Question
Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answer the following questions. Assume that the
Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answer the following questions. Assume that the percentage values, with respect to sales, of the (i) costs except depreciation, (ii) cash and equivalents, (iii) accounts receivable, (iv) inventories, and (v) accounts payable will stay fixed at the values corresponding for 2020. Assume that costs except depreciation in 2020 is $13,500,000 and that income tax will remain fixed at 35% of the Pretax Income. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company Y sells a product for which in 2020 the total market size was of 5,000,000 units, of which Company Y owned a share of 9%. The total market size is expected to grow at a 8% rate. Company Ys market share is expected to remain at 9%. The price of the product is $100 in 2020 and is expected to evolve according to the values listed in the following Table. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TABLE: Market Analysis
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In 2020, the outstanding debt of Company Y is $1,000,000, for which the company makes yearly interest payments of 5%. The executives of Company Y are considering making a significant capital investment in 2021 of $3,000,000 to purchase new machinery and be able to satisfy forecasted future market demand. The company plans to finance this investment with a 20-year loan that makes yearly interest payments equivalent to 5% of its principal. The principal is paid when the loan matures. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The following table summarizes the debt and interest payment of Company Y. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TABLE: Debt and Interest Table
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currently, Company Y makes yearly expenditures on replacement capital investment of $210,000. If the company makes the planned expansion it is considering, then -, starting in 2022- the total yearly expenditures on replacement capital investment will be $420,000. The current and the planned expenditures on replacement of capital investment will be financed by the companys cash flow. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The following table contains for 2020 Company Ys values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2021-2022 forecast values of capital depreciation if the planned expansion were to occur in 2021. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TABLE: Fixed Assets & Capital Investment
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The following table contains Company Ys income statement for 2020. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TABLE: Income Statement
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The following table contains Company Ys balance sheet for 2020. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TABLE: Balance Sheet
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
What is Company Y s forecast closing book value for 2022? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started