You are responsible for determining the future financing requirements for Premier Paper Company. The firm?s financial statements are posted on Isidore as Case II Financials.

Complete a DuPont analysis for each of the three years and identify any issues/concerns.

The firm has experienced rapid sales growth over the past several years. However, with increased competition, sales growth is expected to slow. At the end of 2015, Premier took out a new long-term loan in the amount of $9,000,000. Proceeds from this new loan were used principally to retire the existing long-term debt, although some was used to fund asset purchases. The new loan carries an annual interest rate of 9 percent (consistent with the rate on the short-term notes payable), and must be repaid in four equal annual installments beginning at the end of 2016. Premier Paper?s management has provided the forecast assumptions below. Using these assumptions, create pro forma income statements and balance sheets for each of the next four years (2016-2019). Based on this analysis, are you concerned about Premier Paper?s ability to repay?

		2016	2017	2018	2019
	Sales growth rate (%)	20	20	15	15
	Gross margin (%)	37	37	38	38
	SG&A (% of sales)	19	19	18	18
	Depreciation (% of sales)	6	6	5	5
	Cap. Exp. (% of sales)	10	8	6	6
	Inventory Turns	6.0	6.0	6.5	6.5
	DSO	22	22	20	20
	DPO	10	10	12	12
	Accruals (% of sales)	1	1	1	1
	Cash (% of sales)	3	3	2	2
	Dividends (% of net income)	25	25	25	25

As an experienced loan officer, you know that firms can be overly optimistic in their forecast assumptions. Taking into account the firm?s historical performance, do you believe the projections Premier Paper has provided are reasonable? Why or why not? How would this assessment affect your confidence in the loan repayment?

The DuPont analysis and the pro formas may be completed in Excel. Your written responses (questions 1 & 3) combined should not exceed three pages. Please use 12-point text, double-spacing and 1-inch margins.

Cases may be completed in groups no larger than three. Each case must represent the work of the individual or individual group. No sharing of spreadsheets is allowed. I will be available to answer questions about the assignment.

MBA 796 Case II Due: Friday, November 18th by 3:00 pm (may be submitted electronically via e-mail) You are responsible for determining the future financing requirements for Premier Paper Company. The firm's financial statements are posted on Isidore as Case II Financials. 1) Complete a DuPont analysis for each of the three years and identify any issues/concerns. 2) The firm has experienced rapid sales growth over the past several years. However, with increased competition, sales growth is expected to slow. At the end of 2015, Premier took out a new long-term loan in the amount of $9,000,000. Proceeds from this new loan were used principally to retire the existing long-term debt, although some was used to fund asset purchases. The new loan carries an annual interest rate of 9 percent (consistent with the rate on the short-term notes payable), and must be repaid in four equal annual installments beginning at the end of 2016. Premier Paper's management has provided the forecast assumptions below. Using these assumptions, create pro forma income statements and balance sheets for each of the next four years (2016-2019). Based on this analysis, are you concerned about Premier Paper's ability to repay? Sales growth rate (%) Gross margin (%) SG&A (% of sales) Depreciation (% of sales) Cap. Exp. (% of sales) Inventory Turns DSO DPO Accruals (% of sales) Cash (% of sales) Dividends (% of net income) 2016 20 37 19 6 10 6.0 22 10 1 3 25 2017 20 37 19 6 8 6.0 22 10 1 3 25 2018 15 38 18 5 6 6.5 20 12 1 2 25 2019 15 38 18 5 6 6.5 20 12 1 2 25 3) As an experienced loan officer, you know that firms can be overly optimistic in their forecast assumptions. Taking into account the firm's historical performance, do you believe the projections Premier Paper has provided are reasonable? Why or why not? How would this assessment affect your confidence in the loan repayment? The DuPont analysis and the pro formas may be completed in Excel. Your written responses (questions 1 & 3) combined should not exceed three pages. Please use 12-point text, doublespacing and 1-inch margins. Cases may be completed in groups no larger than three. Each case must represent the work of the individual or individual group. No sharing of spreadsheets is allowed. I will be available to answer questions about the assignment. Premier Paper Income Statements 2013 Net Sales Cost of Goods Sold Gross profit SG&A Depreciation EBIT Interest Expense Earnings before taxes Taxes (40%) Net income $28,255,000 16,741,100 11,513,900 5,580,350 2,775,000 3,158,550 325,000 2,833,550 1,133,420 $ 1,700,130 2014 2015 $37,340,000 24,084,300 13,255,700 8,028,100 2,915,000 2,312,600 512,000 1,800,600 720,240 $ 1,080,360 $54,670,000 35,672,175 18,997,825 11,890,725 3,513,000 3,594,100 623,000 2,971,100 1,188,440 $ 1,782,660 Premier Paper Balance Sheets 2013 Assets Cash Accounts receivable Inventories Current assets Gross fixed assets Accumulated depreciation Net fixed assets Total assets Liabilities & Shareholders' Equity Accounts payable Accruals Notes payable Current liabilities Long-term debt Common stock Retained earnings Total liabilities & shareholders' equity 2014 2015 $ 856,000 $ 968,000 $ 1,225,000 2,225,000 2,525,000 3,758,000 3,850,000 4,950,000 6,013,000 6,931,000 8,443,000 10,996,000 18,875,000 22,491,000 28,996,000 (5,000,000) (7,915,000) (11,428,000) 13,875,000 14,576,000 17,568,000 $ 20,806,000 $ 23,019,000 $28,564,000 $ 425,000 495,000 150,000 1,070,000 5,250,000 11,800,000 2,686,000 $ 20,806,000 $ 478,000 567,000 180,000 1,225,000 6,714,140 11,450,000 3,629,860 $ 23,019,000 $ 518,000 694,000 160,980 1,372,980 9,000,000 12,950,000 5,241,020 $28,564,000