STUDENT NAME:

STUDENT NUMBER:
DUE DATE: 9:00 a.m., Monday April 8, 2019
MAX. GRADE: 10% of Final Grade

THE AMERICAN UNIVERSITY OF BEIRUT

OLAYAN SCHOOL OF BUSINESS
FINA 306 – Intermediate Corporate Finance
QUIZ 3, Spring 2019

Write your
Please read name and studenteach
CAREFULLY identification number
question and makeon thisyou
sure sheet.
answer each question and sub-
questions. Show and defend your analysis.
Write your answers within the designated space. Use excel functions and formulas to do all
calculations for partial or full credit.
Please make your writing is clear and precise.
Submit your solution in soft copy via Moodle, Quiz 3
Scenario Expected case
Revenue Growth rate 9% NPV
Initial Fixed Assets requirement 5,100,000 IRR
Interest rate 7%
Subscription commission 3%
Other services COGS 35%
A/R % 5%

PROJECTED INCOME STATEMENT

2019 2020
Hardware sales 150,000,000 163,500,000
Subscriptions 206,000,000 224,540,000
other services 50,000,000 54,500,000
Total sales 406,000,000 442,540,000

COGS 327,500,000 356,975,000

Depreciation 1,020,000.00 1,111,800.00
Interest expense 4,200,000 999,600.00
other expenses 10,150,000 11,063,500
EBIT 63,130,000 72,390,100
Tax (@10%) 6,313,000 7,239,010
Net Income 56,817,000 65,151,090

Dividend payout 30% 17,045,100 19,545,327

BALANCE SHEET
2019 start 2019 2020
Cash - 19,471,900 42,950,663
Account Receivables - 20,300,000 22,127,000
Inventory 135,000,000 105,000,000 114,450,000
Current Asset 135,000,000 144,771,900 179,527,663
Fixed Assets 5,100,000 5,100,000 5,559,000
Accumulated depreciation - 1,020,000 2,131,800
Net Fixed Asset 5,100,000 4,080,000 3,427,200

Total Asset 140,100,000 148,851,900 182,954,863

current liabilities - 14,700,000 16,023,000

Total Current Liabilities - 14,700,000 16,023,000
L/T Debt 60,000,000 14,280,000 41,226,100
Common Stock 80,100,000 80,100,000 80,100,000
Retained Earning - 39,771,900 45,605,763
Total liabilities and equities 141,120,000 149,871,900 183,974,863
Interest on L/T Debt 4,200,000 999,600

Check 1,020,000.00 1,020,000.00 1,020,000.00

NWC 135,000,000.00 110,600,000.00 120,554,000.00

Inventory 70%
other current liabilities 14%
other expenses 3%

Additional financing need (45,720,000.00) 26,946,100.00

 26,234,806
26%

2021 Net Income

178,215,000 Depreciation
244,748,600 Change Net Working Capital
59,405,000 Operating Cash Flow
482,368,600 NPV
IRR

369,482,750
1,211,862.00
2,885,827.00
12,059,215 Change in current asset
96,728,946 Change in net fixed asset
9,672,895 Change in total asset
87,056,051 Change in current liabilities

26,116,815 New Total Financing Need

New Additional Retained Earning
New External Financing Need
New Additional External debt
2021 New Additional External Equity
79,771,469
24,118,430
124,750,500
228,640,399
6,059,310 Financial Ratio
3,343,662 Return on Equity
2,715,648 Return on asset

231,356,047 Return on Capital (ROC)

EVA
17,465,070 Operating Profit Margin
 17,465,070 Asset Turnover
72,851,741 Long-Term Debt Ratio
80,100,000 Long-Term Debt-Equity Ratio
60,939,236 Total Debt Ratio
232,376,047 Times Interest Earned
2,885,827 Current Ratio
Sustainable Growth

1,020,000.00

131,403,860.00

31,625,641.00
CASH FLOW PROJECTION
56,817,000.00 65,151,090.00 87,056,051.40
1,020,000.00 1,111,800.00 1,211,862.00
(24,400,000.00) 9,954,000.00 10,849,860.00
82,237,000.00 56,308,890.00 77,418,053.40
26,234,806
26%

ADDITIONAL CALCULATION
2019 2020 2021
- 34,755,763 49,112,736
- (652,800) (711,552)
- 34,102,963 48,401,184
- 1,323,000 1,442,070

- 32,779,963 46,959,114
- 19,545,327.0 26,116,815.4
- 13,234,636.0 20,842,298.6
- 5,293,854.40 8,336,919.42
- 7,940,781.60 12,505,379.14

FINANCIAL RATIO ANALYSIS

Ratio Formula 2019 2020 2021
net income/equity 0.4740 0.5183 0.6172
'= (net income + interest)/TA 0.4099 0.3616 0.3888
= (net income +
interest)/(long term debt +
equity) 0.4548 0.3963 0.4205

= net income – (cost of equity

RADR*equity)
= (net income + interest) / sales 0.1503 0.1495 0.1865
= sales/TA at start of year - 2.9730 2.6365
= long term debt / (long term de 0.1064 0.2470 0.3406
'= long term debt / equity 0.1191 0.3280 0.5165
= total liabilities / TA 0.1947 0.3129 0.3904
= EBIT / interest payments 15.0310 72.4191 33.5186
= CA / CL 9.8484 11.2044 13.0913
= (1–dividend payout ratio) *RO 0.1896 0.2073 0.2469
 CAPITAL STRUCTURE CALCULATION
2019 2020 2021
Cost of debt after tax 6.30%
Beta of debt 0.07 0.07 0.07
Long Term debt (LTD) 14,280,000 41,226,100 72,851,741
After tax Long term debt 12,852,000.0 37,103,490.0 65,566,566.9
Equity 119,871,900 125,705,763 141,039,236

After tax LTD ratio (Wd) 0.09683259759546 0.227895462428048 0.31735104235229

After tax equity ratio (We) 0.90316740240454 0.772104537571952 0.68264895764771
Beta of levered equity (ßeL) 1.7 1.69 1.68
Cost of levered equity (KeL) 0.158 0.1574 0.1568
WACC 15% 12% 11%

NPV & IRR CALCULATION

Today Initial Investment 2019 2020 2021

Net Cash Flow (139,080,000) 82,237,000 56,308,890 77,418,053
NPV 26,234,806.39
IRR 26%

PAYBACK PERIOD
Year Annual cash flow Cummulative cash flow
0 (139,080,000) (139,080,000)
1 82,237,000 (56,843,000)
2 56,308,890 (534,110)

3 77,418,053 76,883,943

Payback period 2.1

Scenarios Best case Expected case Worst Case
Revenue Growth rate 13% 9% 4%
Fixed Assets requirement 4,080,000.00 5,100,000.00 6,324,000.00
Interest rate 4% 7% 12%
Subscription commission 6% 3% 2%
Account receivables % of sales 3% 5% 9%
NPV 54,509,600 26,234,806 (2,065,014)
IRR 38% 26% 14%
Scenarios Best case Expected case Worst Case
Revenue Growth rate 13% 9% 4%
Fixed Assets requirement 4,080,000.00 5,100,000.00 6,324,000.00
Interest rate 4% 7% 12%
Subscription commission 6% 3% 2%
Other services COGS 25% 35% 43%
Account receivables % 3% 5% 9%

Capital asset requirements Initial purchases

Bus ( Vehicle) 1,200,000.00 Inventory of decoders
Land 1,000,000.00 SMA
Building 2,000,000.00
Equipment 900,000.00
5,100,000.00

Hardware COGS 85%

Subscription WC 200,000,000.00 Dividend Payout ratio

Retention ratio

Financing
L/T debt 60,000,000.00 60,000,000.00 60,000,000.00
Common stock 79,080,000.00 80,100,000.00 80,304,000.00
139,080,000.00
135,000,000.00
200,000,000.00
335,000,000.00

30%
70%