QUESTION 1
| Income Statement, 2016 | Balance Sheet, 2016 | |||
| Sales | 5,000,000 | Assets | ||
| Costs except Depr. | -3,500,000 | Cash and Equivalents | 1,096,000 | |
| EBITDA | 1,500,000 | Accounts Receivable | 960,000 | |
| Depreciation | -10,900 | Inventories | 90,000 | |
| EBIT | 1,489,100 | Total Current Assets | 2,146,000 | |
| Interest Expense (net) | -100,500 | Property Plant & Equipment | 2,190,000 | |
| Pretax Income | 1,388,600 | Total Assets | 4,336,000 | |
| Income Tax | -486,010 | Liabilities &Equity | ||
| Net Income | 902,590 | Accounts Payable | 900,000 | |
| Debt | 950,000 | |||
| Total Liabilities | 1,850,000 | |||
| Stockholders’ Equity | 2,486,000 | |||
| Total Liabilities and Equity | 4,336,000 | |||
Sales in 2017 are expected to grow at a rate of 9% with respect to the values of 2016. Assume the company pays out 55% of its net income.
10 points
QUESTION 2
10 points
QUESTION 3
Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers question (3) and (4). To do this 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 2016.
Assume also that income tax will remain at 35% of the Pretax Income.
Consider Company Y. This firm sells a product for which in 2016 the total market size was of 1999000 units, of which Company Y owned a share of 30%.
Both, the total market size and Company Y’s market share are expected to grow at a 4% yearly rate for the next five years.
The price of the product is $114 in 2016 and is expected to remain at that price for the next years.
| Market Analysis | 2016 | 2017 | 2018 | 2019 |
| Market Size | 1,999,000 | 2,078,960 | 2,162,118 | 2,248,603 |
| Market Share | 30% | 31% | 32% | 34% |
| Production Volume | 599,700 | |||
| Sales Price: | $ 114.00 | |||
| Sales |
In 2016, the outstanding debt of Company Y is $900000, for which the company makes yearly interest payments of 11%. The executives of Company Y are considering making a significant capital investment in 2017 of $2900000 to purchase new machinery. The company plans to finance this investment with a 30-year loan that makes yearly interest payments equivalent to 8% of its principal. The principal is paid when the loan matures.
The following table summarizes the debt and interest payment of Company Y.
| Debt and Interest Table | 2016 | 2017 | 2018 | |
| Outstanding Debt | 900,000 | 900,000 | 3,800,000 | |
| New Net Borrowing | 2,900,000 | |||
| Interest on Debt | ||||
Currently, Company Y makes yearly expenditures on replacement capital investment of $90000. If the company makes the planned expansion it is decided the company will perform yearly expenditures on replacement capital investment of $325000. The current and the planned expenditures on replacement of capital investment will be financed by the company’s cash flow.
The following table indicates for 2016 Company Y’s values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2017-2018 forecast values of capital depreciation if the planned expansion were to occur in 2017.
| Fixed Assets & Capital Investment | 2016 | 2017 | 2018 |
| Opening Book Value | 1,500,000 | ||
| Capital Investment | 90,000 | ||
| Depreciation | -127,200 | -356,224 | -353,726 |
| Closing Book Value | 1,462,800 |
The following table contains Company Y’s income statement.
| Income Statement: | 2016 | 2017 |
| Sales | 68,365,800 | |
| Costs except Depr. | -5,469,264 | |
| EBITDA | 62,896,536 | |
| Depreciation | -127,200 | |
| EBIT | 62,769,336 | |
| Interest Expense (net) | -99,000 | |
| Pretax Income | 62,670,336 | |
| Income Tax | -21,934,618 | |
| Net Income | 40,735,718 |
The following table contains Company Y’s balance sheet.
| Balance Sheet | 2016 | 2017 |
| Assets | ||
| Cash and Equivalents | 23,928,030 | |
| Accounts Receivable | 23,928,030 | |
| Inventories | 10,254,870 | |
| Total Current Assets | 58,110,930 | |
| Property Plant and Equipment | 1,462,800 | |
| Total Assets | 59,573,730 | |
| Liabilities and Equity | ||
| Accounts Payable | 23,928,030 | |
| Total Current Liabilities | 23,928,030 | |
| Debt | 900,000 | |
| Total Liabilities | 24,828,030 | |
| Stockholders’ Equity | ||
| Starting Stockholders’ Equity | 8,000,000 | |
| Net Income | 40,735,718 | |
| Dividends | -13,990,018 | |
| Stockholders’ Equity | 34,745,700 | |
| Total Liabilities & Equity | 59,573,730 |
“3. Before making any adjustments to balance Total Assets with Total Liabilities and Equity, what is Company Y s forecast value of Total Liabilities and Equity for 2017?”
10 points
QUESTION 4
