Question

Use the following information on Company Y and perform pro-forma financial modeling using a planned expansion method to answers question (1) and (2). To do this assume that the percentage values with respect to sales of the (i) costs except depreciation, (ii) cash and equivalents, (iii) accounts receivable, (iv) inventories, and (v) accounts payable will stay fixed at the values corresponding for 2016.

Assume also that income tax will remain at 35% of the Pretax Income.

Consider Company Y. This firm sells a product for which in 2016 the total market size was of 1999000 units, of which Company Y owned a share of 30%.

Both, the total market size and Company Y’s market share are expected to grow at a 4% yearly rate for the next five years.

The price of the product is $114 in 2016 and is expected to remain at that price for the next years.

Market Analysis	2016	2017	2018	2019
Market Size	1,999,000	2,078,960	2,162,118	2,248,603
Market Share	30%	31%	32%	34%
Production Volume	599,700
Sales Price:	$   114.00
Sales

In 2016, the outstanding debt of Company Y is $900000, for which the company makes yearly interest payments of 11%. The executives of Company Y are considering making a significant capital investment in 2017 of $2900000 to purchase new machinery. The company plans to finance this investment with a 30-year loan that makes yearly interest payments equivalent to 8% of its principal. The principal is paid when the loan matures.

The following table summarizes the debt and interest payment of Company Y.

Debt and Interest Table		2016	2017	2018
Outstanding Debt		900,000	900,000	3,800,000
New Net Borrowing			2,900,000
Interest on Debt

Currently, Company Y makes yearly expenditures on replacement capital investment of $90000. If the company makes the planned expansion it is decided the company will perform yearly expenditures on replacement capital investment of $325000. The current and the planned expenditures on replacement of capital investment will be financed by the company’s cash flow.

The following table indicates for 2016 Company Y’s values of i. opening book value, ii. capital investment, iii. depreciation, and iv. closing book value. The Table also indicates the 2017-2018 forecast values of capital depreciation if the planned expansion were to occur in 2017.

Fixed Assets & Capital Investment	2016	2017	2018
Opening Book Value	1,500,000
Capital Investment	90,000
Depreciation	-127,200	-356,224	-353,726
Closing Book Value	1,462,800

The following table contains Company Y’s income statement.

Income Statement:	2016	2017
Sales	68,365,800
Costs except Depr.	-5,469,264
EBITDA	62,896,536
Depreciation	-127,200
EBIT	62,769,336
Interest Expense (net)	-99,000
Pretax Income	62,670,336
Income Tax	-21,934,618
Net Income	40,735,718

The following table contains Company Y’s balance sheet.

Balance Sheet	2016	2017
Assets
Cash and Equivalents	23,928,030
Accounts Receivable	23,928,030
Inventories	10,254,870
Total Current Assets	58,110,930
Property Plant and Equipment	1,462,800
Total Assets	59,573,730
Liabilities and Equity
Accounts Payable	23,928,030
Total Current Liabilities	23,928,030
Debt	900,000
Total Liabilities	24,828,030
Stockholders' Equity
Starting Stockholders' Equity	8,000,000
Net Income	40,735,718
Dividends	-13,990,018
Stockholders' Equity	34,745,700
Total Liabilities & Equity	59,573,730

1.      Before making any adjustments to balance Total Assets with Total Liabilities and Equity, what is Company Y s forecast value of Total Liabilities and Equity for 2017?"

2.      How much are the net new financing for Company Y s on 2017?

For question one i know the answer is 108,349,142 and question 2 answer is -41,399,784. but how do i get those answers. im having diffculty acheiving the correct answers. Can someone please show the steps.

Answer 1

Forecasted Income Statement
For the year 2017
Sales (2,078,960*31.2% *114)	73944449.28
Cost except Depreciation (8% of sales)	-5915555.94
EBITDA	68028893.34
Depreciation	-356224
EBIT	67672669.34
Interest Expenses (900000*11% + 2900000*8%)	-331000
Pretax Income	67341669.34
Income Tax (35%)	-23569584.23
Net Income	43772085.11

Forecasted Balance Sheet
For the year 2017
Assets
Cash and Equivalents (35% of sales)	25880557.25
Accounts Receivables (35% of sales)	25880557.25
inventories (15% of sales)	11091667.39
PPE (1462800 +325000 - 356224)	1431576
TOTAL ASSETS		64284357.9
Liabilities and Equity
Accounts payable (35% of Sales)	25880557.25
Debt (900000 + 2900000)	3800000
Stockholders's Equity	8000000
Retained Earnings (40735718 - 13990018 + 43772085.11)	70517785.11
Dividends
TOTAL LIABILITIES AND EQUITY		108198342

Before adjusting the laibilities and shareholder equity for dividend paid to balance the asset with liabilities, Total liabilities and shareholder's equity for 2017 amounted to $108,198,342.