Pennsylvania is the second leading state in the nation in solar energy. RenwalEnergy, LLC. (RE) is a Philadelphia- based company affiliated with University of Pennsylvania (Penn) Science Lab. RE produces leading edge glass- integrated solar panels. RE is a closely held company but is expected go public at a later date. Once established RE moved to a well-equipped $20-million facility that will depreciate straight-line to zero-book value over 4 years. RE has a dividend payout ratio of 10% and a federal-to-state tax of 40%. In its first year of operations (2019), the company sold 4,200 units at a price of $20,000 each. RE used forward contracts to keep AVC at 40% of the price. Long-term compensation packages have been designed to keep GS&A at $10 million. The company expects its sales to grow at 20% in 2020 and at 25% in 2021. The company long-term FCF growth rate after 2021 will be 6%. New technological advances will result in enhanced product, which RE plans to sell at the same price for the foreseeable future to stay competitive and increase its market share. Analytics indicate that best operations can be accomplished with the following practices: 3-month sales cash 2-month sales accounts receivable 2-month sales inventory 1-month sales accounts payable 1-month sales accrued expenses The CFO ensures that all extra funds are invested is an aggressive, but hedged, highly diversified portfolio that can be taped when needed. This is a fund that is not required for operations, and, for valuation purposes, it is considered non-operating asset. The portfolio yields no income, and its returns are derived from its underlying securities appreciation. The portfolio acts as a buffer to absorb retained earnings and keep current assets and liabilities at desired levels. The founders started RE with an equity fund of $60 million, then issued and sold at face value a privately held a 5- year, 10% bond for $40 million. RE considers its capital structure of 60% equity and 40% debt ideal and plans to maintain it. RE has a Beta of 1.5( Pre = 1.5), risk-free rate of return is 4%, and the market risk premium is 6%. This results in 10.2% WACC. Required a. Prepare balance sheets and income statements for 2019-2021 b. Calculate 2020-2021 FCF, ROIC, and EVA RenewalEnergy 2020 2019 2021 1 Balance Sheet 2 ASSETS 3 Cash (3-month) 4 Accounts Receivable (2-month) 5 Inventory (2-month) 6 Total Current Operating Assets 7 Invested Portfolio 8 Total Current Assets 9 Gross PPE 10 Accumulated Depreciation 11 Net PPE 12 Total Assets 13 Liabilities and Shareholders' Equity 14 Accounts Payable (1-month) 15 Accrued Expenses (1-month) 16 Total Current Liabilities 17 Long-term Debt 18 Total Liabilities 19 Paid In Capital (Founders Equity) 20 Retained Earnings 21 Total Common Equity 22 Total Liab.&O E 23 Income Statement 24 Sales 25 Cost of Goods Sold 26 Gross Profit 27 Selling & Admin. Expense 28 EBITDA 29 Depreciation 30 Operating Profit (EBIT) 31 Interest Expense 32 Earnings Before Taxes (EBT) 33 Taxes @ 40% 34 Net income 35 Dividend 36 Change in Retained Earning 37 Free cash flow 38 Operating Profit 39 Tax on Operating Profit 40 NOPAT 41 Operating Current Assets 42 Operating Current Liabilities 43 NOWC 44 Net PPE 45 Total net operating capital 46 New Investment in Operating Capital (AIC) 47 FCFENOPAT+D-AIC 48 ROIC 49 EVA Pennsylvania is the second leading state in the nation in solar energy. RenwalEnergy, LLC. (RE) is a Philadelphia- based company affiliated with University of Pennsylvania (Penn) Science Lab. RE produces leading edge glass- integrated solar panels. RE is a closely held company but is expected go public at a later date. Once established RE moved to a well-equipped $20-million facility that will depreciate straight-line to zero-book value over 4 years. RE has a dividend payout ratio of 10% and a federal-to-state tax of 40%. In its first year of operations (2019), the company sold 4,200 units at a price of $20,000 each. RE used forward contracts to keep AVC at 40% of the price. Long-term compensation packages have been designed to keep GS&A at $10 million. The company expects its sales to grow at 20% in 2020 and at 25% in 2021. The company long-term FCF growth rate after 2021 will be 6%. New technological advances will result in enhanced product, which RE plans to sell at the same price for the foreseeable future to stay competitive and increase its market share. Analytics indicate that best operations can be accomplished with the following practices: 3-month sales cash 2-month sales accounts receivable 2-month sales inventory 1-month sales accounts payable 1-month sales accrued expenses The CFO ensures that all extra funds are invested is an aggressive, but hedged, highly diversified portfolio that can be taped when needed. This is a fund that is not required for operations, and, for valuation purposes, it is considered non-operating asset. The portfolio yields no income, and its returns are derived from its underlying securities appreciation. The portfolio acts as a buffer to absorb retained earnings and keep current assets and liabilities at desired levels. The founders started RE with an equity fund of $60 million, then issued and sold at face value a privately held a 5- year, 10% bond for $40 million. RE considers its capital structure of 60% equity and 40% debt ideal and plans to maintain it. RE has a Beta of 1.5( Pre = 1.5), risk-free rate of return is 4%, and the market risk premium is 6%. This results in 10.2% WACC. Required a. Prepare balance sheets and income statements for 2019-2021 b. Calculate 2020-2021 FCF, ROIC, and EVA RenewalEnergy 2020 2019 2021 1 Balance Sheet 2 ASSETS 3 Cash (3-month) 4 Accounts Receivable (2-month) 5 Inventory (2-month) 6 Total Current Operating Assets 7 Invested Portfolio 8 Total Current Assets 9 Gross PPE 10 Accumulated Depreciation 11 Net PPE 12 Total Assets 13 Liabilities and Shareholders' Equity 14 Accounts Payable (1-month) 15 Accrued Expenses (1-month) 16 Total Current Liabilities 17 Long-term Debt 18 Total Liabilities 19 Paid In Capital (Founders Equity) 20 Retained Earnings 21 Total Common Equity 22 Total Liab.&O E 23 Income Statement 24 Sales 25 Cost of Goods Sold 26 Gross Profit 27 Selling & Admin. Expense 28 EBITDA 29 Depreciation 30 Operating Profit (EBIT) 31 Interest Expense 32 Earnings Before Taxes (EBT) 33 Taxes @ 40% 34 Net income 35 Dividend 36 Change in Retained Earning 37 Free cash flow 38 Operating Profit 39 Tax on Operating Profit 40 NOPAT 41 Operating Current Assets 42 Operating Current Liabilities 43 NOWC 44 Net PPE 45 Total net operating capital 46 New Investment in Operating Capital (AIC) 47 FCFENOPAT+D-AIC 48 ROIC 49 EVA