QUESTION 8

1. Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers the next two questions. To do this assume that the percentage values with respect to sales of the (i) costs except depreciation, (ii) cash and equivalents, (iii) accounts receivable, (iv) inventories, and (v) accounts payable will stay fixed at the values corresponding for 2019.

   Assume also that income tax will remain at 35% of the Pretax Income.

   Consider Company Y. This firm sells a product for which in 2019 the total market size was of 2999000 units, of which Company Y owned a share of 35%.

   Both, the total market size and Company Ys market share are expected to grow at a 5% yearly rate for the next five years.

   The price of the product is $114 in 2019 and is expected to remain at that price for the next years.

   Market Analysis	2019	2020	2021	2022
   Market Size	2,999,000	3,148,950	3,306,398	3,471,717
   Market Share	35%	37%	39%	41%
   Production Volume	1,049,650
   Sales Price:	$ 114.00
   Sales

   In 2019, the outstanding debt of Company Y is $900000, for which the company makes yearly interest payments of 11%. The executives of Company Y are considering making a significant capital investment in 2020 of $2900000 to purchase new machinery. The company plans to finance this investment with a 30-year loan that makes yearly interest payments equivalent to 8% of its principal. The principal is paid when the loan matures.

   The following table summarizes the debt and interest payment of Company Y.

   Debt and Interest Table		2019	2020	2021
   Outstanding Debt		900,000	900,000	3,800,000
   New Net Borrowing			2,900,000
   Interest on Debt

   Currently, Company Y makes yearly expenditures on replacement capital investment of $90000. If the company makes the planned expansion it is decided the company will perform yearly expenditures on replacement capital investment of $325000. The current and the planned expenditures on replacement of capital investment will be financed by the companys cash flow.

   The following table indicates for 2019 Company Ys values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2020-2021 forecast values of capital depreciation if the planned expansion were to occur in 2020.

   Fixed Assets & Capital Investment	2019	2020	2021
   Opening Book Value	1,500,000
   Capital Investment	90,000
   Depreciation	-127,200	-356,224	-353,726
   Closing Book Value	1,462,800

   The following table contains Company Ys income statement for 2019.

   Income Statement:	2019	2020
   Sales	119,660,100
   Costs except Depr.	-9,572,808
   EBITDA	110,087,292
   Depreciation	-127,200
   EBIT	109,960,092
   Interest Expense (net)	-99,000
   Pretax Income	109,861,092
   Income Tax	-38,451,382
   Net Income	71,409,710

   The following table contains Company Ys balance sheet for 2019.

   Balance Sheet	2019	2020
   Assets
   Cash and Equivalents	41,881,035
   Accounts Receivable	41,881,035
   Inventories	17,949,015
   Total Current Assets	101,711,085
   Property Plant and Equipment	1,462,800
   Total Assets	103,173,885
   Liabilities and Equity
   Accounts Payable	41,881,035
   Total Current Liabilities	41,881,035
   Debt	900,000
   Total Liabilities	42,781,035
   Stockholders' Equity
   Starting Stockholders' Equity	5,000,000
   Net Income	71,409,710
   Dividends	-16,016,860
   Stockholders' Equity	60,392,850
   Total Liabilities & Equity	103,173,885

2. Before making any adjustments to balance Total Assets with Total Liabilities and Equity, what is Company Y s forecast value of Total Liabilities and Equity for 2020?"

3. How much are the net new financing for Company Y s on 2020?