Question 3 (35 points): Under the unbelievable development of technology, two giant companies gradually dominate the high-tech market with their products of virtual game that allowed humans to live and act in the game as if it was real. Mr. Mint, two years after receiving your balance sheet of his company, express his interest to invest in these companies which are the Sun and the Moon. Because the Sun and the Moon are direct competitors, it is hard for him to invest in 2 companies at the same time since one of them will be a stepping stone for the other to thrive. Thus, Mr. Mint, once again after 2 long years, ask you for your advice which company to invest in. Thankfully, this time, Mr. Mint gives you all the information you need to know about these companies. 2103 2104 The Sun Corporation Balance Sheets 2103 and 2104 (in million USD) 2103 2104 Current assets Current liabilities Cash 100 150 Account payable Accounts receivable 500 750 Note payable 400 200 650 350 Total 600 900 Total 600 1000 Fixed assets 400 600 Owners' equity Common stock 200 Retained earnings 200 Total equity 400 . 250 250 500 Total assets 1000 1500 Total liabilities and equity 1000 1500 3 The Sun Corporation Income Statement from 2103 to 2104 (in million USD) Sales 250 Cost of goods sold 180 Depreciation 20 Earnings before interest and taxes 50 Interest paid 10 Taxable income 40 Taxes (Tax rate 30%) 12 Net income 28 Dividends 14 Additions to retained earnings 14 2103 2104 The Moon Corporation Balance sheets 2103 and 2104 (in million USD) 2103 2104 Current assets Current liabilities Cash 1000 3000 Account payable Accounts receivable 3500 4000 Note payable . 1000 1500 2000 1000 . . Total 4500 7000 Total 3000 2500 Fixed assets 500 500 Owners' equity Common stock 1000 2500 Retained earnings 1000 2500 Total equity 2000 5000 . Total assets 5000 7500 Total liabilities and equity 5000 7500 The Moon Corporation Income Statement from 2103 to 2104 (in million USD) Sales 3000 Cost of goods sold 2000 Depreciation 50 Earnings before interest and taxes 950 Interest paid 150 Taxable income 800 Taxes (Tax rate 30%) 240 Net income 560 Dividends 260 Additions to retained earnings 300 Students' tasks: a) Compare the two firms by common size method and advise Mr. Mint which company he should invest in (15 points). b) Some surveys recently point out the players prefer the game "Light to Heaven by the Sun Corporation more than "Shadow in the Night" by the Moon Corporation. This new trend brings a forecast of sales increasing up to 20% for the Sun Corporation, meanwhile the increasing rate of sales for the Moon is only 10%. Prepare the Pro-forma statements, assume percentage of sales method, and give your recommendation to Mr. Mint based on that (20 points). Question 3 (35 points): Under the unbelievable development of technology, two giant companies gradually dominate the high-tech market with their products of virtual game that allowed humans to live and act in the game as if it was real. Mr. Mint, two years after receiving your balance sheet of his company, express his interest to invest in these companies which are the Sun and the Moon. Because the Sun and the Moon are direct competitors, it is hard for him to invest in 2 companies at the same time since one of them will be a stepping stone for the other to thrive. Thus, Mr. Mint, once again after 2 long years, ask you for your advice which company to invest in. Thankfully, this time, Mr. Mint gives you all the information you need to know about these companies. 2103 2104 The Sun Corporation Balance Sheets 2103 and 2104 (in million USD) 2103 2104 Current assets Current liabilities Cash 100 150 Account payable Accounts receivable 500 750 Note payable 400 200 650 350 Total 600 900 Total 600 1000 Fixed assets 400 600 Owners' equity Common stock 200 Retained earnings 200 Total equity 400 . 250 250 500 Total assets 1000 1500 Total liabilities and equity 1000 1500 3 The Sun Corporation Income Statement from 2103 to 2104 (in million USD) Sales 250 Cost of goods sold 180 Depreciation 20 Earnings before interest and taxes 50 Interest paid 10 Taxable income 40 Taxes (Tax rate 30%) 12 Net income 28 Dividends 14 Additions to retained earnings 14 2103 2104 The Moon Corporation Balance sheets 2103 and 2104 (in million USD) 2103 2104 Current assets Current liabilities Cash 1000 3000 Account payable Accounts receivable 3500 4000 Note payable . 1000 1500 2000 1000 . . Total 4500 7000 Total 3000 2500 Fixed assets 500 500 Owners' equity Common stock 1000 2500 Retained earnings 1000 2500 Total equity 2000 5000 . Total assets 5000 7500 Total liabilities and equity 5000 7500 The Moon Corporation Income Statement from 2103 to 2104 (in million USD) Sales 3000 Cost of goods sold 2000 Depreciation 50 Earnings before interest and taxes 950 Interest paid 150 Taxable income 800 Taxes (Tax rate 30%) 240 Net income 560 Dividends 260 Additions to retained earnings 300 Students' tasks: a) Compare the two firms by common size method and advise Mr. Mint which company he should invest in (15 points). b) Some surveys recently point out the players prefer the game "Light to Heaven by the Sun Corporation more than "Shadow in the Night" by the Moon Corporation. This new trend brings a forecast of sales increasing up to 20% for the Sun Corporation, meanwhile the increasing rate of sales for the Moon is only 10%. Prepare the Pro-forma statements, assume percentage of sales method, and give your recommendation to Mr. Mint based on that (20 points)