Pharoah Corporation was formed five years ago through an initial public offering (IPO) of common shares....

Transcribed Image Text:

Pharoah Corporation was formed five years ago through an initial public offering (IPO) of common shares. Daniel Brown, who owns 15% of the common shares, was one of the organizers of Pharoah and is its current president. The company has been successful, but it is currently experiencing a shortage of funds. On June 10, 2020, Daniel Brown approached the Hibernia Bank, asking for a 24- month extension on two $34,900 notes, which are due on June 30, 2020, and September 30, 2020. Another note for $7,100 is due on March 31, 2021, but he expects no difficulty in paying this note on its due date. Brown explained that Pharoah's cash flow problems are due primarily to the company's desire to finance a $304,000 plant expansion spent evenly over the next two fiscal years through internally generated funds. The plant expansion will be used in operations following the completion of the construction in 2023. The commercial loan officer of Hibernia Bank requested financial reports for the past two fiscal years. These reports are reproduced below. Assets Cash Notes receivable Accounts receivable (net) Inventories (at cost) PHAROAH CORPORATION Statement of Financial Position March 31 2020 $19,040 148,360 132,720 107,560 2019 $13,100 141,200 117,900 51,200 Plant and equipment (net of depreciation) Total assets Equity and Liabilities Share capital-common (130,000 shares issued) $1,300,000 Retained earnings (note 1) 390,720 Accrued liabilities 9,280 Notes payable (current) 76,900 Accounts payable 93,180 Total equity and liabilities $1,870,080 1,462,400 $1,870,080 $1,300,000 278,000 5,960 62,240 169,200 $1,815,400 1,492,000 $1,815,400 Note 1: Cash dividends were paid at the rate of $1 per share in fiscal year 2019 and $2 per share in fiscal year 2020. Sales PHAROAH CORPORATION Income Statement For the Fiscal Years Ended March 31 Cost of goods sold (note 2) Gross margin Operating expenses Income before income tax Income tax (30%) Net income 2020 $3,012,600 1,535,800 $1,476,800 890,000 $586,800 176,040 $410,760 2019 $2,707,000 1,431,000 $1,276,000 784,000 $492,000 147,600 $344,400 Note 2: Depreciation charges on the plant and equipment of $106,000 and $108,650 for fiscal years ended March 31, 2019 and 2020, respectively, are included in cost of goods sold. Additional information: 1. Cash flows from operating activities 2. Capital expenditures for the year 2020 $459,000 128,000 2019 $350,000 110,000 Compute the following item for Pharoah Corporation. Free cash flow to operating cash flows for fiscal years 2019 and 2020. (Round answers to 1 decimal places, e.g. 15.2%.) Pharoah Corporation was formed five years ago through an initial public offering (IPO) of common shares. Daniel Brown, who owns 15% of the common shares, was one of the organizers of Pharoah and is its current president. The company has been successful, but it is currently experiencing a shortage of funds. On June 10, 2020, Daniel Brown approached the Hibernia Bank, asking for a 24- month extension on two $34,900 notes, which are due on June 30, 2020, and September 30, 2020. Another note for $7,100 is due on March 31, 2021, but he expects no difficulty in paying this note on its due date. Brown explained that Pharoah's cash flow problems are due primarily to the company's desire to finance a $304,000 plant expansion spent evenly over the next two fiscal years through internally generated funds. The plant expansion will be used in operations following the completion of the construction in 2023. The commercial loan officer of Hibernia Bank requested financial reports for the past two fiscal years. These reports are reproduced below. Assets Cash Notes receivable Accounts receivable (net) Inventories (at cost) PHAROAH CORPORATION Statement of Financial Position March 31 2020 $19,040 148,360 132,720 107,560 2019 $13,100 141,200 117,900 51,200 Plant and equipment (net of depreciation) Total assets Equity and Liabilities Share capital-common (130,000 shares issued) $1,300,000 Retained earnings (note 1) 390,720 Accrued liabilities 9,280 Notes payable (current) 76,900 Accounts payable 93,180 Total equity and liabilities $1,870,080 1,462,400 $1,870,080 $1,300,000 278,000 5,960 62,240 169,200 $1,815,400 1,492,000 $1,815,400 Note 1: Cash dividends were paid at the rate of $1 per share in fiscal year 2019 and $2 per share in fiscal year 2020. Sales PHAROAH CORPORATION Income Statement For the Fiscal Years Ended March 31 Cost of goods sold (note 2) Gross margin Operating expenses Income before income tax Income tax (30%) Net income 2020 $3,012,600 1,535,800 $1,476,800 890,000 $586,800 176,040 $410,760 2019 $2,707,000 1,431,000 $1,276,000 784,000 $492,000 147,600 $344,400 Note 2: Depreciation charges on the plant and equipment of $106,000 and $108,650 for fiscal years ended March 31, 2019 and 2020, respectively, are included in cost of goods sold. Additional information: 1. Cash flows from operating activities 2. Capital expenditures for the year 2020 $459,000 128,000 2019 $350,000 110,000 Compute the following item for Pharoah Corporation. Free cash flow to operating cash flows for fiscal years 2019 and 2020. (Round answers to 1 decimal places, e.g. 15.2%.)

Answer rating: 100% (QA)

The detailed ... View the full answer