Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers question (3) and (4). To do this assume that the percentage values with respect to sales of the (i) costs except depreciation, (ii) cash and equivalents, (iii) accounts receivable, (iv) inventories, and (v) accounts payable will stay fixed at the values corresponding for 2016.

Assume also that income tax will remain at 35% of the Pretax Income.

Consider Company Y. This firm sells a product for which in 2016 the total market size was of 999000 units, of which Company Y owned a share of 25%.

Both, the total market size and Company Y’s market share are expected to grow at a 3% yearly rate for the next five years.

The price of the product is $114 in 2016 and is expected to remain at that price for the next years.

Market Analysis	2016	2017	2018	2019
Market Size	999,000	1,028,970	1,059,839	1,091,634
Market Share	25%	26%	27%	27%
Production Volume	249,750
Sales Price:	$114.00
Sales

In 2016, the outstanding debt of Company Y is $700000, for which the company makes yearly interest payments of 10%. The executives of Company Y are considering making a significant capital investment in 2017 of $1900000 to purchase new machinery. The company plans to finance this investment with a 30-year loan that makes yearly interest payments equivalent to 7% of its principal. The principal is paid when the loan matures.

The following table summarizes the debt and interest payment of Company Y.

Debt and Interest Table		2016	2017	2018
Outstanding Debt		700,000	700,000	2,600,000
New Net Borrowing			1,900,000
Interest on Debt

Currently, Company Y makes yearly expenditures on replacement capital investment of $50000. If the company makes the planned expansion it is decided the company will perform yearly expenditures on replacement capital investment of $225000. The current and the planned expenditures on replacement of capital investment will be financed by the company’s cash flow.

The following table indicates for 2016 Company Y’s values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2017-2018 forecast values of capital depreciation if the planned expansion were to occur in 2017.

Fixed Assets & Capital Investment	2016	2017	2018
Opening Book Value	500,000
Capital Investment	50,000
Depreciation	-44,000	-196,480	-198,762
Closing Book Value	506,000

The following table contains Company Y’s income statement.

Income Statement:	2016	2017
Sales	28,471,500
Costs except Depr.	-2,277,720
EBITDA	26,193,780
Depreciation	-44,000
EBIT	26,149,780
Interest Expense (net)	-70,000
Pretax Income	26,079,780
Income Tax	-9,127,923
Net Income	16,951,857

The following table contains Company Y’s balance sheet.

Balance Sheet	2016	2017
Assets
Cash and Equivalents	8,541,450
Accounts Receivable	8,541,450
Inventories	2,847,150
Total Current Assets	19,930,050
Property Plant and Equipment	506,000
Total Assets	20,436,050
Liabilities and Equity
Accounts Payable	9,965,025
Total Current Liabilities	9,965,025
Debt	700,000
Total Liabilities	10,665,025
Stockholders' Equity
Starting Stockholders' Equity	8,000,000
Net Income	16,951,857
Dividends	-15,180,832
Stockholders' Equity	9,771,025
Total Liabilities & Equity	20,436,050

1) Before making any adjustments to balance Total Assets with Total Liabilities and Equity, what is Company Y’s forecast value of Total Liabilities and Equity for 2017?

2) How much are the net new financing for Company Y’s on 2016?

Answer rating: 100% (QA)

Note Market Analysis 2016 2017 2018 2019 Market Size 999000 1028970 1059839 1091634 Market Share 25 ... View the full answer