Part C: WACC and Capital Budgeting Calculate the firm's WACC (using 2018 numbers). (You will need to collect information on the long-term debt and common stock equity from the Balance Sheet. The firm has no preferred stock). Use the WACC to calculate NPV and evaluate IRR for proposed capital budgeting projects. Assume the projects are mutually exclusive and the firm has the money available to fund the project. Part D: Analysis You will must offer suggests to a senior financial manager and CFO on the proposed projects. Be sure to include a discussion of external funding and where it should come from if necessary and which project the firm should undertake. Prepare a presentation, a minimum of one slide for each part, summarizing your results. You should submit either an Excel or Word document showing your work for each Question is specifically asked to find the ratio for Smith co. from the given financial statements Ratios 2018 2017 2016 2015 Debt Ratios Total Liability/Total Asset 0.761493731 0.807011 0.765536 0.76750872 Debt equity ratio Total debt/Equity 1.75477551 2.502979 2.02385 2.052539075 Times Interest earned EBIT/Interest Expense 7.41147541 9.204969 8.191505 12.27315358 Operating profit margin Operating Profit/Total Revenue 0.174798948 0.20476 0.175051 0.185331398 Net Profit margin Net Income/Net Sales 0.076902258 0.085161 0.092374 0.100056649 Return on assets Net Income/Total Asset 0.051634174 0.062997 0.719093 0.082483254 Return on equity Net Income/Total Equity 0.216489796 0.326427 0.306697 0.354779989 as per ratio 2017 has better performance year in financial term for company 12/31/18 12/31/17 12/31/16 12/31/15 Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets 8,719,000 10,607,000 9,157,000 9,095,000 270,000 8,897,000 6,966,000 2,912,000 7,140,000 7,021,000 6,693,000 6,436,000 3,126,000 2,944,000 2,722,000 2,719,000 2,042,000 43,000 31,000 730,000 21,297,000 29,512,000 25,569,000 21,892,000 Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Other Assets Total Assets 2,407,000 2,039,000 1,949,000 2,310,000 17,587,000 17,237,000 16,590,000 16,316,000 14,806,000 14,741,000 14,429,000 14,176,000 15,823,000 13,835,000 13,432,000 13,080,000 5,122,000 910,000 635,000 749,000 77,042,000 78,274,000 72,604,000 68,523,000 Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities 7,211,000 6,724,000 6,157,000 5,545,000 3,951,000 4,017,000 4,400,000 3,108,000 6,601,000 4,112,000 3,870,000 3,882,000 17,763,000 14,853,000 14,427,000 12,535,000 28,293,000 33,793,000 30,052,000 29,591,000 12,611,000 14,522,000 11,102,000 10,466,000 58,667,000 63, 168,000 55,581,000 52,592,000 Long Term Debt Other Liabilities Total Liabilities Stockholders' Equity Total Stockholder Equity 18,375,000 15,106,000 17,023,000 15,931,000 12/31/18 12/31/17 12/31/16 12/31/15 Revenue Total Revenue Cost of Revenue Gross Profit 51,728,000 57,902,000 56,519, 100 56,488,000 23.502,000 25,340,000 25,399,800 25,283,000 28,226,000 32,562,000 31, 119,300 31,205,000 Operating Expenses Selling General and Administrative Operating Income or Loss 19,184,000 20,706,000 9,042,000 11,856,000 21,225,600 20,736,000 9,893,700 10,469,000 Income from Continuing Operations Other Income/Expenses Net Interest Expense Income Before Tax -1,148,000 -1,507,000 1,220,000 1,288,000 6,674,000 9,061,000 -1,508,400 1,207,800 7,177,500 -2,256,000 853,000 7,360,000 Income Tax Expense Net Income 2,696,000 3,978,000 4,130,000 4,931,000 1,956,600 1,708,000 5,220,900 5,652,000 Project B Project C Year 0 - 100.000 250,000 -500,000 Year 1 50,000 100,000 400,000 Year 2 30,000 100,000 50,000 Year 3 30,000 50,000 50,000 Year 4 20,000 50,000 50,000 Input: FV= 1000 PV = 104%*1000 = 1040 PMT = 7.5%*1000/2 = 37.5 N = 20*2 = 40 Solve for 1/Y as 3.56 Pre tax cost of debt = 3.56%*2 = 7.12% After-tax cost of debt = 7.12%*(1-0.4) = 4.27% 2: cost of equity= risk free rate+ Beta*(expected market return-risk-free rate) = 4%+ 1.2*(9%-4%) = 10% Part C: WACC and Capital Budgeting Calculate the firm's WACC (using 2018 numbers). (You will need to collect information on the long-term debt and common stock equity from the Balance Sheet. The firm has no preferred stock). Use the WACC to calculate NPV and evaluate IRR for proposed capital budgeting projects. Assume the projects are mutually exclusive and the firm has the money available to fund the project. Part D: Analysis You will must offer suggests to a senior financial manager and CFO on the proposed projects. Be sure to include a discussion of external funding and where it should come from if necessary and which project the firm should undertake. Prepare a presentation, a minimum of one slide for each part, summarizing your results. You should submit either an Excel or Word document showing your work for each Question is specifically asked to find the ratio for Smith co. from the given financial statements Ratios 2018 2017 2016 2015 Debt Ratios Total Liability/Total Asset 0.761493731 0.807011 0.765536 0.76750872 Debt equity ratio Total debt/Equity 1.75477551 2.502979 2.02385 2.052539075 Times Interest earned EBIT/Interest Expense 7.41147541 9.204969 8.191505 12.27315358 Operating profit margin Operating Profit/Total Revenue 0.174798948 0.20476 0.175051 0.185331398 Net Profit margin Net Income/Net Sales 0.076902258 0.085161 0.092374 0.100056649 Return on assets Net Income/Total Asset 0.051634174 0.062997 0.719093 0.082483254 Return on equity Net Income/Total Equity 0.216489796 0.326427 0.306697 0.354779989 as per ratio 2017 has better performance year in financial term for company 12/31/18 12/31/17 12/31/16 12/31/15 Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets 8,719,000 10,607,000 9,157,000 9,095,000 270,000 8,897,000 6,966,000 2,912,000 7,140,000 7,021,000 6,693,000 6,436,000 3,126,000 2,944,000 2,722,000 2,719,000 2,042,000 43,000 31,000 730,000 21,297,000 29,512,000 25,569,000 21,892,000 Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Other Assets Total Assets 2,407,000 2,039,000 1,949,000 2,310,000 17,587,000 17,237,000 16,590,000 16,316,000 14,806,000 14,741,000 14,429,000 14,176,000 15,823,000 13,835,000 13,432,000 13,080,000 5,122,000 910,000 635,000 749,000 77,042,000 78,274,000 72,604,000 68,523,000 Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities 7,211,000 6,724,000 6,157,000 5,545,000 3,951,000 4,017,000 4,400,000 3,108,000 6,601,000 4,112,000 3,870,000 3,882,000 17,763,000 14,853,000 14,427,000 12,535,000 28,293,000 33,793,000 30,052,000 29,591,000 12,611,000 14,522,000 11,102,000 10,466,000 58,667,000 63, 168,000 55,581,000 52,592,000 Long Term Debt Other Liabilities Total Liabilities Stockholders' Equity Total Stockholder Equity 18,375,000 15,106,000 17,023,000 15,931,000 12/31/18 12/31/17 12/31/16 12/31/15 Revenue Total Revenue Cost of Revenue Gross Profit 51,728,000 57,902,000 56,519, 100 56,488,000 23.502,000 25,340,000 25,399,800 25,283,000 28,226,000 32,562,000 31, 119,300 31,205,000 Operating Expenses Selling General and Administrative Operating Income or Loss 19,184,000 20,706,000 9,042,000 11,856,000 21,225,600 20,736,000 9,893,700 10,469,000 Income from Continuing Operations Other Income/Expenses Net Interest Expense Income Before Tax -1,148,000 -1,507,000 1,220,000 1,288,000 6,674,000 9,061,000 -1,508,400 1,207,800 7,177,500 -2,256,000 853,000 7,360,000 Income Tax Expense Net Income 2,696,000 3,978,000 4,130,000 4,931,000 1,956,600 1,708,000 5,220,900 5,652,000 Project B Project C Year 0 - 100.000 250,000 -500,000 Year 1 50,000 100,000 400,000 Year 2 30,000 100,000 50,000 Year 3 30,000 50,000 50,000 Year 4 20,000 50,000 50,000 Input: FV= 1000 PV = 104%*1000 = 1040 PMT = 7.5%*1000/2 = 37.5 N = 20*2 = 40 Solve for 1/Y as 3.56 Pre tax cost of debt = 3.56%*2 = 7.12% After-tax cost of debt = 7.12%*(1-0.4) = 4.27% 2: cost of equity= risk free rate+ Beta*(expected market return-risk-free rate) = 4%+ 1.2*(9%-4%) = 10%