Paper # 3 MINI CASE: ALPHA ONE SOFTWARE CORPORATION (pg 255-256)

In your case study, address the questions and use the opportunity to relate the concepts studied in this course (or any other related material) to demonstrate your knowledge and understanding as applied to this case study. Include at least one outside reference to support your findings.

Case Study Guidelines:

• Your case study should be at least 2-3 full pages in length in APA style (not including title and reference page) Include excel problem solving as needed.. Be sure to cite and reference all quoted or paraphrased material appropriately in APA style
• Please include at least one outside reference to support your findings

Paper # 3 MINI CASE: ALPHA ONE SOFTWARE CORPORATION MINI CASE: ALPHA ONE SOFTWARE CORPORATION [Note: This Mine Case incorporates the calculation of a weighted average cost of capital (WACC) to determine whether the Alpha One Software Corporation added economic value in 2019. The Appendix to Chapter 7 will need to be covered first in order to complete this Mini Case.) The Alpha One Software Corporation was organized to develop software products that would provide Internet-based firms with information about their customers. As a result of initial success, the venture's premier product allows firms with subscriber bases to predict customer profiles, retention, and satisfaction. Arlene lo received an undergraduate degree in computer sciences and information systems from a major northeastern university four years ago. The Omega Subscriber Software Product was developed, test marketed with the help of two of her classmates; Alpha One Software Corporation was up and running within one year. Venture capital was obtained to start up operations; a second round of venture financing helped Alpha One to move through its survival stage. Product success in the marketplace has allowed the venture to achieve such rapid sales growth that it now is able to get bank loans and issue long-term debt. The interest rate on the bank loan is 10 percent. For long-term debt, the real interest rate is estimated to be 3 percent; the inflation premium is 4 percent; and Alpha One's default/liquidity risk premium over government bonds is estimated to be 7 percent. The cost of common equity was estimated using the risk-free long-term government bond rate and a stock investment risk premium of 13 percent. Arlene lo has now reached the point of being able to consider whether Alpha One is adding economic value in terms of its net operating profit after taxes (NOPAT) and its weighted average cost of capital (WACC). Following are the financial statements for 2019. | Income Statement 2019 Net Sales $1,500,000 Cost of Goods Sold -850,000 Gross Profit 650,000 -250,000 -206,000 General & Administrative Expenses Marketing Depreciation Earnings Before Interest and Taxes Interest -50,000 144,000 -84,000 60,000 Earnings Before Taxes Income Taxes (40% rate) Earnings After Taxes -24,000 $36.000 Alpha One Software Corporation Balance Sheet 2019 Cash $20,000 Accounts Receivable 250,000 350,000 Inventories Total Current Assets 620,000 480,000 Fixed Assets, Net Total Assets $1.100.000 FIN413 Entrepreneurial Finance Accounts Payable 125,000 Accrued Liabilities 125,000 100,000 Notes Payable Total Current Liabilities 350,000 Long-Term Debt 500,000 100,000 Common Stock (20,000 shares) Retained Earnings Total Liabilities & Equity 150,000 $1.100.000 A. Calculate Alpha One's net operating profit after taxes (NOPAT). Why does the NOPAT differ from the earnings after taxes? B. Estimate the effective before-tax cost of the long-term debt. C. Estimate the effective after-tax cost of the bank loan and the long-term debt. D. Estimate the cost of common equity capital. E. Determine the financial structure weights from Alpha One's 2019 financial statements for the two interest-bearing debt components and the common equity. F. Calculate Alpha One's WACC. G. Determine the dollar cost of financial capital used. H. Estimate Alpha One's economic value added (EVA). Did Alpha One build or destroy economic value in 2019? Paper # 3 MINI CASE: ALPHA ONE SOFTWARE CORPORATION MINI CASE: ALPHA ONE SOFTWARE CORPORATION [Note: This Mine Case incorporates the calculation of a weighted average cost of capital (WACC) to determine whether the Alpha One Software Corporation added economic value in 2019. The Appendix to Chapter 7 will need to be covered first in order to complete this Mini Case.) The Alpha One Software Corporation was organized to develop software products that would provide Internet-based firms with information about their customers. As a result of initial success, the venture's premier product allows firms with subscriber bases to predict customer profiles, retention, and satisfaction. Arlene lo received an undergraduate degree in computer sciences and information systems from a major northeastern university four years ago. The Omega Subscriber Software Product was developed, test marketed with the help of two of her classmates; Alpha One Software Corporation was up and running within one year. Venture capital was obtained to start up operations; a second round of venture financing helped Alpha One to move through its survival stage. Product success in the marketplace has allowed the venture to achieve such rapid sales growth that it now is able to get bank loans and issue long-term debt. The interest rate on the bank loan is 10 percent. For long-term debt, the real interest rate is estimated to be 3 percent; the inflation premium is 4 percent; and Alpha One's default/liquidity risk premium over government bonds is estimated to be 7 percent. The cost of common equity was estimated using the risk-free long-term government bond rate and a stock investment risk premium of 13 percent. Arlene lo has now reached the point of being able to consider whether Alpha One is adding economic value in terms of its net operating profit after taxes (NOPAT) and its weighted average cost of capital (WACC). Following are the financial statements for 2019. | Income Statement 2019 Net Sales $1,500,000 Cost of Goods Sold -850,000 Gross Profit 650,000 -250,000 -206,000 General & Administrative Expenses Marketing Depreciation Earnings Before Interest and Taxes Interest -50,000 144,000 -84,000 60,000 Earnings Before Taxes Income Taxes (40% rate) Earnings After Taxes -24,000 $36.000 Alpha One Software Corporation Balance Sheet 2019 Cash $20,000 Accounts Receivable 250,000 350,000 Inventories Total Current Assets 620,000 480,000 Fixed Assets, Net Total Assets $1.100.000 FIN413 Entrepreneurial Finance Accounts Payable 125,000 Accrued Liabilities 125,000 100,000 Notes Payable Total Current Liabilities 350,000 Long-Term Debt 500,000 100,000 Common Stock (20,000 shares) Retained Earnings Total Liabilities & Equity 150,000 $1.100.000 A. Calculate Alpha One's net operating profit after taxes (NOPAT). Why does the NOPAT differ from the earnings after taxes? B. Estimate the effective before-tax cost of the long-term debt. C. Estimate the effective after-tax cost of the bank loan and the long-term debt. D. Estimate the cost of common equity capital. E. Determine the financial structure weights from Alpha One's 2019 financial statements for the two interest-bearing debt components and the common equity. F. Calculate Alpha One's WACC. G. Determine the dollar cost of financial capital used. H. Estimate Alpha One's economic value added (EVA). Did Alpha One build or destroy economic value in 2019