part b

Question 2 25 Marks PART A 15 Marks Utilize the 2021 financial statements for Saturn Limited provided on page 2 and assume that the company is currently operating below capacity. Required: Prepare Pro-Forma statements for the year ending December 31, 2022 (rounding all figures to the nearest dollar) assuming: All costs/incomelexpenses and networking capital vary directly with sales/revenue. No new equity is raised. Sales are projected to increase by 25%. The tax rate and the dividend payout ratio will remain constant. Depreciation Expense and Interest Expense will remain unchanged. Clearly state if Saturn Limited will require external financing or if the company would have excess financing in 2022, and how much. (15 Marks) Page 3 of 6 PART B 10 Marks Based on the results of the pro-forma statement in part A above, Saturn Limited is considering reducing its financing by buying back some of its common shares. The Finance Manager is however seeking to determine if the current value of its stock is fairly priced. The following anticipated dividend payout structure information is provided Saturn Limited is expected to pay dividends over the next four years as follows: Year 1 $1.50 Year 2 $1.50 Year 3 $1.25 Year 4 $1.25 Thereafter, the company is expected to increase dividends by an annual rate of 2%. The company currently assumes a required return of 9%, for simplicity. Required: Given the above, what should be the current price of Satum Limited's common shares? (10 Marks)