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Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers the following questions. To do this

Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers the following questions. To do this assume that the percentage values with respect to sales of the 2020 (i) costs except depreciation, (ii) cash and equivalents, (iii) accounts receivable, (iv) inventories, and (v) accounts payable will remain fixed at their respective percentage values in 2019. Assume also that income tax will remain at 30% of the Pretax Income. Company Y sells a product for which in 2019 the total market size was of 500,000 units, of which Company Y owned a share of 20%. Both, the total market size and Company Y s market share are expected to grow at a 25% yearly rate for the next five years. The price of the product is $114 in 2019 and is expected to remain at that price for the next years.

TABLE B.1

Market Analysis

2019

2020

2021

2022

Market Size

500,000

625,000

781,250

976,563

Market Share

20.000%

25.000%

31.250%

39.063%

Production Volume

100,000

Average Sales Price:

114

Sales

In 2019, the outstanding debt of Company Y is $250,000, for which the company makes yearly interest payments of 8%. The executives of Company Y are considering making a significant capital investment in 2020 of $1,000,000 to purchase new machinery. The company plans to finance this investment with a 30-year loan that makes yearly interest payments equivalent to 8% of its principal. The principal is paid when the loan matures. The following table summarizes the debt and interest payment of Company Y.

TABLE B.2

Debt and Interest Table

2019

2020

2021

Outstanding Debt

250,000

250,000

1,250,000

New Net Borrowing

1,000,000

Interest on Debt

Currently, Company Y makes yearly expenditures on replacement capital investment of $25,000. If the company makes the planned expansion, it has been decided that it will continue making replacement capital investment of $25,000 until and including 2020; and starting in 2021 it will perform yearly expenditures on replacement capital investment of $70,000. The current and the planned expenditures on replacement of capital investment will be financed by the company s cash flow. The following table indicates for 2019 Company Y s values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2020-2021 forecast values of capital depreciation if the planned expansion were to occur in 2020. Because no decision has yet been done about dividends, before making any balancing adjustments to the Balance Sheet, assume that these will be $0 in 2020.

TABLE B.3

Fixed Assets & Capital Investment

2019

2020

2021

Opening Book Value

500,000

Capital Investment

25,000

Depreciation

-26,250

-76,188

-75,878

Closing Book Value

498,750

The following table contains Company Y s income statement for 2019.

TABLE B.4

Income Statement:

2019

2020

Sales

11,400,000

Costs except Depr.

-6,840,000

EBITDA

4,560,000

Depreciation

-26,250

EBIT

4,533,750

Interest Expense (net)

-20,000

Pretax Income

4,513,750

Income Tax

-1,354,125

Net Income

3,159,625

The following table contains Company Y s balance sheet for 2019.

TABLE B.5

Balance Sheet - Assets:

2019

2020

Assets

Cash and Equivalents

5,130,000

Accounts Receivable

5,700,000

Inventories

2,280,000

Total Current Assets

13,110,000

Property, Plant and Equipment

498,750

Total Assets

13,608,750

Balance Sheet - Liabilities and Equity:

2019

2020

Liabilities

Accounts Payable

1,140,000

Total Current Liabilities

1,140,000

Debt

250,000

Total Liabilities

1,390,000

Stockholders' Equity

Starting Stockholders' Equity

1,000,000

Net Income

3,159,625

Dividends

8,059,125

Stockholders' Equity

12,218,750

Total Liabilities and Equity

13,608,750

What is the estimate for Net New Financing for 2020? Note: Make sure you use the correct positive or negative sign. Express the numerical terms of your answer completely. For example: If your answer is one million dollars, write: 1000000."

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