ROBLEM (40 pts totall remote controlled tank crawler that can traverse vertically and horizontally over he surface tank to measure the tank thickness using Electro Magnetic Acoustic ransducer (EMAT). This new device will replace the current unsafe inspection nethod which requires man lift and leaves contaminant on the tank surface. There re at least 15000 tanks in petro-chemical industry require thickness inspection each ear in the US. Recognizing this as good business opportunity, the team wants to art a new business called SMEGGAN Industries to manufacture and sell the Tank rawler device. The team estimates $500,000 would be needed for this startup A team of senior engineering students at CSUF has designed investor has agreed to purchase 75% of the company stock for S 300,000 in cash. For the remaining of the e team agree to pledge the tank crawler patent, valued 00,000 the team is required to present the bank with the business plan with 3-year balance sheets and Profit and Loss L) at $100,000, to the new company. For the additional statements for a 3-year loan at 12% simple interest payable in full at the end of the 3rd year. The bank wants to see ear balance sheets and P&L statements to make sure that the company will be able to pay off the loan at the end of pany plans to obtain additional investment, short term and new equipment for expansion in year 3. The npany financial planning data are presented in table 1 below. TABLE 1-SMEGGAN INDUSTRIES INVESTMENT AND SALES FORECASTS OPERATING REVENTE FORECAST Sales units Sales Revenue ( S2500 Merchandise Returned ( 5%often 30 S0 $500,000 S1.000,000 $1,750 S30 S4-5,000 S950.000 Si-662.- TOT SO COST OF COODS SOLD (COGS) Production costs ( $600unit) MARKETING AND SELLING COSTS Personel Salaries Facility Lease: $24.000 year-3 year lease Business Insurance S0 S100,000 $150 S0 S0 $10 $240 $18,00 TOT $128,000 $178,000 $268 SHAREHOLDER INVESTMENT&BANK LOANS Bank loan, 3year, 12%simple interest, interest only payment | Short term loan of $50,000 in year 3 to buy addisional Interiectual Property Value appraised at startup Shareholder Investment of $300,000 in year 0. Additional nvestment of $200,000 in year 3 $100,000 $300,000 $100,000 $200,000 Pay off loan $50 S Loan due at the end of year 3 equipment for growth CAPITAL EQUIPMENT PURSCHASE Specialty equipment purchase: $65,000 in year 1 for startup $65 $120,000 additional $120,000 in year 3 for growth Depreciation method for equipment MACRS, 3 years property re asked to review the company business data in table 1 and complete the three-year financial plan as followr Page 3 in table 1 complete the missing information in year 3 of the PRL a) (10 pts) From the financial planning data statement in table 2B. INCOMES AND EXPENSES EAR0 EAR 1 YEAR 3 Operating Reveeues and Espenses Merchandise Retro Tetal $1.562,5 Cost ef goods and senvices (COGS) $150 21,665 $28,893 General Administratve (CtA) 240,000 Total Operating Espense Yon-Operating revenues and Expenses Revenues) and Expenses) Interest $12,000 $12 Total Now-Operating IncomeS0 Net Profir (Loss) Before Taxes Income Tares $191,108 $43,336 $6,500 $57.781.93 Net Profit After Taxes_ Depreciation: Total Operating Expense: .Operating Income: . Net Profit (loss) before taxes e Income Tax: (3 pts) (1 pts) (1pts) (1 pts) 3 pts) (1 pts) Net Profit (Loss) after taxes (5 pts) The economy is projected to have inflation rate of 3% per year. From the financial data, determine the after tax cash flow in actual dollar ATCF(AS) in current year and the after tax cash flow in real dollar ATCF(RS) in year 0 dollars: ) ATCF (AS) ATCF (RS) YR 0 (5 pts) If the rate of return of this business is low, it may turn the investor or the bank away. Is it proper for the team to inflate market revenue forecasts and profit margin to show growth to obtain loan from the bank and attract investors to invest into the company? Page 4 of d) (20 pts) From the financial planning data in table 1 and the completed the P&L statement in table 28, complete year 3 of the balance sheet in table 38 TABLE 3B-SMEGGAN INDUSTRIES-BALANCE SHEET- 3 YEARS ASSETS YEAR 0 YEAR EAR 2 YEAR 3 Curreat assets Cash $335,000 $400,000 5562,218 Inventories 50 so Total current assets $335,000 $400,000 5562.218 Fixed assets 65,000 $30,557 565,000 $65,000 521.665 Total fixed assets = S65,000 $14,443 Other Assets Intangbles $100,000 $100,000 $100,000 $100,000 676,661 S100.000 Total other assets TOTAL ASSET S100,000 5500,000 $100,0 5543,336 LIABILITES Current liabilities (Short term) 50 Accounts payable Notes payable s0 s0 50 30 s0 Total current liabilities Loag-term liabilities s0 $100,000 Bank Notes 100.000 TOTAL LIABILITY s1000001- S100.000 $100,000 Equity $400,000 176,661 $400.000 $400,000 Common stock Retained earnings S576,661 TOTAL EQUITY TOTAL LIABILITY AND EQUITY 5400,000 $500,000 $443,336 $543,336 5676,661 SUMMARY OF ANSWERS TO MISSING INFORMATION IN YEAR 3 BALANCE SHEET ITEMS ITEMS Cash (2 pts) Total Current Asset (1 pt.) Equipment (2 pts) Accumulated depreciation Total Fixed Asset (1) otal Asset (2pts) Notes Payable (1pt) Total Current Liability (2pts) Common Stock (2pts) Retain Earnings (2pts) Total equity (1pt Total Liability and Equity (1pt)