Answer To: Project StepsFNCE 390Project StepsIBackgroundYou have now been asked to continue with...
Khushboo answered on Feb 04 2023
Project Steps
FNCE 390
Project Steps
I Background
You have now been asked to continue with the financing plans around POPLAR Ltd.'s.'s "Growth Plans".
You had been waiting for some additional information from a fellow worker before proceeding with your
financial decisions around a new investments. You have also been advised that the maximum amount of
new investment funds - a combination of debt and equity is a total of $18,000,000.
Business conditions are expected to weaken slightly over the next year with higher interest rates and tax
rates expected to increase over the next two to three years. Market opportunities are expected to remain
for next three to five years with competitor mergers expected to increase to maintain market share.
Overall, the team continues to believe the time is right for growing the business and positioning it for sale
or maybe even considering going public in the future.
To complete the financial analysis, started by a junior member of the firm who abruptly quit you are to do:
STEPS TO DO
A) Locate the Following Project Files:
Project Financials - 2B
- contains worksheets for Pro forma Balance Sheet
- Contains worksheets for Pro forma Income Statement
- contains worksheets to calculate WACC
- contains worksheets to calculate key ratios
B) Using the information provided and the sequence of steps outlined below, develop a proposal which
is financially responsible for the company and for your firm where the $18,000,000 is invested in some
combination of debt and/or equity.
NOTE:
As you are picking up someone else's work, you have color coded the steps to match to the areas within the file
you need to work on.
C STEPS:
1 Opening Financial Information
Using Board approved financial results for Year 1, add the Balance Sheet amounts and Income Statement
amounts in the correct accounts - they are color coded:
Note - current portion of debt = Term loan = $ 240,000 Mortgage = $ 115,000
To address the bank account overdraft a $3,000,000 share capital injection was made by the investment firm.
2 Project Financials - this file
a Develop Combined Results - Pro from a Balance Sheet
Using the appropriate column on Financing Balance Sheet spreadsheet add relevant accounting figures from the
accepted Project Equipment and Project Acquisition Tabs. As an example the capital equipment tab indicates that
additional investments in Accounts Receivable will occur. Place that value in the column for Equipment Project
on the Accounts Receivable line.
To balance - assume the net purchase amounts are addressed through the Venture Short Term loan.
The Mortgage assumed in the acquisition will just be added to the existing mortgage line with the same remaining term
Ensure that your Balance Sheet is Balanced - Total Assets = Total Liabilities and Equity
Develop Combined Results - Pro from a Income Statement
b Using the appropriate column on Financing Income Statement spreadsheet add relevant accounting figures from the
Project Equipment and Project Acquisition Tabs from Phase 2A. As an example the capital equipment tab indicates
that additional operating savings have been generated - reduce administrative expenses.
Unexpectedly a one time restructuring cost was incurred - $900,000 - impacts Administrative costs for
business acquisition
For WACC - and future years tax rate is now 25% due to tax planning efforts
DO NOT change interest or income tax figures in file.
c Next, the three of you have met to decide what roles each of you will play in the new organization.
The positions have been set - but now you need to address compensation. You have two options to consider-
Cash compensation (Salary + bonus+ perks) and share issuance. Determine the compensation package
for each positon - the share price is the current market value - determined below - post split decision
TOTAL COMPENSATION should not exceed $870,000
Salary + Shares# Shares Value Compensation
President $ 40,000 1,000 $ 395,357.59 $ 435,358
VP Finance 15,000 375 $ 148,259.10 163,259
VP Operations 15,000 375 $ 148,259.10 163,259
VP Business 15,000 375 $ 148,259.10 163,259
$ 85,000 2,125 $ 840,134.89 $ 925,135
The compensation expense is reflected 50% in admin and 50% in selling expenses
Admin $ 462,567
Selling $ 462,567
d Share Price Review - Business and Competitive Conditions impact Multiple
Management decides to complete a stock split to reduce price per share to $4.17 and venture of $3.00
Current market value of shares $790.72
EBITDA - Combined
Income before income taxes $ 3,493,693
Add: Amortization 564,000
Add: Interest 460,680
$ 4,518,373
Multiplier 7
Current market value $ 31,628,608
Issued and outstanding shares 40,000 Find in Key Input information - Phase 2A
Proposed Stock Split 2.0000 Select a figure which sets line 95 at venture capital target range
Issued and outstanding shares revised 80,000
Market Value per share $ 395.36
Venture Capital Discount 28%
Venture Capital Share Price $ 284.66
Meets Criteria of
Share capital impact % Ownership 52% or greater
Issued an outstanding - above 80,000
Issued an outstanding - stock compensation 2,125
Issued and outstanding 82,125 98.80% Yes
New Issue
Venture Capital Value From above $ 284.66
New Shares Issued 1,000 1.20% Issue shares
Total Shares 83,125 100.00%
Share capital raised $ 284,657
If believed necessary - submit file to supervisor for review.
Weighted Average Cost of Capital - TAB
1) Review the weighted average cost of capital calculations for the Pro-forma position
Your objective is to refinance keeping long term target WACC as a goal - while balancing other objectives.
The WACC has been set up to calculate automatically - you need to verify if calculating correctly.
Refinancing Options
2) You are now prepared to consider your refinancing options...