70.2K

Verified Solution

Link Copied!

I need assistance answering question 4:

1. Use the 2019 financial statements and the 2020 projected sales from problem #3 to answer the following questions.

a. Calculate the AFN (or excess funds) using the long AFN formula

b. Why is this AFN different than the AFN calculated using the pro forma balance sheet? Consider the assumptions made in the formula that may not be true for this company.

c. Which AFN is most accurate for NAUFIN company, the balance sheet AFN from problem 3 or the formula result from 4.a.? Why?

And Question 5:

1. Find the following information from American Airlines' financial statements and use it to calculate their Free Cash Flows for 2019. Use finance.yahoo.com or money.msn.com to access their financial statements. Their ticker symbol is AAL.

Investment in Gross fixed assets = 2019 Gross PP&E - 2018 Gross PP&E

Depreciation = EBITDA - EBIT

NOWC = (Cash + Accounts Receivable + Inventory) - (Accounts Payable + Accrued Liabilities)

2019 EBIT =

Tax rate (Effective) =

2019 Depreciation & Amortization =

2019 Investment in Gross Fixed Assets =

2019 NOWC =

2018 NOWC =

FCF =

For reference, below I have attached the information that will be useful for finding the answer.

AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 "AI to = AL T AaBbcDdEe AaBbCcDdEe AaBbCcDc AabbCcDdEt AaBb AaBb CcDd Ee Aa Bb CcDdEe Paste Normal B I Title Uvab ADA No Spacing Heading 1 Heading 2 Subtitle Subtle Emph... Dictate Styles Pane 4. [3 points] Use the 2019 financial statements and the 2020 projected sales from problem #3 to answer the following questions. a. Calculate the AFN (or excess funds) using the long AFN formula b. Why is this AFN different than the AFN calculated using the pro forma balance sheet? Consider the assumptions made in the formula that may not be true for this company. C. Which AFN is most accurate for NAUFIN company, the balance sheet AFN from problem 3 or the formula result from 4..? Why? 5. [4 points) Find the following information from American Airlines' financial statements and use it to calculate their Free Cash Flows for 2019. Use finance.yahoo.com or money.msn.com to access their financial statements. Their ticker symbol is AAL. Investment in Gross fixed assets = 2019 Gross PP&E - 2018 Gross PP&E Depreciation = EBITDA - EBIT NOWC = (Cash + Accounts Receivable + Inventory) - (Accounts Payable + Accrued Liabilities) 2019 EBIT = Tax rate (Effective) = 2019 Depreciation & Amortization = 2019 Investment in Gross Fixed Assets = 2019 NOWC = 2018 NOWC = FCF = Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF sve W FIN 311_Team Exam Review 1 Tell me Home Insert Draw Design Layout References Mailings Review View Share 0 Comments X Calibri 11 . AF Aa v u 2 T cDde AaBbCcDdEe V AaBbCcDc AaBbCcDdEe AaBb AaBbceDd Ee AaBbCcDEE Paste T Normal B Uvab X, X ADA No Spacing Title Heading 1 Heading 2 Subtitle Subtle Emph... Dictate Styles Pane You are welcome to use Excel to do your calculations and copy and paste your answers here. 1. [6 points] You have been given the following information for NAUFIN Company. They have asked you to do trend and comparative analyses and evaluate the financial strength of the company. Compute the ratios below for 2019 (show your work), Ratio Actual 2017 Actual 2018 Actual 2019 Industry Avg Current 1.4 1.55 1.67 1.85 Quick 1 0.92 $0.88 1.05 Inventory Turnover 9.52 9.21 7.89 8.6 Debt Ratio 0.2 0.2 0.35 0.3 Times Interest Earned 8.2 7.3 6.50 8 Net Profit Margin 0.062 0.062 0.07 0.053 EPS $1.75 $2.20 $3.05 $1.50 2019 information: Sales Cost of Goods Sold Operating Profit (EBIT) Interest Expense Net Income Preferred Dividends Earnings Avail for Common Shareholders $10,000,000 Accounts Receivable $7,500,000 Inventory $1,300,000 Total Current Assets $200,000 Total Assets $660,000 Total Current Liabilities $ 50,000 Total Liabilities Common Stock $610,000 (200,000 shares outstanding) $800,000 $950,000 $2,000,000 $12,000,000 $1,200,000 $4,200,000 $600,000 2. [2 points) Your company has $5,000 in net fixed assets and is currently operating at 95% capacity. Your sales are $10,000 and you expect them to grow by 10% next year. What is the maximum sales level your net fixed assets can support? Sales at 95% = $10,000 Sale at 100% = $10,526.32 Calculation: (10000/95%) Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 "AI to AL AaBbDdEe AalbCcDdEe AaBbCcDc AabbCcDdEt AaBb AaBb CcDd Ee Aa Bb CcDdEe Paste B Normal I Title ADA Uvab No Spacing Heading 1 Heading 2 Subtitle Subtle Emph... Dictate Styles Pane 3. [10 points] Please complete the Proforma Income Statement and Balance Sheet on the next several pages based on the 2019 financial statements and the projections for 2020. Use the percent of sales approach for projections. Round to the nearest whole number (no decimals). Projections for 2020: 1. Projected sales are $6,200 2. The tax rate will change to 25% 3. The firm will pay cash dividends amounting to 40% of net profits after taxes 4. The company has excess capacity so no new fixed assets will need to be purchased 5. Notes Payables will remain constant 6. $100 of new long-term debt will be issued (borrowed) in 2020. 7. Interest is 20% of LT Debt and interest expense will increase due to the increase in LT Debt (see number 6 above). NAUFIN Income Statement For the Year Ended December 31, 2019 (in thousands) Sales Revenue Less: Cost of Goods Sold Gross Profit Less: Operating Expenses Operating Profit (EBIT) Less: Interest Expense (20% of LT Debt) Net profits before taxes Less: Taxes (rate = 25%) Net Profit after taxes Less: Cash Dividends To Retained Earnings $5,000 -2,750 2,250 -850 1,400 -180 1,220 -305 915 -320 595 Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 " to AL AaBbCcDdEe AaBbCcDdEe AaBbCcDdEt AaBb AaBbceDd Ee Aa Bb CcDdEe AaBbCcDc Heading 1 Paste Normal B I . Title Uvab ADA No Spacing Heading 2 Subtitle Subtle Emph... Dictate Styles Pane NAUFIN Pro Forma Income Statement For the Year Ended December 31, 2020 (in thousands) 2020 Assumptions/Calculations Forecast Sales Revenue $6,200 Given Less: Cost of Goods Sold $3,410 55% of sales revenue (6200*2750/5000) Gross Profit $2,790 6200-3410 Less: Operating Expenses $1,054 17% of sales revenue (6200*850/5000) Operating Profit (EBIT) Less: Interest Expense $200 20% of 1000 LT debt (1000*20%/100) Net profits before taxes Less: Taxes (rate = 25%) $384 Given Net Income $1,152 1536-384 Less: Cash Dividends $461 Given (40% of Net Income) To Retained Earnings $1,736 2790-1054 $1,536 1736-200 $691 1152-461 Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 ~ to AL T AaBbCcDdEe AaBbCcDdEe AaBbCcDdEt AaBb AaBbceDd Ee Aa Bb CcDdEe AaBbCcDc Heading 1 Paste Normal B I . Title Uvab ADA No Spacing Heading 2 Subtitle Subtle Emph... Dictate Styles Pane NAUFIN Assets Balance Sheet As of December 31, 2019 (in thousands) Liabilities & Owner's Equity Current Liabilities: $300 Accounts Payable 600 Notes Payable Total Current 800 Liabilities Current Assets: Cash $500 Accounts Receivable 200 700 Inventory Total Current Assets 900 1,700 Long-term Debt Total Liabilities 1,600 Net Property, Plant & Equip 2,000 Owner's Equity: 700 500 900 Common stock, at par Additional Paid-in Capital, common Retained Earnings Total Owner's Equity Total Liabilities & Total Assets $3,700 Owner's Equity Additional (external) funds needed, or excess funds 2,100 $3,700 $0.00 Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 " to = AL T AaBbCcDdEe AalbCcDdEe AaBbCcDc AaBbCcDdEt AaBb AaBbceDd Ee Aa Bb CcDdEe Paste Normal B I Title Uvab ADA No Spacing Heading 1 Heading 2 Subtitle Subtle Emph... Dictate Styles Pane NAUFIN Pro Forma Balance Sheet As of December 31, 2020 (in thousands) 2020 Forecast Assumptions/Calculations Assets Current Assets: Cash Accounts Receivable Inventory Total Current Assets 372 6% of sales revenue (6200*6/100) 744 992 2,108 Net Property, Plant & Equipment 2,000 Total Assets 4,108 Liabilities & Owner's Equity Current Liabilities: Accounts Payable Notes Payable Total Current Liabilities 620 200 820 Long-term Liabilities Total Liabilities 1,000 1,820 Owner's Equity: Common Stock, par value Additional Paid-in Capital Retained Earnings Total Owner's Equity 700 500 1,116 2,316 Total Liabilities & Owner's Equity 4,136 Additional (external) funds needed, or excess funds (circle one) $28 Calculate the AFN above using the balance sheet, not the long AFN formula. Calculations: Double-click or double-tap to Edit Microsoft Excel Worksheet O Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 "AI to = AL T AaBbcDdEe AaBbCcDdEe AaBbCcDc AabbCcDdEt AaBb AaBb CcDd Ee Aa Bb CcDdEe Paste Normal B I Title Uvab ADA No Spacing Heading 1 Heading 2 Subtitle Subtle Emph... Dictate Styles Pane 4. [3 points] Use the 2019 financial statements and the 2020 projected sales from problem #3 to answer the following questions. a. Calculate the AFN (or excess funds) using the long AFN formula b. Why is this AFN different than the AFN calculated using the pro forma balance sheet? Consider the assumptions made in the formula that may not be true for this company. C. Which AFN is most accurate for NAUFIN company, the balance sheet AFN from problem 3 or the formula result from 4..? Why? 5. [4 points) Find the following information from American Airlines' financial statements and use it to calculate their Free Cash Flows for 2019. Use finance.yahoo.com or money.msn.com to access their financial statements. Their ticker symbol is AAL. Investment in Gross fixed assets = 2019 Gross PP&E - 2018 Gross PP&E Depreciation = EBITDA - EBIT NOWC = (Cash + Accounts Receivable + Inventory) - (Accounts Payable + Accrued Liabilities) 2019 EBIT = Tax rate (Effective) = 2019 Depreciation & Amortization = 2019 Investment in Gross Fixed Assets = 2019 NOWC = 2018 NOWC = FCF = Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF sve W FIN 311_Team Exam Review 1 Tell me Home Insert Draw Design Layout References Mailings Review View Share 0 Comments X Calibri 11 . AF Aa v u 2 T cDde AaBbCcDdEe V AaBbCcDc AaBbCcDdEe AaBb AaBbceDd Ee AaBbCcDEE Paste T Normal B Uvab X, X ADA No Spacing Title Heading 1 Heading 2 Subtitle Subtle Emph... Dictate Styles Pane You are welcome to use Excel to do your calculations and copy and paste your answers here. 1. [6 points] You have been given the following information for NAUFIN Company. They have asked you to do trend and comparative analyses and evaluate the financial strength of the company. Compute the ratios below for 2019 (show your work), Ratio Actual 2017 Actual 2018 Actual 2019 Industry Avg Current 1.4 1.55 1.67 1.85 Quick 1 0.92 $0.88 1.05 Inventory Turnover 9.52 9.21 7.89 8.6 Debt Ratio 0.2 0.2 0.35 0.3 Times Interest Earned 8.2 7.3 6.50 8 Net Profit Margin 0.062 0.062 0.07 0.053 EPS $1.75 $2.20 $3.05 $1.50 2019 information: Sales Cost of Goods Sold Operating Profit (EBIT) Interest Expense Net Income Preferred Dividends Earnings Avail for Common Shareholders $10,000,000 Accounts Receivable $7,500,000 Inventory $1,300,000 Total Current Assets $200,000 Total Assets $660,000 Total Current Liabilities $ 50,000 Total Liabilities Common Stock $610,000 (200,000 shares outstanding) $800,000 $950,000 $2,000,000 $12,000,000 $1,200,000 $4,200,000 $600,000 2. [2 points) Your company has $5,000 in net fixed assets and is currently operating at 95% capacity. Your sales are $10,000 and you expect them to grow by 10% next year. What is the maximum sales level your net fixed assets can support? Sales at 95% = $10,000 Sale at 100% = $10,526.32 Calculation: (10000/95%) Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 "AI to AL AaBbDdEe AalbCcDdEe AaBbCcDc AabbCcDdEt AaBb AaBb CcDd Ee Aa Bb CcDdEe Paste B Normal I Title ADA Uvab No Spacing Heading 1 Heading 2 Subtitle Subtle Emph... Dictate Styles Pane 3. [10 points] Please complete the Proforma Income Statement and Balance Sheet on the next several pages based on the 2019 financial statements and the projections for 2020. Use the percent of sales approach for projections. Round to the nearest whole number (no decimals). Projections for 2020: 1. Projected sales are $6,200 2. The tax rate will change to 25% 3. The firm will pay cash dividends amounting to 40% of net profits after taxes 4. The company has excess capacity so no new fixed assets will need to be purchased 5. Notes Payables will remain constant 6. $100 of new long-term debt will be issued (borrowed) in 2020. 7. Interest is 20% of LT Debt and interest expense will increase due to the increase in LT Debt (see number 6 above). NAUFIN Income Statement For the Year Ended December 31, 2019 (in thousands) Sales Revenue Less: Cost of Goods Sold Gross Profit Less: Operating Expenses Operating Profit (EBIT) Less: Interest Expense (20% of LT Debt) Net profits before taxes Less: Taxes (rate = 25%) Net Profit after taxes Less: Cash Dividends To Retained Earnings $5,000 -2,750 2,250 -850 1,400 -180 1,220 -305 915 -320 595 Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 " to AL AaBbCcDdEe AaBbCcDdEe AaBbCcDdEt AaBb AaBbceDd Ee Aa Bb CcDdEe AaBbCcDc Heading 1 Paste Normal B I . Title Uvab ADA No Spacing Heading 2 Subtitle Subtle Emph... Dictate Styles Pane NAUFIN Pro Forma Income Statement For the Year Ended December 31, 2020 (in thousands) 2020 Assumptions/Calculations Forecast Sales Revenue $6,200 Given Less: Cost of Goods Sold $3,410 55% of sales revenue (6200*2750/5000) Gross Profit $2,790 6200-3410 Less: Operating Expenses $1,054 17% of sales revenue (6200*850/5000) Operating Profit (EBIT) Less: Interest Expense $200 20% of 1000 LT debt (1000*20%/100) Net profits before taxes Less: Taxes (rate = 25%) $384 Given Net Income $1,152 1536-384 Less: Cash Dividends $461 Given (40% of Net Income) To Retained Earnings $1,736 2790-1054 $1,536 1736-200 $691 1152-461 Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 ~ to AL T AaBbCcDdEe AaBbCcDdEe AaBbCcDdEt AaBb AaBbceDd Ee Aa Bb CcDdEe AaBbCcDc Heading 1 Paste Normal B I . Title Uvab ADA No Spacing Heading 2 Subtitle Subtle Emph... Dictate Styles Pane NAUFIN Assets Balance Sheet As of December 31, 2019 (in thousands) Liabilities & Owner's Equity Current Liabilities: $300 Accounts Payable 600 Notes Payable Total Current 800 Liabilities Current Assets: Cash $500 Accounts Receivable 200 700 Inventory Total Current Assets 900 1,700 Long-term Debt Total Liabilities 1,600 Net Property, Plant & Equip 2,000 Owner's Equity: 700 500 900 Common stock, at par Additional Paid-in Capital, common Retained Earnings Total Owner's Equity Total Liabilities & Total Assets $3,700 Owner's Equity Additional (external) funds needed, or excess funds 2,100 $3,700 $0.00 Double-click or double-tap to Edit Microsoft Excel Worksheet D Focus + 120% AutoSave OFF W FIN 311_Team Exam Review 1 Home Insert Draw Design Layout References Mailings Review View Tell me Share 0 Comments Calibri 11 " to = AL T AaBbCcDdEe AalbCcDdEe AaBbCcDc AaBbCcDdEt AaBb AaBbceDd Ee Aa Bb CcDdEe Paste Normal B I Title Uvab ADA No Spacing Heading 1 Heading 2 Subtitle Subtle Emph... Dictate Styles Pane NAUFIN Pro Forma Balance Sheet As of December 31, 2020 (in thousands) 2020 Forecast Assumptions/Calculations Assets Current Assets: Cash Accounts Receivable Inventory Total Current Assets 372 6% of sales revenue (6200*6/100) 744 992 2,108 Net Property, Plant & Equipment 2,000 Total Assets 4,108 Liabilities & Owner's Equity Current Liabilities: Accounts Payable Notes Payable Total Current Liabilities 620 200 820 Long-term Liabilities Total Liabilities 1,000 1,820 Owner's Equity: Common Stock, par value Additional Paid-in Capital Retained Earnings Total Owner's Equity 700 500 1,116 2,316 Total Liabilities & Owner's Equity 4,136 Additional (external) funds needed, or excess funds (circle one) $28 Calculate the AFN above using the balance sheet, not the long AFN formula. Calculations: Double-click or double-tap to Edit Microsoft Excel Worksheet O Focus + 120%

Answer & Explanation Solved by verified expert

See Answer