CASE ANALYSIS - UNITED CORPORATION LIMITED 140 MARKS The following comprehensive assessment is based on a continuing case study of United Corporation Limited. The following financial statements have been provided: United Corporation Limited Income Statement For the years ended December 31, 2018 & 2019 2018 2019 ('000s) ('000s) Sales 750,000 937.500 Cost of Sales (250,000) (255,500) Selling & Marketing Costs (125,000) (130,000) Admin. Expenses (45,000) (47,500) Depreciation Expense (15,000) (17.500) Earnings before Interest & Taxes 315.000 487.000 Interest Expense (2,500) (2.500) Taxable income 312,500 484,500 Taxation (35%) (109.3751 (169,575) Net Income 203 125 314,925 Dividends (40%) 81,250 125,970 Addition to Retained Earnings 121,875 188,955 Additional Information: Ordinary Share Price 17.50 22.75 Ordinary Shares Outstanding ('000) 100,000 120,000 United Corporation Limited Statement of Financial Position As at December 31, 2018 & 2019 2018 2019 2018 2019 ("000s) ('000) ('000) {"000s) ASSETS LIABILITIES & EQUITY Current Assets Current Liabilities Inventories 220,000 230,000 Accounts Payables 115,000 95,000 Accounts Receivables 245,000 275,000 Notes Payables 125,750 110,545 Cash & Equivalents 175,750 225,000 240,750 205,545 640,750 730,000 Non-current Liabilites 100.000 75,000 Non Current Assets, Net 525,500 575,000 Total Liabilities 340,750 280,545 Equity Common Stock Retained Earnings Total Equity TOTAL LIAB. & EQUITY 220,000 605 500 825,500 230,000 794 455 1,024,455 TOTAL ASSETS 1,166,250 1,305,000 1,166,250 1,305,000 Question 6 30 Marks In addition to the projects evaluated above, United Corp. is considering several other savings and financing options in an effort to expand operations and improve overall efficiency of operations, while fully investing idle cash (a) Based on Statement of Financial Position as at December 31, 2019, the Company had $225,000,000 is Cash & Equivalents. Of this, $5,000,000 was in a fixed deposit that is due to mature on December 15, 2020. The company is considering the following investment options for these funds: Investment A Annual Interest Rate of 6.5%, compounded semi-annually Investment B Annual Interest Rate of 6.25%, compounded monthly Investment C Annual Interest Rate of 6.55%, compounded annually Required: i Advise the company on the best investment option for the maturing funds. (Hint: EAR) (6 Marks) li. Based on your choice from part(), if United Corp. invests the lump sum on $5,000,000 on December 16, 2020 and leaves it in the account for 2 years, what will be the value of the investment on December 15, 2022? (4 Marks) (b) The company is considering purchasing a new delivery truck for $2,000,000. The intention is to obtain a 5-year loan from their bank, at an interest rate of 9% per annum. Annual payments are expected to be made on the loan. Required: 1. Calculate United Corp.'s annual payment on this loan. (5 Marks) ii. Prepare the 5-year Amortization Schedule for this loan, clearly showing the interest and principal payment annually. (5 Marks) (c) As part of being a responsible corporate citizen, United Corp. wants to establish a college fund to assist under-privileged students in pursuing their 4-year under-graduate degree programmes. The tuition fee is estimated to be $75,000 for the first year but is expected to growlincrease by 4% per year thereafter. Required: i. Assuming this college fund will earn 8% interest per annum, calculate the amount required at the start of a student's college journey to fund his/her full tuition. (5 Marks) ii. If United would like to sponsor the first student in two years' time and they currently have $225,000 earmarked for investment, what annual rate of interest is required to accumulate the amount needed as calculated in part (0)? (5 Marks) CASE ANALYSIS - UNITED CORPORATION LIMITED 140 MARKS The following comprehensive assessment is based on a continuing case study of United Corporation Limited. The following financial statements have been provided: United Corporation Limited Income Statement For the years ended December 31, 2018 & 2019 2018 2019 ('000s) ('000s) Sales 750,000 937.500 Cost of Sales (250,000) (255,500) Selling & Marketing Costs (125,000) (130,000) Admin. Expenses (45,000) (47,500) Depreciation Expense (15,000) (17.500) Earnings before Interest & Taxes 315.000 487.000 Interest Expense (2,500) (2.500) Taxable income 312,500 484,500 Taxation (35%) (109.3751 (169,575) Net Income 203 125 314,925 Dividends (40%) 81,250 125,970 Addition to Retained Earnings 121,875 188,955 Additional Information: Ordinary Share Price 17.50 22.75 Ordinary Shares Outstanding ('000) 100,000 120,000 United Corporation Limited Statement of Financial Position As at December 31, 2018 & 2019 2018 2019 2018 2019 ("000s) ('000) ('000) {"000s) ASSETS LIABILITIES & EQUITY Current Assets Current Liabilities Inventories 220,000 230,000 Accounts Payables 115,000 95,000 Accounts Receivables 245,000 275,000 Notes Payables 125,750 110,545 Cash & Equivalents 175,750 225,000 240,750 205,545 640,750 730,000 Non-current Liabilites 100.000 75,000 Non Current Assets, Net 525,500 575,000 Total Liabilities 340,750 280,545 Equity Common Stock Retained Earnings Total Equity TOTAL LIAB. & EQUITY 220,000 605 500 825,500 230,000 794 455 1,024,455 TOTAL ASSETS 1,166,250 1,305,000 1,166,250 1,305,000 Question 6 30 Marks In addition to the projects evaluated above, United Corp. is considering several other savings and financing options in an effort to expand operations and improve overall efficiency of operations, while fully investing idle cash (a) Based on Statement of Financial Position as at December 31, 2019, the Company had $225,000,000 is Cash & Equivalents. Of this, $5,000,000 was in a fixed deposit that is due to mature on December 15, 2020. The company is considering the following investment options for these funds: Investment A Annual Interest Rate of 6.5%, compounded semi-annually Investment B Annual Interest Rate of 6.25%, compounded monthly Investment C Annual Interest Rate of 6.55%, compounded annually Required: i Advise the company on the best investment option for the maturing funds. (Hint: EAR) (6 Marks) li. Based on your choice from part(), if United Corp. invests the lump sum on $5,000,000 on December 16, 2020 and leaves it in the account for 2 years, what will be the value of the investment on December 15, 2022? (4 Marks) (b) The company is considering purchasing a new delivery truck for $2,000,000. The intention is to obtain a 5-year loan from their bank, at an interest rate of 9% per annum. Annual payments are expected to be made on the loan. Required: 1. Calculate United Corp.'s annual payment on this loan. (5 Marks) ii. Prepare the 5-year Amortization Schedule for this loan, clearly showing the interest and principal payment annually. (5 Marks) (c) As part of being a responsible corporate citizen, United Corp. wants to establish a college fund to assist under-privileged students in pursuing their 4-year under-graduate degree programmes. The tuition fee is estimated to be $75,000 for the first year but is expected to growlincrease by 4% per year thereafter. Required: i. Assuming this college fund will earn 8% interest per annum, calculate the amount required at the start of a student's college journey to fund his/her full tuition. (5 Marks) ii. If United would like to sponsor the first student in two years' time and they currently have $225,000 earmarked for investment, what annual rate of interest is required to accumulate the amount needed as calculated in part (0)