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Project 1: Financial Statement Analysis Instruction: Students will work on the following project in groups and complete the project using Excel spreadsheet. Bob Builder Construction

Project 1: Financial Statement Analysis

Instruction: Students will work on the following project in groups and complete the project using Excel spreadsheet.

Bob Builder Construction Company (BBCC) is a large firm for kitchen appliance manufacturers. Peral, the finance manager of BBCC, submitted a justification to support the application for a short-term loan from the Queensville Interstate Bank (QIB) to finance increased sales. The consolidated income statement and balance sheet of BBCC are as follows.

BBCC Income Statement for 2018 and 2019 (thousand dollars)

2018

2019

Sales

$40,909

$45,000

Cost of Goods Sold

$20,909

$23,000

Gross Profit

$20,000

$22,000

Selling and Administrative Expenses

$11,818

$13,000

Depreciation Expense

$2,000

$3,000

Operating Income (EBIT)

$6,182

$6,000

Interest Expense

$400

$412

Earnings before Taxes (EBT)

$5,782

$5,588

Income Taxes (@ 40%)

$2,313

$2,235

Net Income (NI)

$3,469

$3,353

Dividends Paid (@ 21.86%)

$758

$733

BBCC Balance Sheet as of End of 2018 and 2019 (thousand dollars)

2018

2019

Assets:

Cash

$2,000

$1,800

Accounts Receivable (net)

$6,000

$7,600

Inventory

$5,000

$5,220

Plant and Equipment (gross)

$26,000

$31,000

Less: Accumulated Depreciation

$10,000

$13,000

Plant and Equipment (net)

$16,000

$18,000

Land

$1,000

$1,000

Liabilities:

Accounts Payable

$2,000

$2,600

Notes Payable

$3,000

$3,300

Accrued Expenses

$3,000

$3,100

Bonds Payable

$4,000

$4,000

Stockholders Equity:

Common Stock

$4,000

$4,000

Retained Earnings

$14,000

$16,620

2. Calculate the EVA and MVA for BBCC, assuming that the firms income tax rate is 40 percent, the weighted average rate of return expected by the suppliers of the firms capital is 10 percent, and the market price of the firms stock is $20. There are 1.2 million shares outstanding.

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