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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

Market Analysis

2020

2021

2022

2023

Market Size

5,000,000

5,400,000

5,832,000

6,298,560

Market Share

9.00%

9.00%

9.00%

9.00%

Production Volume

450,000

486,000

524,880

566,870

Average Sales Price:

$100.00

$108.00

$116.64

$125.97

Sales

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

Debt and Interest Table

2020

2021

2022

Outstanding Debt

1,000,000

New Net Borrowing

Interest on Debt

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

Fixed Assets & Capital Investment

2020

2021

2022

Opening Book Value

3,000,000

2,921,100

Capital Investment

210,000

3,210,000

420,000

Depreciation

(288,900)

(551,799)

(539,937)

Closing Book Value

2,921,100

The following table contains Company Ys income statement for 2020.

TABLE: Income Statement

Income Statement:

2020

2021

Sales

45,000,000

Costs except Depr.

-13,500,000

EBITDA

31,500,000

Depreciation

-288,900

EBIT

31,211,100

Interest Expense (net)

-50,000

Pretax Income

31,161,100

Income Tax

-10,906,385

Net Income

20,254,715

The following table contains Company Ys balance sheet for 2020.

TABLE: Balance Sheet

Balance Sheet

2020

2021

Assets

Cash and Equivalents

13,500,000

Accounts Receivable

9,000,000

Inventories

6,750,000

Total Current Assets

29,250,000

Property Plant and Equipment

2,921,100

Total Assets

32,171,100

Liabilities and Equity

Accounts Payable

12,600,000

Total Current Liabilities

12,600,000

Debt

1,000,000

Total Liabilities

13,600,000

Stockholders' Equity

Starting Stockholders' Equity

9,500,000

Net Income

20,254,715

Dividends

-11,183,615

Stockholders' Equity

18,571,100

Total Liabilities and Equity

32,171,100

What is Company Y s forecast closing book value for 2022?

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