Question 2 25 MARKS PARTA 15 Marks Utilize the 2020 financial statements for Carrium Insights Inc. provided on page 2 and assume that the company is currently operating at below capacity. Required: Prepare Pro-Forma statements for 2021 (rounding all figures to the nearest dollar) assuming: All costs/income/expenses and net working capital vary directly with sales/revenue. No new equity is raised Sales are projected to increase by 15%. The tax rate and the dividend payout ratio will remain constant Depreciation and Interest Expense will remain unchanged. Clearly state if Carrium Insights Inc. will require external financing or if the company would have excess financing in 2021, and how much. (15 Marks) PART B 10 Marks Based on the results of the pro-forma statement in part A above, Carrium is considering buying back some of its common shares to reduce its potential excess financing position. The Finance Manager is seeking to determine if the current value of its stock is fairly priced. The following anticipated dividend payout structure information is provided: Carrium's last dividend paid was $6.00 The company expects to perform exceedingly well in the coming years and thus intends to increase the dividend by 10% each year over the next three (3) years Thereafter, the company is expected to increase dividends by an annual rate of 5%. The company currently assumes a required return of 15%. Required: Given the above, what should be the current price of Carrium's common shares? Is this stock fairly priced, given that it currently trades for $63.00 per share? (10 Marks) ch CASE ANALYSIS - CARRIUM INSIGHTS INC. The following comprehensive assessment is based on a continuing case study of Carrium insights Inc. The following financial statements have been provided: Carrium Insights Inc. Income Statement For the year ended December 31, 2020 2020 (000s) Sales 2.800 Cost of Goods Sold (1,400) Selling & Marketing Costs (75) Admin. Expenses (25) Depreciation Expense (50) Earnings before Interest & Taxes 1.250 Interest Expense Taxable income Taxation (20%) Net Income 984 (20) 1,230 (246) Dividends (50%) Addition to Retained Eamings 492 492 2019 rooos) 2020 000s) ASSETS Current Assets Inventories Accounts Receivables Cash & Equivalents 1,360 340 Carrium Insights Inc. Statement of Financial Position As at December 31, 2019 & 2020 2019 2020 ('000) (000s) LIABILITIES & EQUITY Current Liabilities 600 680 Accounts Payables 300 Notes Payables 1.100 1.340 2,000 2,360 Non-current Liabilites 1,870 2,240 Total Liabilities Equity Common Stock Retained Earnings Total Equity 1,100 700 1,800 860 2.220 770 568 Non Current Assets, Net 2,570 2,788 820 480 1,300 840 972 1,812 TOTAL ASSETS 3,870 4,600 TOTAL LIAB. & EQUITY 3,870 4,600
