It is October 2023. The Controlling Department of BC S.A. has been given the task of determining the company'scapital requirements over the next two years. Determination of the capital requirements is necessary because ofprojected dynamic growth in the value of corporate assets (investment expenditure to construct a new machinemanufacturing plant is estimated at some PLN 18 million over the next two years, at the current balance sheet total ofPLN 28.7 million), envisaged change of market strategy and the owners' expectations as to dividend payout. The CFOhopes that the lowering of prices on obsolete inventories in the company's warehouse will lead to their rapid sale and,consequently, release large cash surpluses. The Management Board of the company would like to find out whether allthe tasks can be financed from the profits generated on the company's operational activity and from its cash reserves.The projected end-of-year balance sheet (2023) and the planning data gathered from various business units areprovided below. Please advise if all the planned investment can be financed from the company's own funds (cashreserves and internally generated cash flows) given the above assumptions. If not, specify how much funding needs tobe sourced externally each year. To do it, please prepare forecasted financial statements, FCFF using both direct %indirect method and valuate the equity assuming WACC 12% and growth rate 4% from year 2025. Balans Sheet Assets2023E Fixed assets 11 233 Current assets 17 466 Inventories 10 000 Accounts receivable 1 222 Cash 6 244 Total assets28 699 Liabilities and equity 2023E Stockholder's equity 17 554 Common stock 15 000 Capital surplus / Accum. Retainearning 1 233 Net incom 1 321 Liabilities 11 145 Long-term debt 10 000 Accounts payable 1 145 Total liabilities andstockholder's equity 28 699 Forecast 2024 E 2025 E Planned operating revenues 18 000 25 500 Cost of goods sold7 200 9 000 Selling costs 1 600 2 000 General, and administrative expenses 4 180 5 225 Other income 220 Depreciation2 000 2 000 Interest expense 1 200 900 Tax rate 20% 20% Accounts payable 3 000 3 200 Planned accounts receivable2 000 2 500 Planned inventories 5 000 5 500 Aquisition of fixed assets 12 100 5 500 Proceeds from new long-term debt3 000 Repayment of debt 5 000 5 000 Proceeds from new stock issue Dividends 1 000

Forecasted Income Statement for 2024 and 2025 planning data to forecast the income statement for the…

namic growth in the value of corporate assets (investment expenditure to construct a new mac og plant is estimated at some PLN 18 million over the next two years, at the current balance she ion), envisaged change of market strategy and the owners' expectations as to dividend payou e lowering of prices on obsolete inventories in the company's warehouse will lead to their rapi , release large cash surpluses. The Management Board of the company would like to find out w

namic growth in the value of corporate assets (investment expenditure to construct a new mac og plant is estimated at some PLN 18 million over the next two years, at the current balance she ion), envisaged change of market strategy and the owners' expectations as to dividend payou e lowering of prices on obsolete inventories in the company's warehouse will lead to their rapi , release large cash surpluses. The Management Board of the company would like to find out w

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

A software company Future PLC can invest in either Project C orProject D which have the same initial Year = 0 cost of £275mlm and cash-flows: Project C: £150mln (in Year=1), £250mln (in Year=2)Project D: perpetuity of £25mln (in Year=1) growing at an annual rateof g=7% The problem is, that the firm does not know the risk-adjusted discount rateof Project C but it does know that the cash flow betas are 55 (in Year=1) and 85 (in Year=2). It also knows that Project D has the same risk as a market portfolio, which has an annual return of rm = 15%. Risk-free treasury bonds have an annual return of rf = 5%. Which project should be chosen by the firm?
Risk and NPV; Sensitivity Analysis J. Morgan of SparkPlug Inc. has been approached to takeover a production facility from B.R. Machine Company. The acquisition will cost $1,500,000, andthe after-tax net cash inflow are expected to be $275,000 per year for 12 years.SparkPlug currently uses 12% for its after-tax cost of capital. Tom Morgan, production manager,is very much in favor of the investment. He argues that the total after-tax net cash inflow is more thanthe cost of the investment, even if the demand for the product is somewhat uncertain. “The project willpay for itself even if the demand is only half the projected level.” Cindy Morgan (corporate controller)believes that the cost of capital should be 15% because of the declining demand for SparkPlug products.Required1. What is the estimated NPV of the project if the after-tax cost of capital (discount rate) is 12%? Use thebuilt-in NPV function in Excel; round your answer to the nearest whole dollar. 2. What is the estimated NPV of…
How sensitive is return on capital to the forecastassumptions in case Exhibit 8? What independentchanges in Carrie Galeotafiore's estimates are requiredto drive the 2002 return - on - capital estimate belowHome Depot's cost - of - capital estimate of 12.3%?Look specifically at gross margin, cash operatingexpenses, receivable turnover, inventory turnover, andP&E turnover. What effect does sales growth have onreturn of capital? Explain your findings.
Is there a formula easy to remember when answering question 1(a) npv? If so please show me how I use it
Cashflow patterns and the modified rate of return calculation Locke Manufacturing Inc. is analyzing a project with the following projected cash flows: Year Cash Flow 0 -$1,324,800 1 300,000 2 450,000 3 546,000 4 360,000 This project exhibits_________ (pick one- conventional or unconventional) cash flows. Locke’s desired rate of return is 5.00%. Given the cash flows expected from the company's new project, compute the project’s anticipated modified internal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.) choose the correct choice 6.09% 6.47% 6.85% 7.61% Locke’s managers are generally conservative, and select projects based solely on the project’s modified internal rate of return (MIRR). Should the company’s managers accept this independent project? choose the correct choice. Yes No You’ve just learned that…
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for years 1 and 2? a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) Calculate the incremental earnings of this project below: (Round to one decimal place.) Incremental Earnings Forecast (millions) Sales Operating Expenses Depreciation EBIT Income tax at 21% Unlevered Net Income Year 1 Year 2 $ $ SA $ 69 $ GA 67 69 $ $ $ 6969 $ $ SA
None
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of 51.54 million per year, growing at a rate of 2.4% per year. Goodyear has an equity cost of capital of 8,7%, a debt cost of capital of 6.7%, a marginal corporate tax rate of 38%, and a debt- equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt equity ratio, what after tax amount must it receive for the plant for the divestiture to be profitable?
Use the information below to calculate WACC given the Market Capitalization of the company: Market Cap = 193.2 Million EBIT = 17.2 Million Depreciation = 4.2 Million Capital Expenditures = - 3.8 Million Change in W/C = 2.1 Million growth = 7% FCF = ? WACC = ?
Suppose the profitable company, Hermes, Inc., previously calculated its external financing needs (EFN) to be $18,200,000. What will happen to the EFN if management now decides to decrease the dividend payout ratio from 35.00% to 25.00%? (1) It will increase to some value greater than $18,200,000. (2) It will fall to some value lower than $18,200,000. (3) It will remain at $18,200,000. (4) The answer depends on Hermes, Inc.’s growth rate in sales. (5) The answer depends on Hermes, Inc.’s profit margin.
Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Revenues Operating Expenses (other than depreciation) CCA Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 128.5 47.2 29.9 3.1 28.7 35% Year 2 155.5 63.7 34.1 8.9 41.6 35% a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for the first two years?
XYZ Corporation: The data shown in the above table are for two mutually exclusive security projects that a company, called XYZ, is considering. Both projects are assumed to be strategically important to the company. Assume further the company’s cost of capital is 10%. year project A Project B 0 -200 -150 1 200 50 2 800 100 3 -800 150 Calculate the NPV of both projects. Calculate the Profitability Index for both projects. Calculate the IRR for both projects Which security project should XYZ invest in?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS