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StartupCo commenced operations at the beginning of 2020. $125 million of equity was raised to fund the purchase of equipment as well as for general corporate purposes. As part of its business planning process, a 5-year forecast was developed (Base Case) as well as upside and downside scenarios (High and Low Cases, respectively). At the end of 2020, StartupCo issued $150 million of 5-year debt, repayable in equal annual installments at the end of each year, to finance its future capital program.

1.

Using the Base Case, calculate net earnings for 2021E.

$5,250

$6,600

$7,163

$7,725

2

Using the Low Case, calculate total depreciation expense for the year 2025E.

$9,775

$17,500

$11,500

$14,875

3

Using the High Case, calculate the change in non-cash working capital in 2023E that would appear on the Cash Flow Statement.

$1,828

-$1,828

$141

-$141

4

Using the High Case, calculate the debt balance at the end of 2022E.

$150,000

$0

$90,000

$120,000

6

Using the Low Case, calculate the asset-to-equity ratio in 2024E.

0.2x

1.2x

5.6x

1.0x

7

Using the Base Case, calculate the ROE in 2022E.

5.10%

4.20%

4.50%

5.50%

Model Inputs and Assumptions General Assumptions Forecast Scenario Days Per Year 365 Capital Expenditure Assumptions Asset Salvage Value (% of Capital Addition) Asset Useful Life 15% 10 Years 2020 2021E 2022E 2023E 2024E 2025E Income Statement Sales Revenue Cost of Sales Gross Profit $50,000 ($22,500) $27,500 $0 50 $0 $0 $0 SG&A Expense Depreciation Expense Interest Expense Income Before Income Taxes Income Taxes Net Income ($5,000) ($8,500) SO $14,000 ($3,500) $10,500 $0 81 $0 50 SO $0 $0 $0 $0 $0 Balance Sheet Assets Cash & Cash Equivalents Accounts Receivable Total Current Assets $194,000 $5,000 $199,000 18 SO $0 $0 Property, Plant & Equipment Total Assets $91,500 $290,500 $0 $0 $0 $0 $O Liabilities Accounts Payable Total Current Liabilities $5,000 $5,000 18 81 $0 SO $0 Long-Term Debt Total Liabilities $150,000 $155,000 $0 $0 $0 $0 $0 Shareholders' Equity Share Capital Retained Earnings Total Shareholders' Equity Total Liabilities and Shareholders' Equity $125,000 $10,500 $135,500 $290,500 $ $0 $0 $0 $0 $0 $0 $0 $0 $0 2021E 2022E 2023E 2024E 2025E Base Case Income Statement Assumptions Annual Sales Growth (%) Cost of Sales (% of Sales) SG&A Expense (% of Sales) 6.0% 40.0% 10.0% 6.0% 40.0% 10.0% 6.0% 40.0% 10.0% 6.0% 40.0% 10.0% 6.0% 40.0% 10.0% 5.0% Interest Rate Effective Tax Rate 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 25.0% 5.0% 25.0% Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equity Issued (Repaid) 30 25 $20.000 $0 30 25 $20,000 $0 30 25 $20,000 $0 30 25 $20,000 $0 30 25 $20.000 $0 High Case Income Statement Assumptions Annual Sales Growth Cost of Sales (% of Sales) SG&A Expense (% of Sales) 8.0% 30.0% 8.0% 30.0% 8.0% 8.0% 30.0% 8.0% 8.0% 30.0% 8.0% 8.0% 30.0% 8.0% 8.0% Interest Rate Effective Tax Rate 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equity Issued (Repaid) 20 30 $30,000 $0 20 30 $30,000 $0 20 30 $30,000 $0 20 30 $30,000 $0 20 30 $30,000 $0 Low Case Income Statement Assumptions Annual Sales Growth Cost of Sales (% of Sales) SG&A Expense (% of Sales) 3.0% 45.0% 15.0% 3.0% 45.0% 15.0% 3.0% 45.0% 15.0% 3.0% 45.0% 15.0% 3.0% 45.0% 15.0% Interest Rate Effective Tax Rate 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% -------- Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equity Issued (Repaid) 50 20 $15.000 50 20 $15.000 $0 50 20 $15,000 $0 50 20 $15,000 $0 50 20 $15,000 SO ---- SO

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