Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a...
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Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224 Tire City Inc. Mr. Abdullah, Chief Financial Officer (CFO) of Tire City Inc ('TCI') has a meeting with their bank later in the week. At the meeting he needs to present a request to the bank for funding requirement(s) for a Long Term Loan facility to finance expected growth of the company. The historical financial statements of the company collected by Mr. Abdullah are attached herewith in the Excel file; Company's Background Tire City is a rapidly growing retailer of automobile tires in Saudi Arabia. TCI sells tires through 15 locations throughout Saudi Arabia. All these stores keep sufficient inventory on hand to service immediate customer requirements, but the bulk of TCI's inventories is kept at a central warehouse in Kharj just outside of Riyadh. Each store can be serviced by this warehouse which could fill their extra orders within 24 hours Sales have been growing for the last several years due to the excellent service level and customer satisfaction but after work on expansion of the warehouse was initiated sales estimates were revised due to the changing macroeconomic conditions and discovery of a viral disease globally after which sales are expected to decrease by 20% each year from the previous year's levels in 1996 and 1997. Mr. Abdullah is confident that this drop in sales is a short-term phenomenon and sales will jump back to previous levels and TCI is pushing forward with the warehouse expansion Past Relationship with Amana Bank In 1991 TCI borrowed funds from Amana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments. At the end of 1997 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI is now contemplating expanding the warehouse in Kharj to accommodate future growth of the company by expanding the warehouse at a cost of SAR5M (CAPEX), of which SAR2.5M will be spent in 1996 and remaining in 1997 (TCI has no other capital expenditure plans for these two years). The expanded warehouse will fulfill the company's storage requirements for many years to come and will have a useful life of 10 years and depreciated using the straight-line method. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996, 1997 and 1998) Page 2 The warehouse expansion has been planned in such a way that it will have very little disruptive effect on operations of the company. However due to the ongoing construction work, inventories would have to be reduced to 10% of sales by the end of 1996 to make room for construction equipment and materials which will be stored on the same site. The % level of inventories to sales would revert to 1995 level as soon as the warehouse construction is completed in early 1997. TCI's operations would not be affected in any other way due to the ongoing expansion; Operating Profit Margin will remain in line with the historical trends. Current Accounts (except for inventories) will maintain the same steady relationship with sales. Cash Balances / Overdraft or Short Term Loan required from Bank is one item that Mr. Abdullah is concerned about and has asked his staff to determine what will be the ending levels in 1996 and 1997 TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective TCI had been historically higher and the same trend was expected to average tax rate continue. TCI is expected to maintain dividend payout ratio to make sure that the stock price of the company was unaffected during the construction phase. In preliminary discussion with Amana Bank about modus operandi of how they can borrow money to finance the expansion project the bank agreed that TCI can borrow money in two separate installments on an as-needed basis, one in 1996 and the other in 1997. The loan would be repayable in 5 equal annual installments, with first installment becoming due after the completion of the warehouse (in 1998). The interest rate offered is 10% p.a. Tire City Inc. SAR '000 INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) 1996 (P) 1997 (P) Net Sales 16,230 21,099 27,429 21,943 17,554 Cost of Sales 8,440 10,971 14,263 11,410 9,128 Gross Profit 7,790 10,128 13,166 10,533 8,426 Selling, General & Operating Expenses 5,518 6,963 9,326 7,461 5,968 Depreciation Expense 320 400 500 500 1,000 Net Interest Expense 105 92 79 313 300 Pre-tax Income 1,847 2,673 3,261 2,260 1,158 Income Taxes 833 1,300 1,700 1,178 604 Net Income 1,108 1,604 1,956 1,082 554 Dividends 366 529 646 357 183 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A). ASSETS + Cash / (Loan from Bank) (92) 35 422 Accounts Receivable 2,597 3,376 4,389 Inventories 3,246 4,220 5,486 Total Current Assets 5,751 7,631 10,296 Gross Plant & Equipment 3,232 3,795 4,163 Accumulated Depreciation 1,335 1,735 2,235 Net Plant & Equipment 1,897 2,060 1,928 Total Assets 7,648 9,691 12,224 LIABILITIES Current Maturities of Long Term Debt 125 125 125 Accounts Payable 2,110 2,853 3,851 Accrued Expenses 1,145 1,495 1,845 Total Current Liabilities 3,380 4,473 5,821 Old Long-term Debt 1,000 875 750 New Long Term Debt Total Long Term Debt 1,000 875 750 Common Stock 1,135 1,135 1,135 Retained Earnings 2,133 3,207 4,518 Total Shareholders Equity 3,268 4,342 5,653 Total Liabilities 7,648 9,690 12,224
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The Balance Sheet of 1996 and 1997 would be as below Balance Shee... View the full answer
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ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
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On January 31, a firm learns that it will have additional funds available on May 31. It will use the funds to purchase $5,000,000 par value of the APCO 9 1/2 percent bonds maturing in about 21 years....
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A well-known financial institution expects that it will have no earnings for the next three years as the result of restructuring activities. Then it will begin to return to earnings of $3.00 a share....
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Jabar Corporation, a C corporation, projects that it will have taxable income of $300,000 before incurring any lease expenses. Jabar's tax rate is 35 percent. Abdul, Jabar's sole shareholder, has a...
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20 -101 10 in- laminate substrate Fig.2 Q2: The tool shown in Fig.2 is used in a gluing operation to press a thin laminate to a thicker substrate. If the wheels at points A and B both have 2 in...
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Mega Games, Inc., produces two games, Extreme Combat and Judgment Weekend, with product structures as shown. An order for 100 units of Extreme Combat and 175 units of Judgment Weekend has been...
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Correct any errors in punctuation (apostrophes, commas, dashes, colons, and semicolons) in the following sentences. Truman Capotes nonfiction book, In Cold Blood is considered the first, greatest...
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A system consists of 6 components connected as in Figure 16.3. Find the overall reliability of the system, given that the reliabilities of \(A, B, C, D, E\), and \(F\) are, respectively,...
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Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a...
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As we discuss EBDM this week and your workplace or other organization you may know, have you been placed in a position to develop ways to energize membership to achieve set personal goals, as well as...
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The smooth rod of mass M rests inside the glass. Determine the reactions on the rod. Given: M = 20 gm a = 75 mm b = 200 mm = 40 deg g = 9.81m/s2 b.
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The possibility of storing raw material ethylene at temperature -105,2C and pressure 1 atm. 1. Analyze the properties, possibilities, and selection consideration. 2. Determine the type of the vessel,...
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1. A 700kg racecar slowed from 30 m/s to 15 m/s. What was its change in momentum?
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Engineers who study shock waves sometimes express velocity in millimeters per microsecond (mm/us). Suppose the velocity of a wavefront is measured and determined to be 5 mm/us. Determine its...
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A buyer purchases 4.5 acres of land for $78,400. An adjoining owner wants to purchase a strip of this land measuring 150 feet by 100 feet. What should this strip cost the adjoining owner if it is...
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An icy planet is discovered beyond Pluto, with an orbital period of 2 8 6 years.What is the semi - major axis of its orbit around the Sun, in Astronomical Units? Giveyour answer to three significant...
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Which of the following is not an advantage related to the going rate approach to compensate expatriates? a. Compensation among parent, third, and host country nationals in the same location is equal....
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If a taxpayer fills out their W-4 in a way that does not withhold enough money to cover their tax obligation, what is the most likely outcome after they file their taxes? 1 point They will receive a...
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Pearson Education, a publisher of college textbooks, would like to know if students prefer traditional textbooks or digital textbooks. A random sample of students was asked their preference and the...
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Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. Complete the Amount and % columns to be used in a horizontal analysis of American Eagles...
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Who pays Social Security taxes: the employer, the employee, or both? How is the deduction for Social Security and Medicare (FICA) computed?
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Refer to the information in BE515, but now assume that the balance of Allowance for Uncollectible Accounts before adjustment is $4,000 (debit). The company still estimates future uncollectible...
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Cooling pipes at three nuclear power plants are investigated for deposits that would inhibit the flow of water. From 30 randomly selected spots at each plant, 13 from the first plant, 8 from the...
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With reference to Exercise 10.57, find a large sample 95% confidence interval for the true difference of the probabilities of failure. Data From Exercise 10.57 10.57 Two bonding agents, A and B, are...
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Two hundred tires of each of four brands are individually placed in a testing apparatus and run until failure. The results are obtained the results shown in the following table: (a) Use the 0.01...
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