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 1 25 Marks As part of your analysis, you are required to investigate United Corp.'s cash flows and selected ratios. Required: Using the financial statements provided on page 1: (a) Compute the following ratios for United Corp. for 2018 and 2019: i. Return on Equity using Du Pont Identity (6 Marks) ii. Earnings Per Share (EPS) (2 Marks) ii. Price/Earning (P/E) Ratio (2 Marks) iv. Book Value Per Share (3 Marks) V. Market-to-Book Ratio (2 Marks) (b) Calculate the following for 2019: 1. Operating Cash Flow ii. Net Capital Spending i. Change in Net Working Capital iv. Cash Flow from Assets V. Cash Flow to Creditors vi. Cash Flow to Stockholders (1 Mark) (1 Mark) (2 Marks) (2 Marks) (2 Marks) (2 Marks) Question 2 20 Marks Utilize the 2019 financial statements for United Corporation Limited provided on page 1 and assume that the company is currently operating below capacity, at 85%. Required: Prepare Pro-Forma statements for 2020 (rounding all figures to the nearest dollar) assuming: All costs/income/expenses and net working capital vary directly with sales/revenue. No new equity is raised Sales are projected to increase by 12% The tax rate and the dividend payout ratio will remain constant. Interest Expense and Depreciation Expense will remain unchanged. Clearly state if United Corp. will require external financing or would have excess financing in 2020, and how much (20 Marks) 20 Marks Question 3 (a) United Corp. is considering issuing a $15,000,000 10-year bond in early 2021, with an annual coupon rate of 8%, and quarterly interest payments. Required: If the company anticipates that the yield to maturity on the date of issue is expected to be 10% given the company's credit ratings and current market conditions, how much would an investor be willing to pay for $1,000 face value of this bond? (7 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 1 25 Marks As part of your analysis, you are required to investigate United Corp.'s cash flows and selected ratios. Required: Using the financial statements provided on page 1: (a) Compute the following ratios for United Corp. for 2018 and 2019: i. Return on Equity using Du Pont Identity (6 Marks) ii. Earnings Per Share (EPS) (2 Marks) ii. Price/Earning (P/E) Ratio (2 Marks) iv. Book Value Per Share (3 Marks) V. Market-to-Book Ratio (2 Marks) (b) Calculate the following for 2019: 1. Operating Cash Flow ii. Net Capital Spending i. Change in Net Working Capital iv. Cash Flow from Assets V. Cash Flow to Creditors vi. Cash Flow to Stockholders (1 Mark) (1 Mark) (2 Marks) (2 Marks) (2 Marks) (2 Marks) Question 2 20 Marks Utilize the 2019 financial statements for United Corporation Limited provided on page 1 and assume that the company is currently operating below capacity, at 85%. Required: Prepare Pro-Forma statements for 2020 (rounding all figures to the nearest dollar) assuming: All costs/income/expenses and net working capital vary directly with sales/revenue. No new equity is raised Sales are projected to increase by 12% The tax rate and the dividend payout ratio will remain constant. Interest Expense and Depreciation Expense will remain unchanged. Clearly state if United Corp. will require external financing or would have excess financing in 2020, and how much (20 Marks) 20 Marks Question 3 (a) United Corp. is considering issuing a $15,000,000 10-year bond in early 2021, with an annual coupon rate of 8%, and quarterly interest payments. Required: If the company anticipates that the yield to maturity on the date of issue is expected to be 10% given the company's credit ratings and current market conditions, how much would an investor be willing to pay for $1,000 face value of this bond? (7 Marks)