Example No 03: Executive Financial Model The Emirate Estate Company is competing with local and foreign...

 

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Example No 03: Executive Financial Model The Emirate Estate Company is competing with local and foreign companies in the turmoil economy of the Middle East. Accordingly, the historical value will never tell the story of value, creditworthiness and net worth of stockholders. The expected change in net working capital of the company in year (y+2) is 15%. This projected change is anticipated to be equal 75% of F.A. expansion in year (y+2). The total value of its assets in year (y+1) amounted to $42,000,000, its current liabilities = 0.357 TA = 0.75 CA and the company investment in year (y+1) was zero. This could be attributed to the company policy on investment and liquidity. To comply with tax regulations, the straight line method (SLM)was used to allocate cost of fixed assets. The DPR for the new fixed assets is decided to be 10% compared to 8% for old fixed assets. To avoid dilution and to keep rights of old stockholders, the company is unlikely to issue new shares in the near future, provided that the company will stick to a retention rate of 65%. ROTA for year (y+2) is projected to be 10%. Required: A. As a financial analyst, compute the expected change on debt (liabilities) provided that LTL will remain equal to x-x. B. Figure out the implications of such policy on financial position of the company Example No 03: Executive Financial Model The Emirate Estate Company is competing with local and foreign companies in the turmoil economy of the Middle East. Accordingly, the historical value will never tell the story of value, creditworthiness and net worth of stockholders. The expected change in net working capital of the company in year (y+2) is 15%. This projected change is anticipated to be equal 75% of F.A. expansion in year (y+2). The total value of its assets in year (y+1) amounted to $42,000,000, its current liabilities = 0.357 TA = 0.75 CA and the company investment in year (y+1) was zero. This could be attributed to the company policy on investment and liquidity. To comply with tax regulations, the straight line method (SLM)was used to allocate cost of fixed assets. The DPR for the new fixed assets is decided to be 10% compared to 8% for old fixed assets. To avoid dilution and to keep rights of old stockholders, the company is unlikely to issue new shares in the near future, provided that the company will stick to a retention rate of 65%. ROTA for year (y+2) is projected to be 10%. Required: A. As a financial analyst, compute the expected change on debt (liabilities) provided that LTL will remain equal to x-x. B. Figure out the implications of such policy on financial position of the company

Answer rating: 100% (QA)

A Assuming that the LTL will remain equal to xx the expected change on debt l... View the full answer