Four Seasons Total Landscaping is an all-equity firm that has been in existence for the past three years. Company management expects that the company will last for two more years and then be dissolved. The company will generate a free cash flow of $702, 000 one year from today and then its final free cash flow of $1, 049, 760 two years from today. This second cash flow incorporates all of the proceeds from the liquidation process. Assume that the current dividend policy of the firm is to pay out all available free cash flow each year to its shareholders. There are 50, 000 shares outstanding and the shareholders currently require a return of 8% per annum. A) What should be the current price per share of Four Seasons Total Landscaping? The current share price should be $ /share (Round to 2 decimal places. Use the unrounded value in any future calculations that need it) The board of directors of Four Seasons Total Landscaping is dissatisfied with the current dividend policy and proposes that a $1, 350, 000 dividend be paid one year from today (i.e. at t=1). To raise the extra cash needed necessary for the increased dividend, the company will sell new shares at t=1 in order to immediately pay out the proceeds to the existing shareholders as the board of directors' desired dividend. B) How much extra funding does Four Seasons Total Landscaping need to raise at t=1 through the new share sale in order to have enough funds to pay the increased dividend to the existing investors? The firm needs to raise $ extra. (Round to 2 decimal places. Use the unrounded value in any future calculations that need it) C) What must be the total value at t=1 of both the existing shares and the newly issued shares together? It may be helpful to remember that, at that time, the only remaining cash flow will be the final liquidating t=2 cash flow of one year later. The value of both the existing and new shares must together be worth $ at t=1, (Round to 2 decimal places. Use the unrounded value in any future calculations that need it)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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