Financial planning-analysis comparison between two years

Assignment Help Financial Management
Reference no: EM13890496

Richmond Coffee, Inc. was founded by Gail McCornell and his wife in 2010 in Richmond, Indiana. Due to the lack of the related expertise, the company has not been using much financial planning for its investment needs. Therefore, RC is currently undergoing some hard times resulted in some severe cash flow problems. In addition to losing sales, RC is also falling short of profit to pay salaries to the founders. So, there is an urgent need for the company to prepare a financial plan for the next year to cope with the anticipated investment requirements. Richmond Coffee, Inc. 2015 Income Statement Sales $6,854,000 Cost of goods sold 5,231,000 Other expenses 472,000 Depreciation 186,000 EBIT $965,000 Interest 124,800 Taxable income $840,200 Taxes (40%) 336,080 Net income 504,120 Dividends $201,648 Add to retained earnings 302,472 Richmond Coffee, Inc. 2015 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Cash $282,000 Accounts payable $265,000 Accounts receivable 342,000 Notes payable 168,000 Inventory 650,000 Total current liabilities $433,000 Total current assets $1,274,000 Long-term debt $2,080,000 Fixed assets Net plant and equipment $2,854,000 Shareholder equity Common stock $450,000 Retained earnings 1,165,000 Total equity $1,615,000 Total assets $4,128,000 Total liabilities and equity $4,128,000 RC is looking forward to a growth rate of 14 percent in 2016 (i.e. its sales is expected to increase by 14%). The firm has decided to hire you as a financial consultant to fix all the cash flow problems for them. 1. You are expected to calculate the internal growth rate and sustainable growth rate for RC, and explain to the founders what these numbers mean. (20 points) 2. RC is currently operating at full (100%) capacity. Gail McCornell, one of the founders of the company, would like you to advise them on what amount of external financing will be needed (EFN) for 2016 and whether RC’s sales can rise at this particular rate of growth? 01 F15 BUS-F301 Case Study 1 - Description and Requirements 3/3 Please be reminded to include the necessary assumptions, pro forma income statement and pro forma balance sheet in your answer in addition to other workings. (50 points) 3. RC’s fixed assets can only be acquired in multiples of $1,500,000 (i.e. adding a new product line will call for an additional investment of $1,500,000 in new equipment) once RC has reached its full operating capacity. Gail is eager to know what the new external financing needed (EFN) should be as the firm is now already operating at its full capacity. In addition, he also asks you to estimate the new level of capacity utilization of the fixed assets for RD in next year when the new production line has been implemented. Please be reminded to include the new pro forma income statement and pro forma balance sheet in your answer in addition to other workings. (50 points) 4. Gail is interested in knowing as well how the firm’s ROE will change from 2015 to 2016 according to the projected growth rate (subject to the condition that the firm can only acquire the required fixed assets in multiples of $1,500,000, the owners are not going to put in more capital and the firm’s payout ratio remains at the 2015 level). You are expected to do a Du Pont analysis comparison between the two years. For the Du Pont analysis, you must include both the calculations and the explanations.

Reference no: EM13890496

Questions Cloud

Cheaper to lease or purchase the car : You can lease a car for $7,500 per year for 6 years. Or, you can purchase the car for $45,000 in cash today. If the cost of funds [what you can earn on your money] is 2.63%, is it cheaper to lease or purchase the car?
What is the future value of an annuity : What is the future value of an annuity of 17 deposits of $2300 each year with nominal rate of interest being 10% compounded continuously? HKL Co. plans a new project that will generate $ 170,000 of continuous cash flow each year for 6 years and addit..
Most corporate bonds-what is the current price of the bond : Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon r..
Calculate the present value of total inflows : The Robinson Corporation has $43 million of bonds outstanding that were issued at a coupon rate of 11 3/4 percent seven years ago. Interest rates have fallen to 10 3/4 percent. Compute the discount rate. Calculate the present value of total outflows...
Financial planning-analysis comparison between two years : Richmond Coffee, Inc. was founded by Gail McCornell and his wife in 2010 in Richmond, Indiana. Due to the lack of the related expertise, the company has not been using much financial planning for its investment needs. You are expected to do a Du Pont..
A step in the straight rebuy buyclass? : a step in the straight rebuy buyclass?
Develop a plan to empower your organization : Develop a plan to empower your organization. Describe the political climate and sub-climates within your organization. Identify any disempowering symptoms within your organizational culture
Total real return on this investment : An investment offers a total return of 13 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 9 percent. What does Janice believe the inflation rate will be over the next year?
Calculate the cost of goods sold and cost of goods available : Assuming that the following information reflects the results of operations for the year, calculate the gross margin, cost of goods sold and cost of goods available for sale.

Reviews

Write a Review

 

Financial Management Questions & Answers

  Ratings in the form of predictions-marketing

Explain Apple Inc. new iPad Air 2 new technology, possibilities, ratings in the form of predictions, marketing, investments and what could occur if these predictions are wrong?

  Business and government relations

Discuss the main reasons why a business should or should not be involved in political discussions or take a political stand. Use terms found in Chapter 9 to demonstrate your understanding of the material.

  What is the percentage change in the price

Both Bond Sam and Bond Dave have 8 percent coupons, make semi-annual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the pe..

  Explain what happens to the market rate of interest

the market rate of interest will sell for a discount and that a vanilla bond which has a coupon rate above the market rate of interest will see for a premium. What kind of bond or loan will sell at its par value regardless of what happens to the m..

  Foreign exchange risk management policy

What is the company's Foreign Exchange (FX) Risk Management Policy? Is centralized or decentralized

  Change in bond price as the market yield changes

What is the Modified Duration of this bond when the market yield is at YTM and explain why and when Modified Duration under-predicts and over-predicts the change in bond price as the market yield changes.

  Determine the increase in the annual after-tax profits

Accurately derived the formula to determine the increase in the annual after-tax profits by selecting the optimal transfer price and accurately calculated the optimal transfer price.

  What is the approximate yield to call

What is the approximate yield to call of a 10% coupon rate, $1,000 par value bond, currently priced at $1200, if the call can be made in seven years at a price of $1,025?

  Required rate of return on equity

The last dividend paid by Klein Company was $1.00. Klein's growth rate is expected to be a constant 5 percent for 2 years, after which dividends are expected to grow at a rate of 10 percent forever. Klein's required rate of return on equity (rs) is 1..

  Money spent on the market research for this new offering

Loveland, inc. is a furniture store that is considering adding appliances to its offerings. Which of the following should be considered incremental cash flows of this project? Money spent on the market research for this new offering?

  What would your pre-tax net profit be

Suppose you believe that Alpha Copration's stock price is going to decline from its current level fo $82.50 sometime during th next 5 months. ou could buy a 5 month, a contact of put option at the strike price of $85 per share. If you bout this optio..

  Calculate the convert ale bonds option value

A convertible bond is selling for $900. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. Similar non convertible bonds are priced to yield 12%. The conversion ration is 40. The stock currently sells for $21.75 per..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd