| Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answer the following questions. 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 2020. Assume that costs except depreciation in 2020 is $13,500,000 and that income tax will remain fixed at 35% of the Pretax Income. |
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| Company Y sells a product for which in 2020 the total market size was of 5,000,000 units, of which Company Y owned a share of 9%. The total market size is expected to grow at a 8% rate. Company Ys market share is expected to remain at 9%. The price of the product is $100 in 2020 and is expected to evolve according to the values listed in the following Table. |
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| TABLE: Market Analysis | Market Analysis | 2020 | 2021 | 2022 | 2023 | | Market Size | 5,000,000 | 5,400,000 | 5,832,000 | 6,298,560 | | Market Share | 9.00% | 9.00% | 9.00% | 9.00% | | Production Volume | 450,000 | 486,000 | 524,880 | 566,870 | | Average Sales Price: | $100.00 | $108.00 | $116.64 | $125.97 | | Sales | | | | | |
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| In 2020, the outstanding debt of Company Y is $1,000,000, for which the company makes yearly interest payments of 5%. The executives of Company Y are considering making a significant capital investment in 2021 of $3,000,000 to purchase new machinery and be able to satisfy forecasted future market demand. The company plans to finance this investment with a 20-year loan that makes yearly interest payments equivalent to 5% of its principal. The principal is paid when the loan matures. |
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| The following table summarizes the debt and interest payment of Company Y. |
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| TABLE: Debt and Interest Table | Debt and Interest Table | 2020 | 2021 | 2022 | | Outstanding Debt | | 1,000,000 | | | | New Net Borrowing | | | | | | Interest on Debt | | | | | |
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| Currently, Company Y makes yearly expenditures on replacement capital investment of $210,000. If the company makes the planned expansion it is considering, then -, starting in 2022- the total yearly expenditures on replacement capital investment will be $420,000. The current and the planned expenditures on replacement of capital investment will be financed by the companys cash flow. |
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| The following table contains for 2020 Company Ys values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2021-2022 forecast values of capital depreciation if the planned expansion were to occur in 2021. |
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| TABLE: Fixed Assets & Capital Investment | | | Fixed Assets & Capital Investment | 2020 | 2021 | 2022 | | | Opening Book Value | 3,000,000 | 2,921,100 | | | | Capital Investment | 210,000 | 3,210,000 | 420,000 | | | Depreciation | (288,900) | (551,799) | (539,937) | | | Closing Book Value | 2,921,100 | | | | |
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| The following table contains Company Ys income statement for 2020. |
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| TABLE: Income Statement | Income Statement: | 2020 | 2021 | | Sales | 45,000,000 | | | Costs except Depr. | -13,500,000 | | | EBITDA | 31,500,000 | | | Depreciation | -288,900 | | | EBIT | 31,211,100 | | | Interest Expense (net) | -50,000 | | | Pretax Income | 31,161,100 | | | Income Tax | -10,906,385 | | | Net Income | 20,254,715 | | |
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| The following table contains Company Ys balance sheet for 2020. |
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| TABLE: Balance Sheet | Balance Sheet | | | | | 2020 | 2021 | | Assets | | | | Cash and Equivalents | 13,500,000 | | | Accounts Receivable | 9,000,000 | | | Inventories | 6,750,000 | | | Total Current Assets | 29,250,000 | | | Property Plant and Equipment | 2,921,100 | | | Total Assets | 32,171,100 | | | | | | | Liabilities and Equity | | | | Accounts Payable | 12,600,000 | | | Total Current Liabilities | 12,600,000 | | | Debt | 1,000,000 | | | Total Liabilities | 13,600,000 | | | Stockholders' Equity | | | | Starting Stockholders' Equity | 9,500,000 | | | Net Income | 20,254,715 | | | Dividends | -11,183,615 | | | Stockholders' Equity | 18,571,100 | | | Total Liabilities and Equity | 32,171,100 | | |
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| What is the forecast value of sales for 2022? What is the forecast value of debt interest payments for 2022? What is Company Y s forecast closing book value for 2022? What is Company Y s forecast for costs except depreciation for 2021? Note: Express as a positive value What is Company Y s forecast for net income for 2021? What is Company Y s forecast for cash and equivalents for 2021? What is Company Y s forecast for accounts receivable for 2021? What is Company Y s forecast for property, plant and equipment for 2021? 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 2021?" According to the 2021 forecasts for Company Y, is there needs for new financing or excess cash? Specify the value of new financing needed (express with a positive sign) or excess cash available (express with a negative sign). Answer in strictly numerical terms." |
