Sales of existing products are expected to increase by 6% annually. Raw materials is expected to start at 30% of sales in 2022 but increase in subsequent years by 2% a year ( 32% of sales in 2023,34% of sales in 2024 etc.). Labour costs are expected to remain at 15% of sales for all 5 years. Marketing costs are expected to increase by 2% in 2022 and then increase by a further \$15 million in 2023 and a further $25 million in 2024 and then remain at that level for subsequent years. The corporate tax rate is expected to be 42% of net income before tax for all 5 years. NABM uses a declining balance depreciation policy. Equipment is depreciated at a rate of 20% while plant is depreciated at a rate of 10%. For planning purposes, Rachel has been advised to assume that normal plant additions for the five years will be $15 million per year and normal equipment additions will be $25 million per year for the five years. These purchases will be financed with short-term debt. NABM is planning 2 major capital investments in the next five years. They are associated with the launch of two new products, Product A and Product B and are expected to happen in 2023 and 2024 . The details are noted below. In order to maintain a capital structure close to 60% debt and 40% equity, these major capital investments will be financed with 60% debt and 40% equity. Rachel also received a memo from NABM's investment advisors with their analysis of market returns and forecast for interest rates, both short term and long term rates and common share prices and forecasted dividends for both common and preferred shares. See chart below. Short term debt has variable rate interest and long term debt has fixed interest rates. To minimize short term interest and increase asset efficiency any access cash beyond a year end balance of $40,000 will be used to pay down notes payable at the beginning of the next year. Normally NABM's current assets, accounts payable and accruals grow at the same rate as sales growth. Notes payable are mainly loans from NABM's line of credit and are used to finance any normal fixed asset purchases. NABM is required to pay $16 million of its long term debt annually. As part of Rachel's financial plan development she has been asked to estimate NABM's value today considering comparables and future cash flows.. Some valuation relevant ratios for a major competitor and the average for the industry within which NABM operates have been provided below. DATA TABLE (\$housands) New Age Battery Manufacturing Income Statement For the year ending December 31, 2021 \begin{tabular}{|l|r|} \hline Sales & $345,000 \\ \hline Cost of sales & \\ \hline Raw materials & $103,500 \\ \hline Labour & $51,750 \\ \hline Gross margin & $189,750 \\ \hline Selling and administrative expenses & \\ \hline Marketing costs & $85,975 \\ \hline Depreciation & $38,213 \\ \hline Income from operations & $65,562 \\ \hline Interest expense & $9,860 \\ \hline Income before taxes & $55,702 \\ \hline Income tax expense & $23,395 \\ \hline Net income & $32,307 \\ \hline \end{tabular} Earnings per Share $1.49 DATA TABLE (\$thousands) New Age Battery Manufacturing Statement of Retained Earnings For the year ending December 31, 2021 Retained Earnings, January 1, 2021 Plus Net income for 2021 Preferred dividends Commond dividends Retained Earnings, December 31, 2021 \begin{tabular}{|r|} \multicolumn{1}{|r|}{$34,452.0} \\ \hline$32,307.0 \\ \hline$66,759.0 \\ $2,596.0 \\ $8,000.0 \\ \hline$56,163.0 \\ \hline \end{tabular} DATA TABLE (\$thousands) New Age Battery Manufacturing Balance Sheet December 31, 2021 ASSETS Current Assets: \begin{tabular}{l|r|} \hline Cash and marketable securities & $3,985 \\ \hline Accounts receivable & $35,624 \\ \hline Inventories & $47,711 \\ \hline Prepaid expenses & $2,338 \\ \hline Other current assets & $1,978 \\ \hline Total current assets & $91,636 \\ \hline Fixed Assets: & \\ \hline Equipment & $196,855 \\ \hline Plant & $147,260 \\ \hline Less accumulated depreciation equipment & ($76,220) \\ \hline Less accumulated depreciation plant & ($28,520) \\ \hline Total capital assets & $239,375 \\ \hline TOTAL ASSETS & $331,011 \\ \hline \hline \end{tabular} LIABILITTES Current Liabilities: Accounts payable Accruals Notes payable Current portion of long term debt Total current liabilities \begin{tabular}{|r|r|r|} \hline$12,472 & \\ \hline$6,918 & & \\ \hline$24,115 & \\ \hline$16,000 \\ \hline$59,505 & \\ \hline$142,895 & & \\ \hline \end{tabular} Long term debt: Bonds SHAREHOLDERS' EQUITY Preferred shares (324 shares 0/s) Common equity (20,000 share o/s) Retained earnings Total S/H Equity Total Liabilities \& S/H Equity $32,448$40,000$56,163$128,611$331,011 \# of shares are in thousands Preferred shares Preferred dividends Common shares: Expected new offerings Capital needed Expected price per share Number of shares required Common shares outstanding Common capital year end Dividends per share Dividends per year Changes in current assets, A/P, accruals \begin{tabular}{|r|r|r|r|r|r|} \hline$0 & $0 & $0 & $0 & $0 & $0 \\ \hline$0 & $0 & $0 & $0 & $0 & \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline 20,000 & & & & & \\ \hline$40,000 & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline \end{tabular} Sales of existing products are expected to increase by 6% annually. Raw materials is expected to start at 30% of sales in 2022 but increase in subsequent years by 2% a year ( 32% of sales in 2023,34% of sales in 2024 etc.). Labour costs are expected to remain at 15% of sales for all 5 years. Marketing costs are expected to increase by 2% in 2022 and then increase by a further \$15 million in 2023 and a further $25 million in 2024 and then remain at that level for subsequent years. The corporate tax rate is expected to be 42% of net income before tax for all 5 years. NABM uses a declining balance depreciation policy. Equipment is depreciated at a rate of 20% while plant is depreciated at a rate of 10%. For planning purposes, Rachel has been advised to assume that normal plant additions for the five years will be $15 million per year and normal equipment additions will be $25 million per year for the five years. These purchases will be financed with short-term debt. NABM is planning 2 major capital investments in the next five years. They are associated with the launch of two new products, Product A and Product B and are expected to happen in 2023 and 2024 . The details are noted below. In order to maintain a capital structure close to 60% debt and 40% equity, these major capital investments will be financed with 60% debt and 40% equity. Rachel also received a memo from NABM's investment advisors with their analysis of market returns and forecast for interest rates, both short term and long term rates and common share prices and forecasted dividends for both common and preferred shares. See chart below. Short term debt has variable rate interest and long term debt has fixed interest rates. To minimize short term interest and increase asset efficiency any access cash beyond a year end balance of $40,000 will be used to pay down notes payable at the beginning of the next year. Normally NABM's current assets, accounts payable and accruals grow at the same rate as sales growth. Notes payable are mainly loans from NABM's line of credit and are used to finance any normal fixed asset purchases. NABM is required to pay $16 million of its long term debt annually. As part of Rachel's financial plan development she has been asked to estimate NABM's value today considering comparables and future cash flows.. Some valuation relevant ratios for a major competitor and the average for the industry within which NABM operates have been provided below. DATA TABLE (\$housands) New Age Battery Manufacturing Income Statement For the year ending December 31, 2021 \begin{tabular}{|l|r|} \hline Sales & $345,000 \\ \hline Cost of sales & \\ \hline Raw materials & $103,500 \\ \hline Labour & $51,750 \\ \hline Gross margin & $189,750 \\ \hline Selling and administrative expenses & \\ \hline Marketing costs & $85,975 \\ \hline Depreciation & $38,213 \\ \hline Income from operations & $65,562 \\ \hline Interest expense & $9,860 \\ \hline Income before taxes & $55,702 \\ \hline Income tax expense & $23,395 \\ \hline Net income & $32,307 \\ \hline \end{tabular} Earnings per Share $1.49 DATA TABLE (\$thousands) New Age Battery Manufacturing Statement of Retained Earnings For the year ending December 31, 2021 Retained Earnings, January 1, 2021 Plus Net income for 2021 Preferred dividends Commond dividends Retained Earnings, December 31, 2021 \begin{tabular}{|r|} \multicolumn{1}{|r|}{$34,452.0} \\ \hline$32,307.0 \\ \hline$66,759.0 \\ $2,596.0 \\ $8,000.0 \\ \hline$56,163.0 \\ \hline \end{tabular} DATA TABLE (\$thousands) New Age Battery Manufacturing Balance Sheet December 31, 2021 ASSETS Current Assets: \begin{tabular}{l|r|} \hline Cash and marketable securities & $3,985 \\ \hline Accounts receivable & $35,624 \\ \hline Inventories & $47,711 \\ \hline Prepaid expenses & $2,338 \\ \hline Other current assets & $1,978 \\ \hline Total current assets & $91,636 \\ \hline Fixed Assets: & \\ \hline Equipment & $196,855 \\ \hline Plant & $147,260 \\ \hline Less accumulated depreciation equipment & ($76,220) \\ \hline Less accumulated depreciation plant & ($28,520) \\ \hline Total capital assets & $239,375 \\ \hline TOTAL ASSETS & $331,011 \\ \hline \hline \end{tabular} LIABILITTES Current Liabilities: Accounts payable Accruals Notes payable Current portion of long term debt Total current liabilities \begin{tabular}{|r|r|r|} \hline$12,472 & \\ \hline$6,918 & & \\ \hline$24,115 & \\ \hline$16,000 \\ \hline$59,505 & \\ \hline$142,895 & & \\ \hline \end{tabular} Long term debt: Bonds SHAREHOLDERS' EQUITY Preferred shares (324 shares 0/s) Common equity (20,000 share o/s) Retained earnings Total S/H Equity Total Liabilities \& S/H Equity $32,448$40,000$56,163$128,611$331,011 \# of shares are in thousands Preferred shares Preferred dividends Common shares: Expected new offerings Capital needed Expected price per share Number of shares required Common shares outstanding Common capital year end Dividends per share Dividends per year Changes in current assets, A/P, accruals \begin{tabular}{|r|r|r|r|r|r|} \hline$0 & $0 & $0 & $0 & $0 & $0 \\ \hline$0 & $0 & $0 & $0 & $0 & \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline 20,000 & & & & & \\ \hline$40,000 & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline \end{tabular}