Reference no: EM132794774
Problem - Financial information on AAA Ltd. is shown below.
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AAA Ltd. Income Statement For the Year Ended December 31st,
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2019
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2018
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Sales
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4,215,750
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3,850,000
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Cost Of Goods Sold
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2,178,700
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2,016,320
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Other Expenses
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1,005,200
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986,500
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Depreciation
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9,800
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8,550
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Earnings Before Interest and Taxes
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1,022,050
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838,630
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Interest Expense
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56,735
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46,870
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Earnings Before Taxes
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965,315
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791,760
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Taxes (30%)
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289,595
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237,528
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Net Income
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$675,721
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$554,232
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AAA Ltd. Balance Sheet As at December 31st,
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ASSETS
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2019
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2018
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Cash & Equivalent
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50,750
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23,180
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Short-term investments
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202,834
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186,014
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Inventories
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1,458,841
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1,355,047
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Accounts Receivable
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218,500
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131,221
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Total Current Assets
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1,930,925
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1,695,462
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Prop, Plant & Equip - Net
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2,154,301
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1,940,594
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Total Assets
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$4,085,226
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$3,636,056
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LIABILITIES & EQUITY
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Accounts Payable
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267,566
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258,151
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Notes Payable
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82,823
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62,310
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Accruals
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58,559
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31,210
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Short-term Debt
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314,469
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317,416
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Total Current Liabilities
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723,417
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669,087
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Long-Term Debt
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833,547
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844,139
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Total Liabilities
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1,556,964
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1,513,226
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Common Share Capital
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650,000
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650,000
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Retained Earnings
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1,878,263
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1,472,830
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Total Equity
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2,528,263
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2,122,830
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Total Liabilities and Equity
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$4,085,226
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$3,636,056
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Required - Answer the following questions (a-e). [Please note: short-term investments are non-operating current assets; notes payable and short-term debt are non-operating current liabilities.]
a) What is Operating Cash Flow for 2019?
b) What is Free Cash Flow for 2019?
c) The stock is traded at $30 per share at the end of 2019 and there are 100,000 shares outstanding. What is MVA during 2019?
d) Given the firm's WACC is 10%, what is EVA during 2019?
In addition to the AAA Ltd. financial statements, you are given more information as follows:
Sales are forecast to increase by 10% in 2020.
Notes Payable, short-term Debt, Long-term Debt, and Common Share Capital will not change. Net Plant and Equipment is forecasted to be $2,500,000 next year. Short-term investments are expected to be $250,000.
In 2020, the company's dividend payout ratio will be 40%.
In 2020, cost of goods sold is expected to be 50% of sales. Other expenses will be 25% of sales. Depreciation expense in 2020 is expected to be $11,000.
Cash is expected to be 1% of sales, and inventories will be 40% of sales. Accounts receivable will be 4% of sales. Accounts payable will be 4% of sales. Accruals will be 1% of sales.
The company is expected to pay 6% per year compounded annually on its short-term debt and 8% per year compounded annually on its long-term debt. The interest expense on the short-term debt in 2020 is calculated as interest rate on short-term debt * amount of short-term debt outstanding at the end of 2019. The interest expense on the long-term debt is calculated as interest rate on long-term debt * amount of long-term debt outstanding at the end of 2019.
The company's tax rate is 30%.
Based on the information provided you are to:
e) Complete the pro-forma income statement and balance sheet for 2020.
f) Calculate the amount of Additional Funds Needed in 2020.
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