Wilfred Kirkland, the CEO, founded Kirkland Industries thirty years ago, opening his first location just blocks from his childhood home in Weslaco. He believes its time for him to retire and leave the day-to-day operations to a younger person with energy and vision to take the company into the next few years. Despite his desire to leave the CEO position, he will stay on as Chairman of the board of directors and he forecasts that the market is perfect for significant expansion. Afterall, according to his wife, we havent taken a real vacation in years and she would love to travel and explore distant parts of the globe while theyre in good health. She knows that her husband will never leave the company for an extended period if he remains as CEO.

Mr. Kirklands two children have no desire to run the company. His daughter, Maribel, has her eyes fixed on being a fashion model / social media influencer and spends all her time, and much of his money, hob-knobbing with her party friends. His son, Jonathan, is laser-focused on pursuing a medical career and is only one year away from completing his MD degree at UTRGV Medical School and wants to go directly to New York to do his residency. Upon completion, he hopes to set up practice in the Rio Grande Valley, primarily because his fiance is from the Valley and would love to remain close to her parents. Despite many conversations between father and son, Jonathan cannot be convinced to change course. Jonathans only connection to the firm is the 50,000 shares he was given as a gift for getting accepted to medical school when the shares were worth $5.75 per share.

After careful thought, Wilfred decided to recruit a new CEO. Conventional wisdom dictates that he should hire a seasoned veteran for the job, but his instincts told him that a new MBA graduate would be best as s/he would be hungry to succeed and would be willing to look at things from a new perspective. His instincts have served him well over the years so he decided to advertise the position to new MBA graduates across the country but would prefer someone from UTRGV as graduates are already familiar with the unique Valley culture. Mr. Kirkland decided that the best person would be the individual who could thoroughly evaluate the firms performance and provide sound recommendations for the firms future expansion. Youre convinced that you have the skills, drive, and tenacity to do a great job, so you decided to apply for the job and was given financial information on the company. You were also told that you could get any additional information directly from the company.

In planning its operations for the next year, Kirkland Industries wants to open three more locations and expects overall revenues to grow by 30%. The firm had purchased land in Edinburg, Rio Grande City, Brownsville, Pharr, and Zapata in anticipation of future expansion. So far, the firm is in receipt of one project analysis that indicates that a Pharr location would bring in sales of $2.7 million monthly while reducing $50,000 in sales from the McAllen location monthly. The new installation in Pharr would cost $5.5 million to construct and would need $250,000 in working capital.

In your review of the financial information, you discovered that the firm has two sets of bonds outstanding; a 25-year zero-coupon bond that was issued 10 years ago and a traditional corporate bond with a $10,000 face value issued five years ago that pays $131.25 coupons quarterly. The stock price had fluctuated from a high of $32.50 pre-pandemic to a pandemic low of $22.75 but

had recently rebounded to $29.85. The CEO is also thinking about issuing new stocks but is wary of the 2.5% floatation costs, given that market rates are now 7% and set to go even higher as the Federal Reserve increases interest rates. He also pondered whether he should keep paying an increasing annual dividend given the annual dividend was $5 per share in 2020.

Finally, you were given the following data by Mr. Kirkland to aid in your analysis:

Financial data for 2020 (All numbers in millions of Dollars)

Notes payable $50 Total Assets $570 Sales $350 Projected Sales growth rate 30% Accounts payable $40 Cash $2 Profit margin 5% Accruals $30 Target payout ratio 60% Book value of Equity $250 Retained earnings $25

Construct a forma income statement and balance sheet for 2021?

What is the AFN for 2021?

If you recommend issuing new stocks to cover the AFNhow many shares would you need to sell if you offered them at a price of $27?

What is the NPV of the Pharr project?

Conduct a Dupont analysis of the firm and indicate what area of operations most in need of improvement?