This task assesses the following learning outcomes:
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Critically understand the differences between the Income Statement and the Balance sheet and its calculation
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Knowing how to calculate and journalize depreciation, long term debt bonds issuing and equity composition
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Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer. BUSINESS CASE (100 points) Ride & Co. is a successful moto sharing company that operates in 20 cities of Spain, Italy and France. Its business model consists in the acquisition of motorcycles from 2 main manufacturing suppliers (one in China and the other in Poland) and the deployment of them in several cities under a rental per-minute scheme. Users download the app and once being approved can start riding the bikes within the city limited area. The business has grown very fast under the "do not own but share" vehicles new atmosphere as well as the fact that all the fleet is electric, and therefore users not only save money by renting rather than owning but also feel they are contributing to reduce the Co2 emissions. Recently, the shareholders of the company have decided to start operations in new markets, specifically in Greece and Portugal, as good weather conditions are a key fact for being able to operate the business all year long. The plan sets the deployment of 1.000 bikes in Lisbon, Porto, Athens and Salonika by January 2021. The project will initially require 3.000.000 in order to acquire 1.000 bikes at a 3.000 price each, and that investment will be financed equally with a bond issuing (50% of the capital needed) and by the shareholders through a capital increase (50% remaining). The business plan assumptions are as follow: Business plan metrics PORTO 250 PORTUGAL LISBON 300 6 15 0,35 5,25 5 5 Number bikes Average nof daily rides per bike Average minutes per ride Price per minute Average revenue per ride Average kms per minute Average kms per ride GREECE ATHENS SALONIKA 300 150 6 10 0,30 0,25 3,60 2,50 0,5 0,5 6,0 5,0 12 0,30 3,60 0,5 6,0 0,5 7,5 The revenues per city must be calculated according to the metrics above, considering the number of bikes per city, the average daily rides per bike, the average minutes per ride and the price per minute that the user will pay. Consider 365 days per year. Also, in order to calculate the revenues, consider that in a yearly average the 10% of the bikes will not be available due to maintenance or technical issues, and therefore will not generate revenues. In relation to the costs, the following ones must be taken into consideration: A yearly fixed operational cost equivalent to the 5% of the price of acquisition per bike (for the 100% of the fleet) A yearly variable operational cost of 0,20 per kilometer ridden per bike The operations will require 1 employee every 25 bikes. The average yearly cost of the operational employees is estimated in 28.000 in Portugal while 25.000 in Greece. The Administration & Commercial estimated labor costs are 100.000 in the country capitals (Lisbon & Athens) while 50.000 in the other 2 cities. The Admin&Cial costs, including publicity & marketing campaigns, accounting, human resources, travelling expenses, office rentals and others, are estimated in the 10% of the revenues Regarding the depreciation of the main asset (bikes), their estimated useful live is contemplated in 30.000 kilometers per bike and its salvage value zero. Therefore, the yearly depreciation must be calculated according the number of kilometers ridden (hint: use the units per activity method). The income tax rate in both countries is estimated under a 30%. Below you will find the Net Income scheme to be followed: PORTUGAL LISBON PORTO GREECE ATHENS SALONIKA Gross Revenue Deductions (bikes in maintenance) Net Revenue Operational cost (fixed) Operational cost (variable) Operational labor cost (variable) Opeartional Income Admin & Cial costs (labor) Admin & Cial costs (other) EBITDA Depreciation EBIT Interest expenses EBT Taxes NET INCOME Regarding the finance of the project, as said above, it will be done as follows: Issuance of 15.000 bonds at 100 of face value and 10-year maturity at a 5% coupon rate paid annually (first interest payment to be done on the 31/12/21). Bonds to be issued and cashed on the 1 January 2021. Increase of capital of 500.000 shares of 3 par value of exclusively preferred stock with a 50% cumulative dividend pay-out commitment only if the company reaches a 8% Net Income over Gross revenue ratio (thus, half of the Net Income of the fiscal year 2021 would be distributed in January 2022). In case the company do not reach the 8% profitability ratio the 50% pay-out dividend would be accumulated to the 2022 exercise and therefore payed at the beginning of 2023 along with the 2022 yearly dividend. Capital increase done and disbursed on the 1" January 2021 in order to acquire the bikes. Once the bonds emission and the capital increase have been cashed (1st January 2021), the company immediately while acquire the 1.000 bikes that will be paid 50% upfront and 50% in 90 days. The company does not have inventory nor other fixed assets besides the motorcycles. Consider that all expenses are paid at the end of every month while all the revenues are cashed upfront through credit card. 1. Please elaborate the 2021 yearly (not monthly) Income statement (per city and total, as shown in the chart above) and the 31/12/21 and 01/01/22 total Balance Sheet (not necessary the B/S per city). Show your calculations including the formulas and comment the assumptions if any (60 points: 40pts I.S. and 20pts B/S) 2. Journalize the following book entries: yearly depreciation, capital increase and disbursement, bonds issuance and coupon rate first interest payment. Also calculate the dividend that should be distributed if any, and in that case show the book entry that should be journalized and when should it be accrued. Show your calculations including the formulas and comment the assumptions if any (40 points: 10 points per concept correct entry) Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer. BUSINESS CASE (100 points) Ride & Co. is a successful moto sharing company that operates in 20 cities of Spain, Italy and France. Its business model consists in the acquisition of motorcycles from 2 main manufacturing suppliers (one in China and the other in Poland) and the deployment of them in several cities under a rental per-minute scheme. Users download the app and once being approved can start riding the bikes within the city limited area. The business has grown very fast under the "do not own but share" vehicles new atmosphere as well as the fact that all the fleet is electric, and therefore users not only save money by renting rather than owning but also feel they are contributing to reduce the Co2 emissions. Recently, the shareholders of the company have decided to start operations in new markets, specifically in Greece and Portugal, as good weather conditions are a key fact for being able to operate the business all year long. The plan sets the deployment of 1.000 bikes in Lisbon, Porto, Athens and Salonika by January 2021. The project will initially require 3.000.000 in order to acquire 1.000 bikes at a 3.000 price each, and that investment will be financed equally with a bond issuing (50% of the capital needed) and by the shareholders through a capital increase (50% remaining). The business plan assumptions are as follow: Business plan metrics PORTO 250 PORTUGAL LISBON 300 6 15 0,35 5,25 5 5 Number bikes Average nof daily rides per bike Average minutes per ride Price per minute Average revenue per ride Average kms per minute Average kms per ride GREECE ATHENS SALONIKA 300 150 6 10 0,30 0,25 3,60 2,50 0,5 0,5 6,0 5,0 12 0,30 3,60 0,5 6,0 0,5 7,5 The revenues per city must be calculated according to the metrics above, considering the number of bikes per city, the average daily rides per bike, the average minutes per ride and the price per minute that the user will pay. Consider 365 days per year. Also, in order to calculate the revenues, consider that in a yearly average the 10% of the bikes will not be available due to maintenance or technical issues, and therefore will not generate revenues. In relation to the costs, the following ones must be taken into consideration: A yearly fixed operational cost equivalent to the 5% of the price of acquisition per bike (for the 100% of the fleet) A yearly variable operational cost of 0,20 per kilometer ridden per bike The operations will require 1 employee every 25 bikes. The average yearly cost of the operational employees is estimated in 28.000 in Portugal while 25.000 in Greece. The Administration & Commercial estimated labor costs are 100.000 in the country capitals (Lisbon & Athens) while 50.000 in the other 2 cities. The Admin&Cial costs, including publicity & marketing campaigns, accounting, human resources, travelling expenses, office rentals and others, are estimated in the 10% of the revenues Regarding the depreciation of the main asset (bikes), their estimated useful live is contemplated in 30.000 kilometers per bike and its salvage value zero. Therefore, the yearly depreciation must be calculated according the number of kilometers ridden (hint: use the units per activity method). The income tax rate in both countries is estimated under a 30%. Below you will find the Net Income scheme to be followed: PORTUGAL LISBON PORTO GREECE ATHENS SALONIKA Gross Revenue Deductions (bikes in maintenance) Net Revenue Operational cost (fixed) Operational cost (variable) Operational labor cost (variable) Opeartional Income Admin & Cial costs (labor) Admin & Cial costs (other) EBITDA Depreciation EBIT Interest expenses EBT Taxes NET INCOME Regarding the finance of the project, as said above, it will be done as follows: Issuance of 15.000 bonds at 100 of face value and 10-year maturity at a 5% coupon rate paid annually (first interest payment to be done on the 31/12/21). Bonds to be issued and cashed on the 1 January 2021. Increase of capital of 500.000 shares of 3 par value of exclusively preferred stock with a 50% cumulative dividend pay-out commitment only if the company reaches a 8% Net Income over Gross revenue ratio (thus, half of the Net Income of the fiscal year 2021 would be distributed in January 2022). In case the company do not reach the 8% profitability ratio the 50% pay-out dividend would be accumulated to the 2022 exercise and therefore payed at the beginning of 2023 along with the 2022 yearly dividend. Capital increase done and disbursed on the 1" January 2021 in order to acquire the bikes. Once the bonds emission and the capital increase have been cashed (1st January 2021), the company immediately while acquire the 1.000 bikes that will be paid 50% upfront and 50% in 90 days. The company does not have inventory nor other fixed assets besides the motorcycles. Consider that all expenses are paid at the end of every month while all the revenues are cashed upfront through credit card. 1. Please elaborate the 2021 yearly (not monthly) Income statement (per city and total, as shown in the chart above) and the 31/12/21 and 01/01/22 total Balance Sheet (not necessary the B/S per city). Show your calculations including the formulas and comment the assumptions if any (60 points: 40pts I.S. and 20pts B/S) 2. Journalize the following book entries: yearly depreciation, capital increase and disbursement, bonds issuance and coupon rate first interest payment. Also calculate the dividend that should be distributed if any, and in that case show the book entry that should be journalized and when should it be accrued. Show your calculations including the formulas and comment the assumptions if any (40 points: 10 points per concept correct entry)
