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AFN Analysis is needed for the following scenario:

Company Information:

Hildebrand Consumer Products, Inc.
Balance Sheet
Assets:			Liabilities:
Current Assets	$995,000		Accounts Payable	$300,000
			Notes Payable	$700,000
Fixed Assets	$3,000,000		Other Current Liabilities	$195,000
			Bonds Payable	$1,200,000
			Total Liabilities:	$2,395,000
			Equity	$1,600,000
Total Assets:	$3,995,000		Total Liabilities & Equity:	$3,995,000

Current Market Information:

700 Bonds - $1,000, 20 years, 10% stated rate, issued 8 years ago - currently selling at $970

500 Bonds - $1,000, 10 years, 15% stated rate, issued 3 years ago - currently selling at $1,050

100,000 shares of common stock - currently selling for $21.00 per share

Financial Analysis:

= 1.15, R_M = 22%, R_RF = 2.5% Tax Rate = 40%

Lender Requirements:

Funds will only be distributed in even amounts of $50,000. (50,000, 100,000, 150,000, etc.)

If AFN > $200,000 then the Pre-tax Cost of debt will be 15%; otherwise, it will be 18%

PROJECT SPECIFICATION

Term: 9 years

Outlay: $1,500,000 for Equipment, depreciable over 10 years, salvage value $160,000

$600,000 lost opportunity with an existing vendor

$250,000 required NWC recoverable in Year 9

$250,000 required in Year 5 to repair and maintain equipment

In the first year, sales will increase $1,950,000. Sales are currently $14,000,000. The current profit margin is 30% and the payout ratio is 55%. After Year 1, it is likely that sales will grow 7% per year, and Cost of Goods Sold will grow by 2% per year. The company will need to borrow any funds identified through AFN analysis.

Best Case: After Year 1, sales will increase 8% per year. The assumption regarding Cost of Goods Sold would increase 2% per year.

Worst Case: After Year 1, sales would increase 2% per year and Cost of Goods Sold would increase 3% per year.

Any calculations and explanation would be greatly appreciated.

Answer & Explanation Solved by verified expert

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