SEE BELOW
- Assume the reader has no clear understanding of finance. However, he/she is sound mathematically and has good comprehension and reasoning skills.
- When writing out equations, use the Equation Editor, which can be found under the Insert Tab in Microsoft Word.
- The goal is to teach the subject matter.
Part I
Blue rock Marketing Consulting’s 2016 and 2017 is a hypothetical company operating in the marketing industry consulting and producing for external companies. The company is anticipating a 5% increase in revenues for the year 2017. The VP of finance is asking for 3 scenarios for the income statement:
- A 5% increase for 2017
- A 3% increase for 2017
- A 10% increase for 2017
| Blue rock Marketing Consulting | ||||||
| 2016 & 2017 Balance Sheet | ||||||
| Assets | Liabilities & Owner’s Equity | |||||
| 2016 | 2017 | 2016 | 2017 | |||
| Current Assets | Current Liabilities | |||||
| Cash | 18,000,000 | 40,000,000 | Accounts Payable | 12,000,000 | 12,000,000 | |
| Accounts Receivable | 22,000,000 | 36,000,000 | Notes Payable | 20,000,000 | 31,000,000 | |
| Inventories | 24,000,000 | 25,000,000 | Total Current Liabilities | 32,000,000 | 43,000,000 | |
| Total Current Assets | 64,000,000 | 101,000,000 | ||||
| Long Term Debt | 52,000,000 | 62,000,000 | ||||
| Fixed Assets | ||||||
| Property, Plant, Equipment | 55,000,000 | 91,000,000 | Owner’s Equity | |||
|
| Common Stock | 18,000,000 | 45,000,000 | |||
| Retained Earnings | 17,000,000 | 42,000,000 | ||||
| Total Assets | 119,000,000 | 192,000,000 | Total Liabilities & Owner’s Equity | 119,000,000 | 192,000,000 | |
Below you will find their balance sheet and income statements accordingly for the years 2016 and 2017:
| Blue rock Marketing Consulting | |
| Income Statement 2016 | |
| Net Sales | $153,000,000 |
| Cost of Goods Sold | $28,000,000 |
| Gross Income | $125,000,000 |
| Depreciation | $22,360,249 |
| EBIT | $102,639,751 |
| Interest Paid | $25,000,000 |
| Taxable Income | $77,639,751 |
| Taxes 30% | $23,291,925 |
| Net Income | $54,347,826 |
Questions:
- Project the income statement for Blue rock for the year 2017 using the scenarios listed above.
- There are 5 categories of ratios (1)liquidity ratios 2) leverage ratios 3)efficiency ratio 4) profitability ratios and 5) market value ratios.) Please name and explain each category and calculate and interpret at least 3 ratios from each.
- Create a common-size Income statement for each scenario
- Please give a definition for each financial statement presented above:
- What is an income statement?
- What is a balance sheet? What is the Balance Sheet Identity formula? Explain the relationship between both sides of the equation
Part II
- A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders’ equity? Please explain the steps taken.
- Russell’s Deli has cash of $136, accounts receivable of $95, accounts payable of $210, and inventory of $409. What is the value of the quick ratio ?And explain what it is used for?
3. What is the change in the net working capital (NWC) from 2010 to 2011? Explain what is NWC?
4. Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values?(Explain your choice)
5. Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?(Explain your choice)
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- A firm has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars’ worth of sales are generated from every $1 in total assets?
- How many days of sales are receivable? (Use 2012 values)
- Risk Free =3%, Beta=1.2, Expected Return on the market=7%. Calculate CAPM.
- Assume newly formed Corporation XZF needs to raise $1 million in capital so it can buy office buildings and the equipment needed to conduct its business. The cost of equity is 6% and the cost of debt is 5%.
- Corporation XZF’s total market value is now $600,000 equity and $400,000 debt and its corporate tax rate is 35%. Please calculate the WACC.
- The most utilized method to find the valuation of a company is the Discounted Cash Flow (“DCF”) method. Please list the steps needed to complete a “DCF” model. Please be specific in each step; teach me the concept.
