Long-term plans Table 29.18 shows the 2019 financial statements for the Executive Cheese Company. Annual depreciation is 10% of fixed assets at the beginning of the year, plus 10% of new investment. The company plans to invest a further $200,000 per year in fixed assets for the next five years and net working capital is expected to remain a constant proportion of fixed assets. The company
- a. Construct a model for Executive Cheese like the one in Table 29.9.
- b. Use your model to produce a set of financial statements for 2020.
TABLE 29.18 Financial statements for Executive Cheese Company, 2019 (figures in thousands)
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PRIN.OF CORPORATE FINANCE
- The firm`s manager targets to increase the current ratio in the year (2022) by 20% out of the previous year (2021), this requiring to increase the amount of the total current asset. To what level can the manager increase the total current asset to achieve this target (20%) at (2022)?arrow_forwardAssume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 – T)] will be $420 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.8%; the market value of the company's debt is $2.15 billion; and the company has 190 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate calculations. Round your…arrow_forwardCarlsbad Corporation's sales are expected to increase from $5 million in 2019 to $6 million in 2020, or by 20%. Its assets totaled $4 million at the end of 2019. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2019, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 7%, and the forecasted retention ratio is 35%. Use the AFN equation to forecast the additional funds Carlsbad will need for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar. i keeo getting it wrong, i got: can you help me walk though it with excel formulas please :) ASSETS $ 4,000,000.00 SALES IN 2019 $ 5,000,000.00 TOTAL LIBS $ 1,000,000.00 SALES IN 2020 $ 6,000,000.00 AP $ 250,000.00 VALUE OF SALES INCEASE $…arrow_forward
- Carlsbad Corporation's sales are expected to increase from $5 million in 2019 to $6 million in 2020, or by 20%. Its assets totaled $3 million at the end of 2019. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2019, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 6%. a. Assume that the company pays no dividends. Use the AFN equation to forecast the additional funds Carlsbad will need for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar. b. Why is this AFN different from the one when the company pays dividends? I. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed. II. Under this scenario the company would have a higher…arrow_forwardThe following is a four-year forecast for Torino Marine. Year Free cash flow ($ millions) a. Fair market value b. Fair market value per share 2022 -61 $ a. Estimate the fair market value of Torino Marine at the end of 2021. Assume that after 2025, earnings before interest and tax will remain constant at $200 million, depreciation will equal capital expenditures in each year, and working capital will not change. Torino Marine's weighted-average cost of capital is 15 percent and its tax rate is 30 percent. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place. 6.89 2023 82 b. Estimate the fair market value per share of Torino Marine's equity at the end of 2021 if the company has 46 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $360 million. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. 2024 99 million 2025 121arrow_forwardLONG-TERM FINANCING NEEDED At year-end 2019, total assets for Arrington Inc. were 1.8 million and accounts payable were 450,000. Sales, which in 2019 were 3.0 million, are expected to increase by 25% in 2020. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to 500,000 in 2019, and retained earnings were 475,000. Arrington plans to sell new common stock in the amount of 130,000. The firms profit margin on sates is 5%; 35% of earnings will be retained. a. What were Arringtons total liabilities in 2019? b. How much new long-term debt financing will be needed in 2020? (Hint: AFN - New stock = New long-term debt.)arrow_forward
- For the year ending December 31, 2017, sales for Company Y were $72.11 billion. Beginning January 1, 2018 Company Y plans to invest 8.5% of their sales amount each year and they expect their sales to increase by 7% each year over the next three years. Company Y invests into an account earning an APR of 2.0% compounded continuously. Assume a continuous income stream. How much money will be in the investment account on December 31, 2020? Round your answer to three decimal places. X billion dollars How much money did Company Y invest in the account between January 1, 2018 and December 31, 2020? Round your answer to three decimal places. billion dollars How much interest did Company Y earn on this investment between January 1, 2018 and December 31, 2020? Round your answer to three decimal places. If intermediate values are used, be sure to use the unrounded values to determine the answer. billion dollars TEACHER Submit Answerarrow_forwardFor the year ending December 31, 2017, sales for Company Y were $78.51 billion. Beginning January 1, 2018 Company Y plans to invest 7.5% of their sales amount each year and they expect their sales to increase by 4% each year over the next three years. Company Y invests into an account earning an APR of 2.0% compounded continuously. Assume a continuous income stream. How much money will be in the investment account on December 31, 2020? Round your answer to three decimal places. 84.762 X billion dollars How much money did Company Y invest in the account between January 1, 2018 and December 31, 2020? Round your answer to three decimal places. billion dollars How much interest did Company Y earn on this investment between January 1, 2018 and December 31, 2020? Round your answer to three decimal places. If intermediate values are used, be sure to use the unrounded values to determine the answer. billion dollars Submit Answerarrow_forwardRentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $4 million as a result of an asset expansion presently being undertaken. Fixed assets total $1 million, and the firm plans to maintain a 60% debt-to-assets ratio. Rentz's interest rate is currently 10% on both short- term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 13% of total sales, and the federal-plus-state tax rate is 40%. a. What is the expected return on equity under each current assets level? Round your answers to two decimal places. Restricted policy Moderate…arrow_forward
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