Financial Planning and forecasting project

Instructions:

 

Assume the following financial data (balance sheet and income statement) for your company in 2018  (please, find the data on the last page). Your case analysis should be treated as a problem presented to you by your company’s top management for analysis and decision recommendation(s).  Hence, it should demonstrate the qualities of thorough and relevant research, logically sound analysis, and focused professional writing.

 

 

Key Assumptions:

–           Sales are projected to grow by 60% and data to estimate the WACC and tax rates are given to you on the last page.

 

 

Tasks:

 

  1. Using the company’s data, first, compute additional funds needed (AFN) for this company:

AFN formula is used when certain conditions are met:

  • First assume that the company is operating at full capacity; later recalculate the AFN if the company operated only at 80% of its capacity.
  • All assets and accounts payable and accruals grow proportionally with the sales,
  • The following year’s profit margin and dividend payout level will be maintained.
  • Task: Compute the AFN for full capacity assumption as well as 80% capacity.

 

  1. Use the pro forma approach using percent of sales method and make a one-year financial plan for the company under consideration.  The iterations and based on your final pass when the balance sheet is balanced, first comment on the impact of the growth in sales on the balance sheet and income statement of the company. Then, analyze the evolution of the company’s key ratios and compare it with status quo.
  2. How would changes in these items affect the AFN?
  • The dividend payout ratio
  • The profit margin
  • The capital intensity ratio (A*/S0).
  1. What is the overall situation of the company and what kind of policy changes would you recommend to the top management?

 

Note: your computations should be handled with Microsoft excel and you need to write up the interpretations of the results in Microsoft word.

Please, upload your assignment on canvas “assignment” and send to me by email as well.

 

 

 

 

Assets and liabilities and equities in 2018

Assets Libailities and equity
Cash & sec. € 100 Accts. pay. &

accruals

 

€ 300

   
Accounts rec. 300 Notes payable   200
Inventories 500    Total CL € 500
   Total CA € 900 L-T debt    600
 

Net fixed

Assets

 

 

700

Common stk    300
Retained

Earnings

 

200

Total assets € 1 600    Total claims € 1 600

 

Income statement 2018

Sales 3000
Less: COGS (60%) 1800
           SGA costs 600
   EBIT 600
Interest 40
   EBT 560
Taxes (30%) 168
Net income 392
Dividends (20%) 78,4
Add’n to RE 313,6

 

  • Tax rate = 60%.
  • 8-year, 12% coupon, semiannual payment noncallable bonds sell for $1,250. Face value = $1000. New bonds will be privately placed with no flotation cost.
  • 10%, $100 par value, quarterly dividend, perpetual preferred stock sells for $120. Face value =$100. Floatation cost (F = 7%)
  • Common stock sells for $820. D0 = $4.0 and g = 7%.
  • b = 1.2; rRF= 3%; KM = 7%.
  • Target capital structure: determine your capital structure but justify why you decided to use the weights.

 

 

 

 

 

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