Worksheet 1 – 2021 and 2022 Financial Statements

There are no computations required on this worksheet. It is background information only.

Worksheet 2 – Financial Statement Analysis (30 points)

1. Research: Locate the Industry Financial Information.

a. Enter this information in the appropriate areas of Worksheet 3.

2. Financial Statement Analysis: Using the provided financial statements on Worksheet 1 and the Industry data that you have researched:

a. Prepare a Vertical (Common Size) analysis of the Income Statement and Balance Sheet and a Horizontal (Trend) analysis of the Balance Sheet for San Diego Pleasure Craft.

b. Discuss your observations in the space provided on the Excel worksheet. Be sure to compare the company’s results with the indicated industry results.

Worksheet 3 – Ratio Analysis (40 points)

1. Using the data from Worksheets 1 and 2, perform a ratio analysis of San Diego Pleasure Craft.

a. Calculate all the ratios for SDPC that are listed in the table on the Excel spreadsheet template.

b. Comment on whether each ratio is an indicator of better or worse performance as compared with the industry. Write your comments in the designated area on the Excel template.

c. Comment on the overall performance per ratio category: Liquidity, Turnover, Debt, and Profitability. Write your comments in the designated area on the Excel template.

Worksheet 4 – Financial Cash Flow Analysis (30 points)

1. Prepare the ﬁnancial analysis of cash ﬂows from the provided accounting statement of cash flows and the additional information above. Then, address the following questions:

a. Which cash ﬂows statement more accurately describes the cash ﬂows at the company?

b. How would you describe East Coast Yachts’ cash ﬂows?

c. In light of your previous answers, comment on SDPC’s expansion plans.

Worksheet 5 – Estimating Growth Requirement

1. Calculate the Internal growth rate for SDPC.

2. Calculate the sustainable growth rate for SDPC.

3. SDPC is planning for a growth rate of 18 percent next year. How does this percentage compare to the internal growth rate that you calculated? What are your conclusions and recommendations about the feasibility of SDPC’s expansion plans?

4. Assume that SDPC is currently producing at 100 percent of capacity and sales are expected to grow at 18 percent. As a result, to expand production, the company must set up an entirely new production line at an estimated cost of $105,000,000. Input the projected 18% growth rate, the tax rate of 21%, and the $105 million increase in Fixed Assets in the pro forma Input parameters box. Under these assumptions, how much external financing will SDPC need to implement the new production line project?

5. Re-compute the selected ratios assuming the external financing will be added to Long-term Debt. In other words, add the amount of EFN to Long-term debt when computing the ratios.

6. Will there be any significant changes the projected growth and expansion investment will cause? Explain your answer.

Worksheet 6 – Bond Financing

To help fund the expansion, SDPC is considering a Bond issue of new 30-year bonds. The face value on the bonds will be $1,000. The coupon bond would have a 6.5 percent coupon rate. The company’s tax rate is 21 percent, and the market rate is 7%.

1. How much total bond financing is needed?

2. At what price will the bonds trade after the initial issue?

3. What is the market value of the bonds?

4. What are the company’s annual coupon payments?

5. Please discuss the implications of your calculations and why the market value and the actual proceeds from the bond issue are different.

Worksheet 7 – Capital Structure

After an engineering study was done on the proposed project, it was determined that the actual cost of the new production facility will be $135,000,000. Since the actual cost of the new plant exceeds the original estimates, determine the effect of this on the External funds needed and the Capital Structure.

1. Determine the new level of External Financing Needed.

2. If SDPC decides to implement this expansion plan, what options for the additional financing does the company have?

3. How will the capital structure of the firm change under each option?

4. How do each of these options affect the financial ratios?

Worksheet 8 – Net Present Value (NPV)

After your initial Growth study in Part 2 of this project, the company determined that the actual cost of the new plant will be $135,000,000 and will require an immediate outlay of $20 million and an additional outlay of $115 million in one year. You must decide if the company will finance the entire project through debt or will issue the original amount of Bonds and offer equity financing for the remaining financing needs. Be sure to use the appropriate projected interest payments in your calculation. You should use this PV table Download PV table to find the appropriate PV factor.

1. Compute the Net Working Capital (NWC).

2. Compute the Operating Cash Flow for each year.

3. Compute the NPV of the project.

4. Discuss your recommendations for undertaking this project, and for financing its cost.