See Guidelines for instructions, Use Financial Analyst Report template. Also, use Financial Assumptions(NPV) and TSLA1STQTR2021 spreadsheet to assist in completing Financial Formulas
SKM_658e21060114020 FIN 320 Project Two Financial Assumptions Whenever a business needs to make an investment, the financial options associated with that investment must be carefully considered. This is true whether the business seeks to purchase something as simple as a new building or a piece of equipment, or something as complex as acquiring a new business. Business leaders need to be able to estimate cash flows from an investment and use the net present value (NPV) method to figure out if the investment is worthwhile. This document includes lists for three financial options and their associated assumptions. For your Project Two assignment, analyze all three financial options provided, then select the option or options that add the most value to the business you have selected based on all the information you’ve gathered. Your recommendation should include careful analysis of NPV calculations, financial ratios, working capital analysis, and supportive documents. Remember to evaluate each financial option in the context of the financial ratio analysis and working capital analysis to help you decide which option(s) to recommend to your chosen business in your Project Two assignment. Financial Option 1: Purchase a $10 Million Building Rationale for investment: The business is considering environmental, social, and corporate governance (ESG) factors as part of its investment into a new building for its headquarters. The building itself will be a Leadership in Energy and Environmental Design (LEED)-certified building, but the new site being considered currently houses a large, inactive gas station that sold both gasoline and diesel fuel. The new site also has a sizable repair facility left over that was used for deliveries and tractor-trailer trucks for more than 50 years. While some restoration was performed on the site prior to the new building’s construction, the previous owner ran out of funds before they were ever able to bring the site up to LEED standards. Four large fuel tanks remain on the site, and they will also need to be addressed per LEED standards. Assumptions to consider: • $10 million cash purchase • Building generates additional net profits after tax of $1.25 million per year • 20 year expected useful life of building • Salvage value: $1.5 million • Discount rate is 10% Financial Option 2: Purchase of $25 Million in Equipment Rationale for investment: The business’s current equipment is efficient, but it uses a substantial amount of electricity. Operating the production line also creates significant waste material, including waste plastics. The business is looking into purchasing newer, more environmentally friendly equipment that will still allow it to be at least as efficient in production as it is now. Assumptions to consider: • Annual cash flows generated with equipment: $4 million • Discount rate is 12% • 15-year useful life • No salvage value Financial Option 3: $30 Million Investment in Bonds Rationale for investment: The business that’s offering these bonds for sale contracts with another business in China to assemble computer components. The Chinese business is known to have used child labor in the past, but claims it has stopped this practice. However, the U.S. business selling these bonds has not investigated to verify whether these claims are true or not. Assumptions to consider: • 10-year bond • 8% coupon • Priced at a discount: $95 • Discount rate is 9% FIN 320 Project Two Financial Assumptions Financial Option 1: Purchase a $10 Million Building Financial Option 2: Purchase of $25 Million in Equipment Financial Option 3: $30 Million Investment in Bonds Untitled Spreadsheet BalanceSheet Powered by Clearbit Tesla Inc (NMS: TSLA) Exchange rate used is that of the Year End reported date Standardized Quarterly Balance Sheet Report Date03/31/2021 1st Quarter CurrencyUSD Audit StatusNot Qualified ConsolidatedYes ScaleThousands Cash & Equivalents17,141,000.00 Cash & Equivs & ST Investments17,141,000.00 Receivables (ST)1,890,000.00 Inventories4,132,000.00 Other Current Assets1,542,000.00 Total Current Assets24,705,000.00 Gross Property Plant & Equip19,257,000.00 Accumulated Depreciation5,389,000.00 Net Property Plant & Equip13,868,000.00 Receivables (LT)- Intangible Assets505,000.00 Other Assets13,894,000.00 Total Assets52,972,000.00 Accounts Payable & Accrued Exps10,139,000.00 Accounts Payable6,648,000.00 Accrued Expenses3,491,000.00 Current Debt1,819,000.00 Other Current Liabilities2,919,000.00 Total Current Liabilities14,877,000.00 LT Debt & Leases9,053,000.00 Deferred LT Liabilities1,438,000.00 Minority Interests1,448,000.00 Other Liabilities3,139,000.00 Total Liabilities29,955,000.00 Common Share Capital1,000.00 Additional Paid-In Capital27,623,000.00 Retained Earnings(4,750,000.00) Accum Other Comprehensive Income143,000.00 Other Equity- 0 Total Equity23,017,000.00 Total Liabilities & Equity52,972,000.00 IncomeStatement Powered by Clearbit Tesla Inc (NMS: TSLA) Exchange rate used is that of the Year End reported date Standardized Quarterly Income Statement Report Date03/31/2021 1st Quarter CurrencyUSD Audit StatusNot Qualified ConsolidatedYes ScaleThousands Sales Revenue8,705,000.00 Other Revenue1,684,000.00 Total Revenue10,389,000.00 Direct Costs8,174,000.00 Gross Profit2,215,000.00 Selling General & Admin1,056,000.00 Research & Development666,000.00 Restruct Remediation & Impair(101,000.00) Other Operating Expense- 0 Total Indirect Operating Costs1,621,000.00 Operating Income594,000.00 Interest Income(89,000.00) Other Non-Operating Income28,000.00 Total Non-Operating Income(61,000.00) Earnings Before Tax533,000.00 Taxation69,000.00 Minority Interests26,000.00 Extraordinary Items- 0 Accounting Changes- 0 Net Income438,000.00 Preference Dividends & Similar- 0 Net Income to Common438,000.00 Average Shares Basic961,000.00 EPS Net Basic0.46 EPS Continuing Basic0.46 Average Shares Diluted1,133,000.00 EPS Net Diluted0.39 EPS Continuing Diluted0.39 Shares Outstanding963,000.00 CashFlow Powered by Clearbit Tesla Inc (NMS: TSLA) Exchange rate used is that of the Year End reported date Standardized Quarterly Cumulative CF Report Date03/31/2021 1st Quarter CurrencyUSD Audit StatusNot Qualified ConsolidatedYes ScaleThousands Net Income (Cumu)464,000.00 Adjustments from Inc to Cash (Cumu)1,189,000.00 Change in Working Capital (Cumu)(12,000.00) Cash Flow from Operations (Cumu)1,641,000.00 Purchase of Pty Plant & Equip (Cumu)(1,360,000.00) Change in Business Activities (Cumu)- Other Investing Cash Flows (Cumu)(1,222,000.00) Cash Flow from Investing (Cumu)(2,582,000.00) Change in LT Debt (Cumu)(1,162,000.00) Change in Equity (Cumu)183,000.00 Payment of Dividends (Cumu)(32,000.00) Other Financing Cash Flows (Cumu)(5,000.00) Cash Flow from Financing (Cumu)(1,016,000.00) Effect of Exchange Rate (Cumu)(221,000.00) Change in Cash (Cumu)(2,178,000.00) Opening Cash (Cumu)19,901,000.00 Closing Cash17,723,000.00 Depn & Amortn (CF) (Cumu)621,000.00 Net Purch of Pty Plant & Equip (Cumu)(1,360,000.00) Monthly Time Value of Money - Monthly Compounding Rate of ReturnYear 1 Initial InvestmentMonth123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 2 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 3 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 4 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 5 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 6 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 7 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 8 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 9 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Year 10 Month123456789101112 Interest$0$0$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0$0$0 Annual Time Value of Money - Annual Compounding Rate of ReturnYear 12345678910 Initial InvestmentInterest$0$0$0$0$0$0$0$0$0$0 Investment Value$0$0$0$0$0$0$0$0$0$0 PV Time Value of Money - Present Value Annuity Number of Years Rate of Return$0.00 Payment FV Time Value of Money - Future Value Annuity Number of Years Rate of Return$0.00 Payment PV - Lump Sum Time Value of Money - Present Value of Lump Sum Rate Years$0.00 Initial Investment FV - Lump Sum Time Value of Money - Future Value of Lump Sum Rate Years$0.00 Initial Investment NPV Net Present Value (NPV) Calculator Building Initial Investment$10,000,000Year12345678910 Annual Cash Inflows$1,250,000Cash Flows$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000 Discount Rate10%NPV = $864,920Year11121314151617181920 Number of Years20Cash Flows$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$1,250,000$2,750,000 Salvage Value$ 1,500,000 Equipment Initial Investment$25,000,000Year12345678910 Annual Cash Inflows$4,000,000Cash Flows$4,000,000$4,000,000$4,000,000$4,000,000$4,000,000$4,000,000$4,000,000$4,000,000$4,000,000$4,000,000 Discount Rate12%NPV = $2,243,458Year11121314151617181920 Number of Years15Cash Flows$4,000,000$4,000,000$4,000,000$4,000,000$4,000,000$0$0$0$0$0 Salvage Value$ - 0 Bonds Initial Investment$30,000,000 Annual Cash Inflows Discount Rate9%NPV = ($30,000,000)Year12345678910 Number of Years10Cash Flows$0$0$0$0$0$0$0$0$0$0 Principal Returned RATIOS ACCOUNTING & FINANCIAL RATIOS CURRENT RATIO (Current Assets / Current Liabilities)TOTAL ASSET TURNOVER RATIO (Total Revenue / Total Assets) Current Assets24705000000Total Revenue10389000000 Current Liabilities148770000001.66Total Assets529720000000.20 WORKING CAPITAL (Current Assets - Current Liabilities) FINANCIAL LEVERAGE (Total Assets / Shareholder's Equity) Current Assets24705000000Total Assets52972000000 Current Liabilities148770000009828000000Shareholder's Equity230170000002.30 DEBT RATIO (Total Debt / Total Assets)NET PROFIT MARGIN (Net Income / Total Revenue) Total Debt29955000000Net Income438000000 Total Assets529720000000.57Total Revenue103890000004.22% EARNINGS PER SHARE (Net Income / Weighted Average Common Shares Outstanding)RETURN ON ASSETS (Net Income / Total Assets) Net Income438000000Net Income438000000 Shares Outstanding9610000000.46Total Assets529720000000.83% PRICE EARNINGS RATIO (Share Price (end of quarter / EPS)RETURN ON EQUITY (Net Income - Preferred Dividends / Shareholder's Equity) Stock Price667.93NI - Pref. Div.438000000 EPS0.45577523411465.4811187215Shareholder's Equity230170000001.90% FIN 320 Project Two Financial Analyst Report [Note: To complete this template, replace the bracketed text with your own content. Remove this note before you submit your report.] Financial Analysis, Financial Evaluation, and Financial Recommendation(s) Financial Analysis A. Financial Calculations: Using the most current quarter’s financial statements for your chosen business and the Financial Formulas spreadsheet, calculate the financial formulas below to assess the business’s financial health. · Working capital: · [Write the result of the calculation and what it says about the company’s health.] · Current ratio: · [Write the result of the calculation and what it says about the company’s health.] · Debt ratio: · [Write the result of the calculation and what it says about the company’s health.] · Earnings per share: · [Write the result of the calculation and what it says about the company’s health.] · Price/earnings ratio: · [Write the result of the calculation and what it says about the company’s health.] · Total asset turnover ratio: · [Write the result of the calculation and what it says about the company’s health.] · Financial leverage: · [Write the result of the calculation and what it says about the company’s health.] · Net profit margin: · [Write the result of the calculation and what it says about the company’s health.] · Return on assets: · [Write the result of the calculation and what it says about the company’s health.] · Return on equity: · [Write the result of the calculation and what it says about the company’s health.] B. Working Capital Management: [In one paragraph, explain the impact of working capital management on the business’s operations.