Check file please. Only need answers for multiple choice questions in last place

Due by 5pm Mon, Sept. 25th FIN 305 Homework 3 This fun exercise is an opportunity for you to show your understanding of financial projections and calculating cash flows. Please feel free to visit me during office hours to clarify material and check your work, but please don't email me your answers. Feel free to work with your classmates, but just know that relying too heavily on others' work might hurt you on future exams! Exercise: This is a common situation in the real world. Assume that you are an analyst covering a \"recurring revenue\" type firm. Recurring revenue firms typically earn revenues from customers over multiple periods. For instance, cable companies pay to acquire new customers, and the customers pay for services over a recurring time period. You will notice that this format is cost-driven, meaning that certain costs drive revenue! As an analyst, you want to know a) the financing needs for the firm, and b) how much the firm is worth. *Note that we would typically build this model on a monthly basis, but this exercise gets to the concept without you using Excel. As a \"star analyst,\" you have used your skills to observe the financial metrics of the firm's competitors, industry trends and macroeconomic trends. Also, you have listened to and critiqued the firm's latest quarterly conference call. You incorporated all of this information to generate the following assumptions: Assumptions 2015 2016 2017 1,200 $ 1,500 $ 1,800 ARPU - Average Revenue per User (annual, beginning customers) $ Customer Assumptions Customer Acquisition Expense (per new customer) $ 400 $ 450 $ 450 Customer Churn (% of beginning customers who quit service) 10% 20% 20% Cost of Goods Sold per User (use beginning customers) $ SG&A expense: Total Customer Acquisition Marketing Expense Other SG&A expenses $ 120,000 $ 150,000 $ 180,000 $ 80,000 $ 100,000 $ 100,000 Capital Expenditures (Capex) "Success-Based" Capex (capital expenditures / new customer) "Maintenance" Capex Depreciation (% of lagged fixed assets) Interest Expense (% of lagged NP and LTD) Average Tax Rate Required Cash Days Sales in Inventory Days Sales in Receivables Days Payables Outstanding Capital Structure Decisions Dividend Payout Ratio Planned LTD (year end) Equity Account (Par + APIC) $ 400 $ 500 $ 600 800 $ 600 $ 500 Equals Depreciation Expense 10% 10% 25% 10% 10% 25% 10% 10% 25% Equal to Accounts Payable 73 73 40 45 30 30 0% 500,000 2,750,000 10% 600,000 2,750,000 73 45 30 25% 700,000 2,600,000 FIN 305 Homework 3 A) Use the \"Total Customer Acquisition Marketing Expense\" and the per new customer acquisition cost to build the number of customers per year. Use the information above to complete the table below for gross additional customers and customer churn (beginning customers who quit service). I provided the ending customers of 2017 for you to check your work! [Note, it is acceptable to have decimals for expected customer numbers]. Customer Numbers Beginning Customers Gross Additions Churn Ending Customers Actual 2014 500.00 200.00 (50.00) 650.00 2015 650.00 300.00 (65.00) Projected 2016 885.00 333.33 (177.00) 2017 1,041.33 400.00 (208.27) 885.00 1,041.33 1,233.07 B) Build the Income Statement projections. Actual 2014 500,000 (150,000) 350,000 2015 780,000 (260,000) 520,000 Projected 2016 1,327,500 (442,500) 885,000 2017 1,874,400 (624,800) 1,249,600 (180,000) (180,000) (360,000) (200,000) (200,000) (400,000) (224,000) (250,000) (474,000) (244,000) (280,000) (524,000) Interest Expense (25,000) (38,479) (56,634) (64,183) Earnings Before Tax (35,000) 81,521 354,366 661,417 Tax Expense 8,750 (20,380) (88,592) (165,354) Net Income (26,250) 61,140 265,775 496,063 Income Statement Revenue Cost of Sales Gross Profits Operating Expenses Depreciation SG&A Total Opex FIN 305 Homework 3 C) Build the Balance Sheet projections. Balance Sheet Actual 2014 2015 Projected 2016 2017 Assets Current Assets Required Cash Inventory Accounts Receivable Total Current Assets Equipment, net Total Assets 12,329 30,000 54,795 97,123 21,370 52,000 85,479 158,849 36,370 88,500 163,664 288,534 51,353 124,960 231,090 407,404 2,000,000 2,097,123 2,240,000 2,398,849 2,440,000 2,728,534 2,640,000 3,047,404 84,795 12,329 97,123 66,339 21,370 87,709 41,827 36,370 78,197 23,666 51,353 75,019 300,000 500,000 600,000 700,000 397,123 587,709 678,197 775,019 2,700,000 (1,000,000) 1,700,000 2,750,000 (938,860) 1,811,140 2,750,000 (699,662) 2,050,338 2,600,000 (327,615) 2,272,385 2,097,123 2,398,849 2,728,534 3,047,404 Liabilities & Owners' Equity Current Liabilities Notes Payable Accounts Payable Total Current Liabilities Long Term Debt Total Liabilities Common Stock Par and APIC Retained Earnings Total Stockholders' Equity Total Liabilities & Owners' Equity FIN 305 Homework 3 D) Build the Statement of Cash Flows projections. Make certain that your ending cash balance matches your Balance Sheet projections! Here, think about sources and uses of cash. I provided the ending cash balance for you to check your work! Statement of Cash Flows 2015 Projected 2016 2017 Cash Flow from Operating Activities Net income 61,140 265,775 496,063 200,000 (30,685) (22,000) 9,041 217,497 224,000 (78,185) (36,500) 15,000 390,090 244,000 (67,426) (36,460) 14,984 651,161 (440,000) (440,000) (424,000) (424,000) (444,000) (444,000) (18,455) 50,000 200,000 (0) 231,545 (24,512) 100,000 (26,577) 48,910 (18,161) (150,000) 100,000 (124,016) (192,177) 9,041 12,329 21,370 15,000 21,370 36,370 14,984 36,370 51,353 Adjustments to Net Income Depreciation & Amortization Accounts receivable Inventory Accounts payable Net Cash from Operating Activities Cash Flow from Investing Activities Additions to equipment Net Cash from Investing Activities Cash Flow from Financing Activities Proceeds from notes payable Proceeds from Common stock Proceeds from long-term debt Dividends paid Net Cash from Financing Activities Net Increase in Cash Cash at the Beginning of the Period Cash at the End of the Period FIN 305 Homework 3 E) Given the above assumptions, calculate the Cash Flow from Assets (CFFA) and the Cash Flow to Equity (CFE) for 2015, 2016 and 2017. F) We want to know the value of this projection plan to shareholders. Compute the Present Value of the Cash Flows to Equity during the Projected Period (assuming that they come at year's end). Assume that the required rate of return for equity holders is 20%. Hint: You should only have three cash flows here! FIN 305 Homework 3 G) If your management team believes that the enterprise value of the target firm will be 8 times the 2017 EBITDA value at the end of 2017, calculate the total equity value of this opportunity. Recall that EV = Market Value of Equity + Book Value of Debt - Excess Cash. Here, you can assume that you have no Excess Cash (all cash is required). Therefore, you simply multiply the 2017 EBITDA by 8, and then subtract the Book Value of Notes Payable and LTD to calculate the Market Value of Equity. (Assume the same 20% discount rate, and don't forget to include the present value of the projected period calculated in part F). FIN 305 Homework 3 Questions: 1) What is the projected Depreciation & Amortization Expense for 2017? a) 200,000 b) 244,000 c) 220,000 c) 50,000 c) -1,822,978 c) 2,440,000 c) 52,220 2) What is the projected Interest Expense for 2016? a) 56,634 b) 52,416 3) What is the projected Retained Earnings for 2017? a) -327,615 b) 177,022 4) What is the projected Equipment, net account in 2016? a) 2,001,400 b) 2,864,000 5) What is the projected Accounts Payable account in 2017? a) 154,060 b) 51,353 6) What is the projected proceeds from Common Stock in 2017 (difference between 2016 to 2017)? a) 150,000 b) -150,000 c) 2,600,000 c) 26,577 c) 200,000 7) What is the projected Dividends paid in 2016? a) 239,197 b) 265,775 8) What is the projected Capex in 2017? a) 444,000 b) 2,640,000 9) What is the projected investment in Inventory between 2016 and 2017 (hint: look at the change)? a) 624,800 b) 124,960 c) 36,460 10) What is the total equity value of this opportunity (your answer for part G above)? a) 4,205,465 b) 135,364 c) 7,033,134