Rutgers Business School Corporate Finance - 29:390:330:02 Midterm Exam - Spring 2021 Professor Lisa Kaplowitz You are required to show all work, and not change the font, to receive full credit. You may add rows or columns in between. If using a financial calculator, please list your inputs and the function used. GameGo Inc. (Game) is a digital gaming platform that is crushing its old school competition. Game generates revenue from both advertising on its platform as well as through in-app purchases. Game's user base is expanding quickly and management is excited about its future growth prospects. Part A-Budgeting & Financial Analysis (32 points) ($ in thousands) Statement of Income: Balance Sheet Revenue Cost of Goods Sold Gross Margin Selling, General & Admin Expense Restructuring Charge Depreciation Operating Income Other Income (expense) Interest Expense Pre-tax Income Taxes Net Income 2020 $1,230.0 670.0 560.0 300.0 50.0 85.0 125.0 (10.0) 40.0 75.0 15.0 $60.0 Cash Accounts Receivables Inventory Other current assets Current Assets PP&E Goodwill Total Assets 2019 $200.0 350.0 260,0 125.0 935.0 550.0 135.0 1,620.0 2020 $250.0 437.5 325.0 156.3 1.168.8 687.5 168.8 2,025.0 Accounts payable Accrued expenses Revolving credit line Short term debt Other current liabilities Current Liabilities Notes Payable Deferred taxes Total Liabilities Shareholders' Equity Total Liabilities & Shareholders Equity 435.0 365.0 50.0 70.0 190.0 1,110.0 30.0 75.0 1,215.0 405.0 543.8 456.3 62.5 87.5 237.5 1,387.5 37.5 93.8 1,518.8 506.3 $1,620.0 $2,025.0 1. Based on the following assumptions, what is the expected change (%) in reported net income in 2021 (14 pts) a. Revenue is projected to increase 23% b. Cost of goods are expected to decrease 10 bps as a percentage of Revenue C. SG&A is expected to increase 25 bps as a percentage of Revenue due to increased hiring needs d. Depreciation and Interest Expense are projected to be flat at $85 and $40, respectively in 2021 e. There is not expected to be any other Income (expense) f. Taxes are estimated to be 20% 156.7% 2. Explain how Net Income changed in relationship to Revenue, Margin and leverage/deleverage. (6 pts) Qualitative 3. Calculate the 2021 recurring EBIT margin and explain what it means (6 pts). 15.4% +Qualitative 4. Calculate the 2020 Debt to Total Capital Ratio and explain what it means.