.954 $1,082,024 $ 112.472 56.291 2.273 274,521 445.556 24.789 45,032 105.240 11.258 631,874 28.253 161.834 40.485 235,313 (15.735 450.149 $1,082,022 Note: Projections assume a dividend payout ratio of 40% Source: Author estimates. 2016 Assumptions: 2015 2017 2018 2019 2020 2021 Sales Growth Rate: 15% 15% 15% 15% 15% 15% 15% Net Income as % of Sales 2.1% 4.0% 5.0% 5.5% 6.0% 6.5% 6.5% Dividend Payout Ratio 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Projections Total 2015 2016 2017 2018 2019 2020 2021 2015-21 Sales $1,305 $1.501 $1.726 $1,985 $2,283 $2,625 $3,019 $14.444 Sources: Net income 27.0 60.0 86.3 109.2 137.0 170.6 196.2 786.4 Depreciation 33.9 39.0 44.9 51.6 59.4 68.3 78.5 375.6 Total 61.0 99.1 131.2 160.8 196.3 238.9 274.7 1.161.9 Uses 65.3 75.0 86.3 99.3 102.7 118.1 Capital expend. 135.9 682.6 29.3 33.6 38.7 44.5 Change in working capital 51.2 58.8 67.7 323.7 94.5 108.7 125.0 143.7 153.9 177.0 203.5 Total 1,006,3 (33.6) Excess cash/(borrowing needs) (9.6) 6.2 17.1 42.4 61.9 71.2 155.7 10.8 24.0 34.5 43.7 54.8 68.3 78.5 Dividend 314.6 After dividend Excess cash/(borrowing needs) ($44.4) ($33.6) ($28.3) ($26.6) ($12.3) ($6.3) ($7.3) ($158.9) This analysis ignores the effects of borrowing on interest expense. Source: Author estimates. 2. Find the impact of different payout levels on the need for external funds by 2021. This abbreviated approach uses the total cash-flow figures (that is, for 2015 through 2021) found in the right-hand column of case Exhibit 26.8. To find the amount of new debt, use the basic sources-and-uses-of-funds identity, as used in case Exhibit 26.8. What are the implications of different payout levels for Rockboro's capital structure and unused debt capacity? Rockboro Machine Tools Corporation (dollars in millions) 0% $786.4 Targeted Dividend Payout 20% 40% 50% $786.4 $786.4 $786.4 Exhibit 26.8 Net Income Dividend Earnings retained 1,006.3 375.6 1,006.3 375.6 1,006.3 375.6 1,006,3 375.6 Exhibit 26.8 Exhibit 26.8 Increase in assets Depreciation Net debt Initial debt (2014) Ending debt (2021) 120.4 120.4 120.4 120.4 Exhibit 26.8 423.8 423.8 423.8 423.8 Exhibit 26.8 Initial equity (2014) Earnings retained Ending equity (2021) Total capital (2021) Debt/Equity (2021) Debt capacity Max debt / equity = 40% Debt capacity used Unused debt capacity 3. Based on the signaling and clientele considerations, how will Rockboro's various providers of capital, such as its stockholders and debtholders, react to a declaration of no dividend? What about the announcement of a 40% payout