This is a project for aCorporate Finance class. There are four tabs with four problems to solve. I need all four solved. I am paying $35 for this to be completed. Thanks

Instructions 1. Each group should have no more than 3 members Member 1's Name Member 2's Name Member 3's Name 2. Using excel functions to show your answers where applicable. Adding notes or comments to make your answers easier to follow where possible 3. Due by last day of the class, Friday March 4 e Question 1 (30 points) a. For the years 2005 - 2009, calculate ABC's i. Total liabilities-to-equity ratio (3 points) ii. Times interest earned ratio (note: EBIT = Operating profit) (5 points) iii. Times burden covered ratio (note: Principal payments in year t equal "Long-term debt due in one year" in year t-1. The tax r b. What percentage decline in earnings before interest and taxes could ABC have sustained in these years before failing to cover i. Interest requirement? (5 points) ii. Interest and principal payments? (5 points) ii. Interest, principal and common dividend payments? (5 points) c. What do these calculations suggest about ABC's financial leverage during this period? (2 points) ANNUAL BALANCE SHEET ($ MILLIONS) Dec09 Dec08 Dec07 Dec06 Dec05 ASSETS Cash & Short-Term Investments Inventories Other Current Assets 3,279 9,308 6,386 5,966 6,153 6,027 6,068 5,655 5,613 16,933 15,612 9,563 8,105 7,940 1,016 1,096 2,391 2,887 2,499 ------------------ ------------------ ------------------ ------------------ Net Receivables 11,223 -------------- Total Current Assets 35,325 26,014 27,330 23,033 22,018 Gross Plant, Property & Equipment 21,579 21,042 20,180 19,310 19,692 Accumulated Depreciation 12,795 12,280 11,915 11,635 11,272 ------------------ ------------------ ------------------ ------------------ -------------- Net Plant, Property & Equipment 8,784 8,762 8,265 7,675 8,420 974 942 1,085 964 84 Other Investments 5,522 6,243 9,803 11,641 12,407 Intangibles 7,196 6,332 5,174 4,745 2,799 Investments at Equity Deferred Charges Other Assets - 5,536 7,379 - 13,251 3,786 1,129 ------------------ ------------------ ------------------ -----------------TOTAL ASSETS 4,302 - -------------- 62,103 53,829 59,036 51,844 60,108 757 610 812 1,431 1,239 7,096 5,871 5,714 5,643 5,124 182 41 253 670 556 Accrued Expenses 12,822 6,169 6,637 6,106 6,590 Other Current Liabilities 12,076 18,284 18,172 15,901 14,729 ------------------ ------------------ ------------------ ------------------ -------------- LIABILITIES Long Term Debt Due In One Year Accounts Payable Taxes Payable Total Current Liabilities 32,933 30,975 31,588 29,751 28,238 Long Term Debt 12,217 6,952 7,455 8,157 9,538 Deferred Taxes - Minority Interest 97 Other Liabilities 14,728 - 2,067 9,197 9,206 -------------- 59,975 55,123 Common Stock 5,061 Capital Surplus 3,724 Retained Earnings Less: Treasury Stock 9,799 - ------------------ ------------------ ------------------ -----------------TOTAL LIABILITIES 17,196 1,190 50,032 47,105 49,049 5,061 5,061 5,061 5,061 3,456 4,757 4,655 4,371 10,869 9,150 16,780 10,236 15,498 17,526 18,961 17,594 15,213 13,871 ------------------ ------------------ ------------------ ------------------ -------------- EQUITY TOTAL EQUITY Common Shares Outstanding 4,739 11,059 ------------------ ------------------ ------------------ -----------------TOTAL LIABILITIES & EQUITY 2,128 (1,294) 9,004 -------------- 62,103 53,829 59,036 51,844 60,108 726.291 698.138 736.681 757.836 760.577 ANNUAL INCOME STATEMENT Dec09 Dec08 Dec07 Dec06 Dec05 Sales 70,281 62,909 68,387 63,530 56,845 Cost of Goods Sold 55,092 48,950 51,977 48,926 44,757 ------------------- ------------------ ------------------ ------------------ --------------- Gross Profit 13,959 16,410 14,604 12,088 9,870 6,852 7,381 7,428 6,433 ------------------- ------------------ ------------------ ------------------ Selling, General, & Administrative Exp. 15,189 --------------- Operating Income Before Deprec. 5,319 7,107 9,029 7,176 5,655 Depreciation,Depletion,&Amortization 1,273 1,179 1,130 1,158 1,092 ------------------- ------------------ ------------------ ------------------ --------------- Operating Profit 4,046 5,928 7,899 6,018 4,563 Interest Expense 604 524 608 657 713 Non-Operating Income/Expense 289 591 827 709 391 (876) 578 ------------------- ------------------ ------------------ ------------------ --------------- Special Items Pretax Income 5,995 8,118 5,194 4,819 396 1,341 2,060 988 257 ------------------- ------------------ ------------------ ------------------ Total Income Taxes 3,731 --------------- Income Before Extraordinary Items & Discontinued Operations Adjusted Net Income 4,654 6,058 4,206 4,562 (23) 18 16 9 (7) ------------------- ------------------ ------------------ ------------------ Discontinued Operations 3,335 --------------- 3,312 4,672 6,074 4,215 4,555 ax rate for each year equals total income taxes/pretax income) (5 points) Question 2 (30 points) Ocean Corporation Financial Statements, 2013 and Projected 2014 ($ millions) INCOME STATEMENT BALANCE SHEET Instructions: Actual Sales $ Projected Actual Projected 2013 2014 2013 2014 3,500 $ 4,130 Cash 2,775 3,304 Operating expense 360 413 EBIT 365 413 Total current assets Questions: 972 a. Enter a formula for external fu 1,890 b. Given your answer from (a), d 1,740 Inventory 270 1,050 $ 150 $ 540 Accounts receivable COGS Use the pro forma financial statem 3,132 c. At what rate does the actual sa d. Return the sales growth rate to 68 88 EBT 297 325 Tax 102 211 1,862 e. Return COGS/Sales to 80%. N 3,318 4,994 f. Return the dividend payout rati Total debt 1,106 1,148 2,212 2,296 3,318 $ 3,445 114 195 $ 1,578 Shareholders' equity Interest expense Net income $ Assumptions for 2014 Property, plant, & equipment Total assets Total liabilities & equity Sales growth rate 18.0% COGS/sales 80.0% External funding required Oper. Exp./sales 10.0% Sustainable growth rate Dividend payout ratio 60.0% Tax rate 35.0% Interest rate on debt Total debt/equity 8.0% 50.0% $ ma financial statements to answer the questions below. Change the assumptions in the assumptions box as needed to answer the questions. In addition to the assumptions listed on the spreadsheet, als la for external funding required in the first green box. How much external financing does Ocean need in 2014? (5 points) nswer from (a), do you expect the sustainable growth rate to be greater than, less than, or equal to the sales growth rate for 2014? Enter a formula for the sustainable growth rate in the second green bo does the actual sales growth rate equal the sustainable growth rate? How much external financing is required at this growth rate? (This can be determined by trial and error.) (5 points) es growth rate to 18%. Suppose Ottawa wants to solve the financing shortfall by increasing profit margin. How low would the ratio of COGS/Sales have to go in order to make up the shortfall? Wit S/Sales to 80%. Now suppose Ocean wants to solve the shortfall by increasing the retention ratio. How low would the dividend payout ratio have to be in order to eliminate the financing shortfall? (5 idend payout ratio to 60%. Now suppose Ocean wants to make up any financing shortfall with increased debt. How high would the debt/equity ratio have to be to make up the difference? (5 points) preadsheet, also assume that all asset accounts will grow at the same rate as sales, and that no new equity will be issued in 2014. econd green box. What is Ocean's sustainable growth rate? (5 points) shortfall? With COGS/Sales at this lower level, what is the sustainable growth rate? (Hint: The Goal Seek tool can help you find this quickly. Consult Excel Help if you are unfamiliar with the Goa ng shortfall? (5 points) ce? (5 points) r with the Goal Seek tool.) (5 points) Question 3 (30 points) Answer the following questions a. What were the firm's liabilities-to-assets ratios and times-interest-earned ratios in the years 2005 through 2009? (5 points) b. What percentage decline in EBIT could the firm have suffered each year between 2005 and 2009 before the company would have been unable to make interest payments out of operating earnings, where operating earnings is defined as EBIT? (5 points) c. How volatile have the firm's EBIT been over the period 2005 - 2009? (suggestion: Compute the % change in EBIT over each year) (5 points) d. Calculate the firm's return on invested capital (ROIC) in the years 2005 - 2009. (5 points) e. In late 2010 the firm announced an intended dividend recapitalization in which it would pay a $2 billion dividend to shareholders financed in large part by a $1.53 billion bond offering. At an interest rate of 6 percent, how would the added debt have affected the firm's times-interest-earned ratio in 2009? (5 points) f. Please comment on the firm's capital structure. Is its 2009 debt level prudent? Is it smart to add another $1.53 billion to this total? Why, or why not? (5 points) XYZ Inc. Sales Cost of Goods Sold Gross Profit Depreciation Operating Profit Interest Expense Non-Operating Income/Expense Pretax Income Total Income Taxes Minority Interest Net Income ASSETS Cash & Equivalents Net Receivables Inventories Other Current Assets Total Current Assets Gross Plant, Property & Equipment Accumulated Depreciation Net Plant, Property & Equipment Investments at Equity Other Investments Intangibles Deferred Charges Other Assets TOTAL ASSETS LIABILITIES Long Term Debt Due In One Year Accounts Payable Taxes Payable Accrued Expenses Total Current Liabilities Long Term Debt Deferred Taxes Minority Interest Other Liabilities TOTAL LIABILITIES Preferred Stock Common Stock Capital Surplus Retained Earnings Common Equity TOTAL EQUITY TOTAL LIABILITIES & EQUITY Dec09 $ 30,052 24,826 5,226 1,425 3,801 1,987 188 2,002 627 321 $ 1,054 Dec09 $ 312 3,692 802 1,771 6,577 24,669 13,242 11,427 853 1,166 2,577 418 1,113 24,131 $ ANNUAL INCOME STATEMENT ($ MILLIONS, EXCEPT PER SHARE) Dec08 Dec07 Dec06 Dec05 $ 28,374 $ 26,858 $ 25,477 $ 24,455 24,023 22,480 21,448 20,391 4,351 4,378 4,029 4,064 1,416 1,426 1,391 1,374 2,935 2,952 2,638 2,690 2,021 2,215 955 655 256 661 179 412 1,170 1,398 1,862 2,327 268 316 625 725 229 208 201 178 $ 673 $ 874 $ 1,036 $ 1,424 ANNUAL BALANCE SHEET Dec08 Dec07 Dec06 Dec05 $ 465 $ 393 $ 634 $ 336 3,780 3,895 3,705 3,332 737 710 669 616 1,319 1,207 1,070 931 6,301 6,205 6,078 5,215 23,714 22,579 21,907 20,818 12,185 11,137 10,238 9,439 11,529 11,442 11,669 11,379 842 688 679 627 1,422 1,669 1,886 2,134 2,580 2,629 2,601 2,626 458 539 614 85 1,148 853 148 159 24,280 24,025 23,675 22,225 846 1,460 2,007 4,313 24,824 1,008 2,825 32,970 147 1 226 (9,213) (8,986) (8,839) 24,131 $ 404 1,370 224 1,912 3,910 26,585 995 2,890 34,380 155 1 165 (10,421) (10,255) (10,100) 24,280 $ 308 1,370 190 1,981 3,849 27,000 938 2,612 34,399 164 1 112 (10,651) (10,538) (10,374) 24,025 $ 293 1,415 1,868 3,576 28,115 390 907 1,936 34,924 125 1 (11,375) (11,374) (11,249) 23,675 $ 586 1,484 1,825 3,895 9,889 830 828 1,920 17,362 4 4,859 4,863 4,863 22,225 Question 4 (10 points) Key facts and assumptions concerning KMG Company, at December 12, 2007, appear below. Using this information, answer the questions following. Facts and Assumptions Yield to maturity on long-term government bonds Yield to maturity on company long-term bonds Coupon rate on company long-term bonds Market price of risk, or risk premium Estimated company equity beta Stock price per share Number of shares outstanding Book value of equity Book value of interest-bearing debt Tax rate $ $ $ 3.50% 5.00% 5.50% 6.20% 2.05 27.50 700.0 million 5,500 million 7,200 million 40.0% a. Estimate KMG's cost of equity capital. (5 points) b. Estimate KMG's weighted-average cost of capital. Prepare a spreadsheet or table showing the relevant variables. (5 points)