You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year, and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $700,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.4 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $460,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 6% interest rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.
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.
Statement of cash flows
You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year, and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $700,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.4 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and learned that annual
| Cash at the Beginning of Year | $100,000.00 | ||
| Change in Net Operating Working Capital Except Cash | $0.00 | ||
| Net Income | $5,000,000.00 | ||
| Common Dividends | $700,000.00 | ||
| Machinery Equipment Purchases | $5,400,000.00 | ||
| Depreciation Expense | $460,000.00 | ||
| Long-Term Debt | $1,000,000.00 | ||
| Interest Rate on Long-Term Debt | 6.00% | ||
| Statement of Cash Flows | |||
| I. Operating Activities | Formulas | ||
| Net income | #N/A | ||
| Depreciation expense | #N/A | ||
| Change in net operating working capital except cash | $0.00 | ||
| Net cash provided by (used in) operations | #N/A | ||
| II. Long-Term Investing Activities | |||
| Additions to property, plant and equipment | #N/A | ||
| Net cash used in investing activities | #N/A | ||
| III. Financing Activities | |||
| Increase in long-term debt | #N/A | ||
| Payment of common dividends | #N/A | ||
| Net cash provided by financing activities | #N/A | ||
| IV. Summary | |||
| Net increase (decrease) in cash | #N/A | ||
| Cash at beginning of year | $100,000.00 | ||
| Cash at end of year | #N/A |
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