Financial Management - Assume the reader has no clear

Financial Management

· 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

Bluerock 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

Bluerock 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:

 

Bluerock 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:

1. Project the income statement for Bluerock for the year 2017 using the scenarios listed above.

2. 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.

3. Create a common-size Income statement for each scenario

4. Please give a definition for each financial statement presented above:

a. What is an income statement?

b. What is a balance sheet? What is the Balance Sheet Identity formula? Explain the relationship between both sides of the equation

Part II

1. 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.

2. 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)     A.  percentage of sales method B.  sales dilution method C.  sales reconciliation method D.  common-size method E.  trend method 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)   A.  statement of standardization B.  statement of cash flows C.  common-base year statement D.  common-size statement E.  base reconciliation statement

6. 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? 

7. How many days of sales are receivable? (Use 2012 values)    

8. Risk Free =3%, Beta=1.2, Expected Return on the market=7%. Calculate CAPM.

9. 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%.

10. 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.

11. 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.

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