Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

How do I work this question? BnB Caribbean Inc. (BnB) is a leading construction company founded in 2001 and is based in Jamaica. The company

How do I work this question?

BnB Caribbean Inc. (BnB) is a leading construction company founded in 2001 and is based in Jamaica. The company has within recent years been experiencing increases in revenues from its construction related services such as design, build, expansion and remodeling, and emergency services. Its main line of business is from the construction of roads and commercial buildings within Jamaica and to a lesser extent a few other Caribbean countries. Since the growth of the tourism sector in the Caribbean, BnB Caribbean has become concerned about the number of other construction companies which have entered the market to provide similar services around the Caribbean region. Business overseas contributes to 40% of the companys revenues, while the other 60% comes mainly from works done in the domestic market. The COVID-19 pandemic has caused a slowdown in overall operations leading to prolonged delays in delivery of raw materials from abroad. The CEO of the company is optimistic that there will be a turnaround in operations in 2021, and is therefore considering contracting a loan of $500.0 Million from its local bank to help rebuild its lead position in the market and to expand its line of business to include the sales of heavy equipment. The company has over the years relied mainly on issuing long-term bonds to finance its capital projects. As of today, the firm has 50.0 million shares of common stock outstanding. You are hired as the Chief Financial Controller of the company to advise the CEO and board of the company of the current financial health of the company and to assist them in determining whether they would be successful with the new loan. You began by gathering the following financial statements and other data about the firm.

BnB Construction Inc. Balance Sheet (Millions of Dollars) Assets 2021 Est 2020 2019 Liabilities 2021 Est 2020 2019 Cash and Cash Equivalents 15 10 15 Accounts payable 115 60 30 Short-Term investments 10 0 65 Overdrafts 115 110 60 Accounts Receivable 420 375 315 Accruals 260 140 130 Inventories 700 615 415 Total Current Liabilities 490 310 220 Total Current Assets 1,145 1,000 810 Long-Term Bonds and New Loan 1300 754 580 Net Plant and Equipment 1884 1,190 870 Total Debt 1790 1,064.00 800 Preferred Stock 40 40 40 Common Stock 130 130 130 Retained Earnings 1069 956 710 Total Common Equity 1199 1086 840 Total Assets $ 3,029 $ 2,190 $ 1,680 Total Liabilities and Equity $ 3,029 $ 2,190 $ 1,680 Est. Estimate BnB Construction Inc. Income Statement (Millions of Dollars) 2021 Est. 2020 2019 Net Sales 4,000 3,000 2,850 Operating Costs 3,100 2,300 2,100 EBITD 900.00 700 750 Depreciation 110 100 90 Amortizaton 0 0 0 Depreciation and Amortization 110 100 90 EBITD 790 600 660 Interest 100 88 60 Earnings Before Taxes 690 512 600 Taxes (40%) 276 204.8 240 Net Income Before preferred Dividends 414 307.2 360 Preferred Dividends 4 4 4 Net Income $ 410.0 $ 303.2 $ 356.0 Common Dividends 57.5 57.5 53 Addition to retained Earnings $ 352.50 $ 245.70 $ 303.0 Per Share Date 2021 2020 2019 Common Stock Price $ 28.0 $ 23.00 $ 26.00 Earnings Per Share (EPS) ??? $ 6.06 $ 7.12 Dividend Per Share (DPS) ???? $ 1.15 $ 1.06 Book Value Per Share (BVPS) ???? $ 21.72 $ 16.80 Cash Flow Per Share ???? $ 8.06 $ 8.92 Required: As the newly-appointed Chief Financial Officer of BnB Construction Inc. write a report of no more than three pages, font size 12, Times New Roman, 1.5 line spaces (excluding the reference page) to the board which discusses whether the company is likely to be successful if it approaches its bank Republic Limited for a loan to undertake the expansion project at a cost of $500.0 million. Your discussion should include a critical analysis of the current financial position and recent financial performance of the company (liquidity, profitability, leverage, asset management, market value- 2 to 3 ratios for each category). The report should comment on whether the firm has a great chance of success with the loan or whether alternative forms of financing should be sought. Give justification for your answer.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Financial Accounting (Chapters 1-17)

Authors: John Wild

25th Edition

1260780147, 9781260780147

More Books

Students also viewed these Accounting questions

Question

Score: \( 6 5 \longdiv { 7 5 } \) Score: \( 6 5 \longdiv { 7 5 } \)

Answered: 1 week ago