h. Determine the financial structure weights from ALMA.coms 2025 statement of financial position for the three interest-bearing debt components and the common equity.
Ms. Alma Serah is planning to leverage equity capital with debt during the years 2023, 2024 and 2025. She is keen to know whether ALMA.com will add economic value. Therefore, in order to assess the effects of its leveraging debt strategy, ALMA.com prepared a projected Statement of Financial Position (Balance Sheet) and Income Statement for the years 2023, 2024 and 2025 based on certain assumptions and events that are likely to happen in the future. The interest rate on capital lease is 5%. The average expected interest rate on the bank loan during 2023-2025 is 4%. For long-term debt, the real interest rate is estimated to be 3%; the inflation premium is 4%; and ALMA.com's default/liquidity risk premium over government bonds is estimated to be 5%. The cost of common equity was estimated using the risk-free long-term government bond rate plus investment risk premium of 5.8%. The income tax rate= 40%. Following are the projected statements of income and financial position for 2023, 2024 and 2025: 2 1.87 EBT Alma.com Projected Statement of Income (2023-2025) INCOME STATEMENT 2023 2024 2025 Revenues $3.44M $7.50M $12.30M Cost of Goods Sold 2.55 520 8.772 Gross Profit 0.89 3.30 3.58 General and Marketing Expenses 0.26 0.34 0.36 Research and Development 0.05 0.05 0.05 Depreciation 0.06 0.09 0.12 EBIT 0.57 3.05 Interest Expense 0.07 0.11 0.18 0.50 1.76 2.87 Income Taxes 0.20 0.70 1.15 Net Income (Loss) 0.30 106 1.72 Alma.com Projected Statement of Financial Position (2023-2025) BALANCE SHEET 2023 2024 2025 Cash $ 1.15 M 5 1.87M 5 3.95 M Accounts Receivable 0.35 1.00 1.50 Inventories 0.50 0.48 140 Total Current Assets 2.00 3.35 6.85 Net fixed assets 0.15 0.35 0.52 Total Assets 2.15 3.70 7.42 Accounts payable 0.44 0.59 113 Accrued Liabilities 0.16 0.38 0.52 Total Current Liabilities 0.97 2.65 Capital Lease Liability 0.13 0.30 0.60 Bank Loan 0.12 0.45 0.70 Long-Term Debt 0.20 0.50 1.50 Total Non-Current Liabilities 0.45 1.25 2.80 Total Liabilities 1.05 2.22 4.45 Venture Capital 1.00 1.00 1.00 Additional Paid-in Capital 0 0.30 0 Retained Earnings 0.10 0.18 197 Total Equity 1.10 1.48 2.97 Total Liabilities and Equity 2.15 3.70 7.42 Represents the capital lease of to om workout 0.60
