Ventura Inc. is a company specialised in producing outdoor clothing geared for all$-$seasons weather and most of the outdoor activities. The company was formed in $2009,$ and its products have gradually gained popularity and trust as being a durable, high$-$quality and high$-$ taste clothing. It was able to considerably grow its market share over the past decade on the expense of its competitors. John Porter, the Finance Director of Ventura Inc. needs to accomplish five tasks and presents his recommendations to the board of directors during the upcoming board meeting in two$-$week time.

The marketing department is recommending this project as they expect the new technology will have a considerable positive impact on their products$$ demand and accordingly on sales. The marketing team has undergone a market$-$research last year that costed the company $$75,000$ in order to verify the potential prospects of this project. The operations department has also confirmed that there will be some improvements in efficiencies. Both departments have provided John with the necessary data to examine the financial feasibility of the project. The new production line will cost $$8$M and is expected to have a salvage value in $6$ years for $$1$M$.$ The existing production line was bought $2$ years ago for $$3$M$,$ and can be sold today at a market value of $$900$K$.$ If not sold now, this old machinery is expected to have a salvage value of $$200$K in $6$ years. The new production line is expected to generate sales in year $1$ for $$6$M and thereafter sales are forecasted to grow by $4\%$ a year for the coming $6$ years. This is as opposed to the current production line which was expected to generate $$3\mathrm{.}5$M of sales next year and grows by $2\%$ for the coming $6$ years. Manufacturing costs are the same under both production lines. The new production line requires an initial investment in working capital of $$450$k$.$ Thereafter, working capital is forecasted to grow at the same growth rate of revenues of $4\%.$ CCA rate is $20\%.$

The second task is to prepare the proforma financial statements for the year $2024$ and determine the External Financing Needed $($EFN$).$ The percentage of sales method would be used, and two scenarios need to be analysed:

$1$st scenario: the company will go ahead with the replacement of the old production, and accordingly the assumptions regarding the change in sales as well as the Property Plant and Equipment $($PPE$)$ would reflect this replacement decision $($that is$,$ the increase in sales would be equal to the change in sales because of the new production line, and the increase in PPE would also reflect the change in PPE associated with this replacement$).$ Also, the initial increase in working capital would be reflected in the inventory account $($so that the inventory will grow by the same growth rate of sale in addition to an amount equal to the initial increase in working capital required for the replacement project$).$

$2$nd scenario: the company will not go ahead with the replacement of the old production line. And in that case, it will be assumed that the sales growth rate would be equal to the maximum growth rate a firm can achieve with no external equity while it maintains the current debt$-$equity ratio. And considering that the company is operating at a full capacity.

In both scenarios, the $$External Financing Needed$($EFN$)$ calculated will be added to the Long$-$ Term Debt, and necessary adjustments will be done to make the balance sheet balances.

And if there is a surplus instead, it will be added to the cash balance.

The third task is to analyse the impact of the first scenario $($in task $2)$ on the firm$$s capital structure. John needs to check if the projected percentage of debt $($total liabilities $/$ total assets$)$ in the $2024$ proforma financial statement is still within the company$$s maximum threshold of $55\%$ that has been accepted by the board of directors. If the percentage of debt exceeded this maximum threshold, then John would need to suggest a different scenario for covering the financing gap $($EFN$)$ without violating this maximum threshold, and submit another proforma financial statement reflecting this suggestion.

In the third task,

$$ Calculate the percentage of debt under the first scenario in task $2($total liabilities $/$ total assets$)$ and determine if it exceeds $55\%.$

$$ If it exceeds $55\%,$ make a different suggestion for covering the EFN so that to abide by the maximum $$percentage of debt$$ threshold of $55\%,$ and prepare a revised proforma financial statement showing this suggestion.

However, if the percentage of debt is within the $55\%$ threshold, then you do not need to make any different suggestion $($i$.$e$.$ do not solve for $($b$))$