Provide Step by step calculation for balance sheet and income statement

FIN303 Financial Management Tutor-Marked Assignment/TMA02 July 2017 Presentation FIN303 Tutor-Marked Assignment TUTOR-MARKED ASSIGNMENT (TMA) This assignment is worth 25% of the final mark for FIN303 Financial Management. The cut-off date for this assignment is 23 October 2017, 2355hrs. Master Chemicals is planning its financing needs for the next 5 years. The balance sheet for the year 2015 and 2016 and the income statement for the year 2016 are as shown below: Net working capital Fixed Assets: Gross Fixed Assets Less accumulated depreciation Net Fixed Assets Total Net Assets Long term debt Net worth (Paid up capital plus retained earnings) Long term Liabilities and Net Worth Revenues Costs Depreciation EBIT Interest Tax Net Income 2016 190 2015 140 350 100 250 440 320 80 240 380 90 350 440 60 320 380 2016 2200.00 2055.00 20.00 125.00 5.00 60.00 60.00 The manager has forecast the following: The sales are expected to increase by 20% every year for years 2017, 2018, 2019, 2020 and 2021 The costs will be 92% of the revenue Depreciation will be 9% of net fixed assets at start of the year Dividend will be 60% of net income Net working capital will be 11% of revenues Investment in net fixed assets will be 12.5% of revenues Tax rate is 50% All additional capital needed will be financed through debt Interest will be charged at 10% of long term debt at the beginning of the year SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 2 of 4 FIN303 Tutor-Marked Assignment Question 1 (a) Prepare the Pro forma income statement for years 2017 to 2021. (15 marks) (b) Estimate the additional financing required for each of the 5 years. (15 marks) (c) Prepare the Pro forma balance sheet for years 2017 to 2021. (15 marks) Question 2 Analyse the issues that arise when estimating the external financing needed using the above model. (10 marks) Question 3 Calculate the debt to total net asset ratio for the years 2016 to 2021 and evaluate the decision to fund the external financing needs through debt. (10 marks) SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 3 of 4 FIN303 Tutor-Marked Assignment Question 4 Master Chemicals is planning a proposal for manufacturing fertiliser. This project requires an investment of $10 million in plant and machinery. The project is expected to last for 6 years at the end of which the machinery can be sold for $1.949 million. The accountants will have depreciated the equipment over 6 years using a salvage value of $500,000 at the end of year 6 using straight line depreciation. The income statement (in '000s) is shown as below: Capital investment Accumulated depreciation Year-End book value Working capital Sales Cost of Goods sold (cash costs) Other cash costs Depreciation Pre-tax profits Tax (35%) Profit after tax 0 10000 4000 1 2 3 4 5 1583 8417 550 523 3166 6834 1289 12887 4749 5251 3261 32610 6332 3668 4890 48901 7915 2085 3583 35834 6 1949 9500 500 2002 19717 837 2200 1583 -4097 -1434 -2663 7729 1210 1583 2365 828 1537 19552 1331 1583 10144 3550 6594 29345 1464 1583 16509 5778 10731 21492 1611 1583 11148 3902 7246 11830 1772 1583 4532 1586 2946 The beta of Master Chemicals is 1.2; the risk-free rate is 4% and the market risk premium is 7%. The target capital structure for Master Chemicals is 30% debt and Master Chemicals raises debt at 10% interest rate. Assume the marginal tax rate is 35%. (a) Compute the cost of equity. (6 marks) (b) Compute the after-tax cost of debt. (4 marks) (c) Calculate the weighted average cost of capital. (5 marks) (d) Calculate the net present value of this project. (20 marks) ---- END OF ASSIGNMENT ---- SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 4 of 4