"Why do things have to be so complicated?" said Bob to Andrew, as he sat at his desk muffling papers around. "I need you to come up with a convincing argument." Bob's company, ymonds Electronics, had embarked upon an expansion project, which had the potential of mcreasing the firm's market share in the electronics industry over the next five years. The project was a new distribution warehouse located in Lincoln, Nebraska. With this proposed new warehouse location, Symonds hoped to reduce its overall distribution costs. The capital needed to finance the project had been estimated at $5,000,000. However, having had no luck with getting the Board of Directors to vote on a decision, Bob decided to call on Andrew Lamb, his Chief Financial Officer, to shed some light on the matter Bob Symonds, the Chief Executive Office of Symonds Electronics, established his company about ten years ago in his hometown of Cincinnati, Ohio. After taking early retirement at age 55, Bob felt that he could really capitalize on his engineering knowledge and contacts within the industry. Bob remembered vividly how easily he had managed to get the company up and running by using $3,000,000 of his own savings and a five-year bank note worth $2,000,000. He recollected how uneasy he had felt about that debt burden and the 10% per year rate of interest that the bank had been charging him. He remembered distinctly how relieved he had been after paying off the loan one year earlier than its five-year term, and the surprised look on the bank manager's face. Business had been good over the years and sales had doubled about every four years. As sales began to escalate with the booming economy and thriving stock market, the firm had needed additional capital Initially, Bob had managed to grow the business by using internal equity and spontaneous financing sources. However, about five years ago, when the need for financing was overwhelming, Bob decided to take the company public via an initial public offering (IPO) in the Over-the-counter market. The issue was very successful and oversubscribed, mainly due to the superb publicity and marketing efforts of the investment underwriting company that Bob had hared. The company sold one million shares at 55 per share. The stock price had grown steadily over time. When the expansion proposal for the new warehouse in Lincoln Nebraska was presented at Last week's board meeting the Directors were certain about accepting the proposal Although the mement was assumed to have a positive impact on the firm, the Board requested that a Net Present Value(NPV) analyses be done on the project Bob was quite certain that the rate of return on the project would out-perform the company's Weighted Average Cost of Capital (WACC) o rderte Feelg rather frustrated with the de Bob decided to call upon lus Chief Financial Officer (CFO), Andrew Lamb to resolve this dilemma. Andrew had joined the company about two years ago. Andrew was a recent college graduate and had graduated with honors with a degree in Finance. Bob first provided Andrew with the information about the $5,000,000 cost of the proposed warehouse in Lincoln. He then also gave Andrew estimates of the cash flows that the project would provide over the coming 10 years, as follows: Year Cash Flow 1 S298,000 2 860,000 3 992,000 4 1,401 000 5 1.900.000 6 924,000 7 733,000 8 400.000 9 250,000 10 220.000 *Cash flows are assumed to occur on December 31 of each year, Andrew noted that the project cash flows were estimated to increase steadily in Years 1-5 peaking in Year 5 at $1,900,000. The project cash flows then declined each year thereafter to a low of $220,000 in Year 10. Bob noted that competition in the electronics industry in the Midwestern United States was expected to increase from Year Sonard. This accounted for the expected decline in the project's cash flows Bob also provided Andrew with the latest information about the firm's "Weighted Average Cost of Capital (WACC): 7.0 . This WACC value was expected remain constant at 70 throughout the warehouse project's estimated 10-year life Andrew knew that he was in for a challenging task. He felt, however, that this was a good Opportunity to prove his worth to the company. In preparation for his presentation, he got the latest balance sheet and income statement of the firm (See Tables 1 and 2 below) and started crunching his numbers. An important first step for his NPV analysis was to determine how well Symonds Electronics was currently performing the industry average values for some of the Key Andwond industry a r e for the electrons industry, as follows: Bento ROEROE Symonds Electronics, Inc. Balance Sheet as of December 31, 2019 1,000,000 3,000,000 4,000,000 8.000.000 12,000 000 20,000,000 Accounts Payable Accruals Current Liabilities 3,000,000 2,000,000 5.000.000 Accounts Receivables Inventories Current Assets Net Fred Assets Total Assets Paid In Capital Retained Earnings Total Owner's Equity Total abilities & Owner's Equity 5,000,000 10,000,000 15.000.000 Table 2 Symonds Electronics, Inc. Income Statement for the Year Ended December 31, 2019 Cost of Goods Sold GoPro Seling and Adminis 15,000 000 10 500.000 750 000 Depreciation Expense Ein Defore west Tacs Tes40% Onthos 1) How well is Symonds Electronics Currently doing in 2019, based on three kes profitability ratios of the firm "Protit Margin."Return On Assets and Renu Oo Egy How do the ratios compare to the industry average values for the electronics industry in the formulas for these three profitability ratios are found in the Help Homework Hosts file for this case study. The Helpful Homework Hunts file is posted to the Content lik e course Website 2) Calculate the firm's "Debt Ratio" and "Current Ratio" on the firm's 2019 financial statements. How do these ratios compare to the industry average values in terms of solvency and liquidity? Please describe. **Hint: The formulas for these two ratios are found in the "Helpful Homework Hints" file for this case study 3) Calculate the "Net Present Value (NPV) of the Lincoln, Nebraska warehouse project using the cost information, projected cash flows for Years 1-10, and the 7.0% "Weighted Average Cost of Capital (WACC) provided in the case study above. a. Now assume, as a precaution prior to presenting this analysis to the Board of Directors, Bob and Andrew decide to also complete the NPV analysis using a more pessimistic 10.0% WACC value. The electronics industry is quite competitive and the higher WACC might apply, given this industry risk factor. What is the NPV of this project using the 10% WACC? 4) Based on your analysis, would you recommend that Symonds Electronics proceed with the Lincoln, Nebraska warehouse project? Why or why not