The task for integrative assignment #3 is to understand the financial impact to a hypothetical company from launching two different products - Product A or Product B. In the Exhibit 1 and 2 the hypothetical company's projected balance sheet (Exhibit 1) and the company projected income statement (Exhibit 2) for years 1 and 2 from launching either product A or B.In this assignment, you will want to provide a recommendation on which product launch (A or B) provides the most value to the company in terms of strengthening its financial position. In your analysis, you will use the "DuPont Method", also referred to as the "Return on Equity" model, to compare the income statement and balance sheet from both product launches. Your analysis will focus on how the company is able to generate returns between these two product launches based on how these two scenarios impact the company's asset utilization, profitability, and leverage ratios.In addition, you will also provide an analysis on the company's ability to generate operating cash flow from each product launch.

Answer the following questions:

Part A: For the product launch that you believe adds the most value, at the end of year 2, what will be the company's:

• Question 1: Net Profit Margin
• Question 2: Asset Utilization Ratio
• Question 3: Financial Leverage Ratio
• Question 4: Return on Equity
• Question 5: Return on Net Operating Assets

**When calculating financial ratios, where appropriate please use average balances from the balance sheet. Also, assume a tax rate of 21%.

Part B, Question 6: What is the incremental difference in operating cash flow between the two product launches (enter answer in absolute value)?

Part C, Question 7: Based on your financial analysis, provide an explanation to support your answer on why you think either product A or product B adds the most value to the company. Highlight the key financial risk versus return aspects of your analysis.In your analysis, assume that the industry's financial ratio averages of other comparable companies are as follows:

1. Net Profit Margin is 13%,
2. Asset Utilization is 1X
3. Financial Leverage is 1.8X

Exhibit 1: Incremental Balance Sheet End of Year 1 End of Year 2 End of Year 1 End of Year2 Assets Cash 8 525,023 $ 909,255 a; 301,900 3; 973,394 AooountsReoeivable 8 2,549,167 8 3,649,943 8 1,816,875 8 1,623,075 Pre-Paid Assetstxpenses 8 570,900 8 586,195 8 446,688 8 701,827 Inventory 8 1,155,000 8 1,212,750 8 2,272,500 8 2,537,625 Total CurrentAssets 8 4,900,090 8 6,358,143 8 4,837,969 8 5,835,911 Property, Plant and Equlpment Net of Depreolatlon 8 51,428,571 8 42,857,143 8 25,714,286 8 21,428,571 Total Long Term Assets 8 51,428,571 8 42,857,143 8 25,714,286 8 21,428,571 Total Assets 8 56,328,661 8 49,215,286 8 30,552,254 8 27,264,482 Liabilities Deferred Revenue 8 3,059,000 8 3,211,950 8 1,816,875 8 2,028,844 AccounlsPayable 8 2,165,625 8 2,021,250 8 1,893,750 8 1,586,016 Total Current Liabilities 8 5,224,625 8 5,233,200 8 3,710,625 8 3,614,859 Long Term Bonds Payable 8 34,500,000 8 22,500,000 810,500,000 8 2,500,000 Total Liabilities 8 39,724,625 8 27,733,200 814,210,625 8 6,114,859 Equity Common Stock Net 8 13,000,000 8 13,000,000 8 13,000,000 8 13,000,000 Retained Earnings 8 3,604,036 8 8,482,086 8 3,341,629 8 8,149,622 Total Equity 8 16,604,036 8 21,482,086 8 16,341,629 8 21,149,622 Total Liabilities& Equity 8 56,328,661 8 49,215,286 8 30,552,254 8 27,264,482 Exhibit 2: Incremental Income Statement Product A Product B End of Year 1 End of Year 2 End of Year1 End of Year 2 Total Net Revenue $ 38,237,500 $ 40,149,375 $ 36,337,500 $ 40,576,875 Cost of Goods Sold 9;: 17,325,000 $ 18,191,250 $ 22,725,000 $ 25,376,250 Total Gross Profit $ 20,912,500 $ 21,958,125 $ 13,612,500 $ 15,200,625 Operating Expense Marketing Expense $ 1,600,000 $ 1,600,000 $ 1,600,000 $ 1,600,000 Salary and Wages $ 1,050,000 $ 1,050,000 $ 1,050,000 $ 1,050,000 Other Admin. Expenses 15 3,059,000 $ 3,211,950 $ 1,816,875 $ 2,028,845- Depreciation $ 8,571,429 95 8.571429 $ 4,285,714 $ 4,285,715- Total Operating Expens. $ 14,280,429 $ 14,433,379 $ 8,752,589 $ 8,984,558 Interest Expense $ 2,070,000 $ 1,350,000 $ 630,000 $ 150,000 Taxes 55 958,035 $ 1,296,697 $ 888,281 $ 1,278,075- Net Income $ 3,804,038 $ 4,878,050 $ 3,341 ,629 $ 4,807,993