ntly operating at full capacity. Required: Prepare Pro-Forma statementsfor 2021(rounding all figures to the nearest dollar) assuming: All costs/income/expenses and net working capital vary directly with sales/revenue. No new equity is raised Sales are projected to increase by 20% The tax rate and the dividend payout ratio will remain constant. Interest Expense will remain unchanged Clearly state if Insignia Corporation Limited will require external financing or would have excess financing in 2021, and how much.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Utilize the 2020 financial statements for Insignia Corporation Limited provided and assume that the company is currently operating at full capacity.
Required: Prepare Pro-Forma statementsfor 2021(rounding all figures to the nearest dollar) assuming:
- All costs/income/expenses and net
working capital vary directly with sales/revenue. - No new equity is raised
- Sales are projected to increase by 20%
- The tax rate and the dividend payout ratio will remain constant.
- Interest Expense will remain unchanged
Clearly state if Insignia Corporation Limited will require external financing or would have excess financing in 2021, and how much.
![Insignia Corporation Limited
Statement of Financial Position
As at December 31, 2018 & 2019
2019
2020
2019
2020
('000s)
('000s)
('000s)
('000s)
ASSETS
LIABILITIES & EQUITY
Current Assets
Current Liabilities
Accounts Payables
Notes Payables
Inventories
350,000
450,000
160,000
175,000
100,000
275,000
Accounts Receivables
200,000
350,000
243,800
395,000
60,000
Cash & Equivalents
220,000
900,000
1088,800
Non-current Liabilites
790,000
835,000
Non Current Assets, Net
700,000
805,000
Total Liabilities
1010,000
1110,000
Equity
Common Stock
Retained Earnings
Total Equity
230,000
260,000
523,800
783,800
360,000
590,000
TOTAL ASSETS
1600,000
1893,800
TOTAL LIAB. & EQUITY
1600,000
1893,800](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7dff5ebf-6927-4735-a700-1a88ed8c08ed%2F2b6069ef-9b94-4b86-b47e-0c2f0638e795%2Fq4n4y7e_processed.png&w=3840&q=75)
![Insignia Corporation Limited
Income Statement
For the years ended December 31, 2019 & 2020
2019
2020
('000s)
900,000
(350,000)
(75,000)
(65,000)
(55,000)
355,000
('000s)
Sales
1035,000
Cost of Goods Sold
Selling & Marketing Costs
Admin. Expenses
Depreciation Expense
Earnings before Interest & Taxes
Interest Expense
(400,000)
(80,000)
(75,000)
(60,000)
420,000
(25,000)
330,000
(30,000)
390,000
Taxable Income
Taxation (30%)
(99,000)
231,000
(117,000)
273,000
Net Income
Dividends (40%)
Addition to Retained Earnings
92,400
138,600
109,200
163,800](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7dff5ebf-6927-4735-a700-1a88ed8c08ed%2F2b6069ef-9b94-4b86-b47e-0c2f0638e795%2Fdngl5wm_processed.png&w=3840&q=75)
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