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 nutually 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 part. CSU . Calibri (Body) - 11 B Paste I AR G. An EE U J22 x & fx BCDEFG 12/31/18 12/31/17 12/31/16 12/31/15 Current Assets Cash And Cash Equivalents 8,719,000 10,607,000 9,157,000 9,095,000 Short Term Investments 270,000 8,897,000 6,966,000 2,912,000 S Net Receivables 7,140,000 7,021,000 6,693,000 6,436,000 6 Inventory 3,126,000 2,944,000 2,722,000 2,719,000 7 Other Current Assets 2,042,000 43,000 31,000 730,000 8 Total Current Assets 21,297,000 29,512,000 25,569,000 21,892,000 10 Long Term Investments 11 Property Plant and Equipment 12 Goodwill 13 Intangible Assets 14 Other Assets 15 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 17 Current Liabilities 18 Accounts Payable 19 Short/Current Long Term Debt 20 Other Current Liabilities 21 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 23 Long Term Debt 24 Other Liabilities 25 Total Liabilities 27 Stockholders' Equity 28 Total Stockholder Equity 18,375,000 15,106,000 17,023,000 15,931,000 su Home Insert Page Layout Formulas Data Review View Calibri (Body) - 11 A. A Pasto B 1 u-EN-AME= 33 = 011 1x fc B CD EF 12/31/18 12/31/17 12/31/16 12/31/15 2 Revenue 3 Total Revenue 51,728,000 57,902,000 56,519,100 56,488,000 4 Cost of Revenue 23,502,000 25,340,000 25,399,800 25,283,000 5 Gross Profit 28,226,000 32,562,000 31,119,300 31,205,000 7 Operating Expenses 8 Selling General and Administrative 9 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 -2,256,000 11 Income from Continuing Operations 12 Other Income/Expenses Net 13 Interest Expense 14 Income Before Tax -1,148,000 1,220,000 6,674,000 -1,507,000 1,288,000 9,061,000 -1,508,400 1,207,800 7,177,500 7,360,000 16 Income Tax Expense 17 Net Income 2,696,000 3,978,000 4,130,000 4,931,000 1,956,600 5,220,900 1,708,000 5,652,000 View Insert Format Tools Data Window Help FIN300 Portfolio_PI Review View Home Insert Page Layout Formulas Data X A A 8 Calibri (Body) - 11 Paste , . 3 010 1x fx B C D Year 0 Year 1 Year 2 Project A -100,000 50,000 30,000 3 Project B -250,000 100,000 100,000 Project C -500,000 400,000 50,000 E Year 3 Year 4 30,000 20,000 50,000 50,000 50,000 50,000 1: Using financial calculator Input: FV= 1000 PV = 104%*1000 = 1040 PMT = 7.5%*1000/2 = 37.5 N= 20*2 = 40 Solve for I/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% 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 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 nutually 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 part. CSU . Calibri (Body) - 11 B Paste I AR G. An EE U J22 x & fx BCDEFG 12/31/18 12/31/17 12/31/16 12/31/15 Current Assets Cash And Cash Equivalents 8,719,000 10,607,000 9,157,000 9,095,000 Short Term Investments 270,000 8,897,000 6,966,000 2,912,000 S Net Receivables 7,140,000 7,021,000 6,693,000 6,436,000 6 Inventory 3,126,000 2,944,000 2,722,000 2,719,000 7 Other Current Assets 2,042,000 43,000 31,000 730,000 8 Total Current Assets 21,297,000 29,512,000 25,569,000 21,892,000 10 Long Term Investments 11 Property Plant and Equipment 12 Goodwill 13 Intangible Assets 14 Other Assets 15 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 17 Current Liabilities 18 Accounts Payable 19 Short/Current Long Term Debt 20 Other Current Liabilities 21 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 23 Long Term Debt 24 Other Liabilities 25 Total Liabilities 27 Stockholders' Equity 28 Total Stockholder Equity 18,375,000 15,106,000 17,023,000 15,931,000 su Home Insert Page Layout Formulas Data Review View Calibri (Body) - 11 A. A Pasto B 1 u-EN-AME= 33 = 011 1x fc B CD EF 12/31/18 12/31/17 12/31/16 12/31/15 2 Revenue 3 Total Revenue 51,728,000 57,902,000 56,519,100 56,488,000 4 Cost of Revenue 23,502,000 25,340,000 25,399,800 25,283,000 5 Gross Profit 28,226,000 32,562,000 31,119,300 31,205,000 7 Operating Expenses 8 Selling General and Administrative 9 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 -2,256,000 11 Income from Continuing Operations 12 Other Income/Expenses Net 13 Interest Expense 14 Income Before Tax -1,148,000 1,220,000 6,674,000 -1,507,000 1,288,000 9,061,000 -1,508,400 1,207,800 7,177,500 7,360,000 16 Income Tax Expense 17 Net Income 2,696,000 3,978,000 4,130,000 4,931,000 1,956,600 5,220,900 1,708,000 5,652,000 View Insert Format Tools Data Window Help FIN300 Portfolio_PI Review View Home Insert Page Layout Formulas Data X A A 8 Calibri (Body) - 11 Paste , . 3 010 1x fx B C D Year 0 Year 1 Year 2 Project A -100,000 50,000 30,000 3 Project B -250,000 100,000 100,000 Project C -500,000 400,000 50,000 E Year 3 Year 4 30,000 20,000 50,000 50,000 50,000 50,000 1: Using financial calculator Input: FV= 1000 PV = 104%*1000 = 1040 PMT = 7.5%*1000/2 = 37.5 N= 20*2 = 40 Solve for I/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% 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
