Create a table showing the net working capital in each year.
Thank you.
Speakco is in the music industry and is highly profitable, and you have been asked to assess a new division: holographic immersion concert experiences. The company is diversified, and equity holders require an 11.5% return for the company as a whole. There are 900,000 outstanding shares with a share price of $540.00. There are 500,000 bonds (face value = $1000/bond) issued with a coupon rate of 4% paid semiannually, 10 years left to maturity. The bond is currently trading at $950.55.
There are no dominant competitors in this space. However, there is one all-equity company, Nirvana-tech, that has a market capitalization of $40 million.
Speakco finance staff has determined that it would cost about $9.8 million to build out an efficient plant, finished by the end of the year. The operation will start sales in the beginning of 2022.
In answering the questions given below, make the following assumptions for Speakco: Growth rate for division after 2025 = 2%, Risk-free rate = 2.6%, Market risk premium = 8%, Tax rate = 21%, Beta of Nirvana = 1.3.
Proposal Projections (in thousands of dollars):
PROJECTED INCOME
2020 2021 2022 2023 2024 2025
Units sold 500 12,000 14,250 14,500 14,750 15,000
Price per unit $3.66 $3.19 $8.33 $7.87 $4.13 $7.11
Revenues (thousands) $1,830 $38,280 $118,762 $114,135 $60,748 $106,650
COGS $1,642 $7,725 $7,787 $4,130 $2,642 $7,111
Gross profit $188 $30,555 $110,975 $109,005 $58,106 $99,539
SG&A $3,660 $3,190 $833 $363 $2,642 $7,725
Depreciation $787 $4,130 $5,642 $7,111 $8,794 $758
Pretax operating profit $16,663 $8,794 $7,587 $7,111 $18,820 $9,933
PROJECTED BALANCE
2020 2021 2022 2023 2024 2025
Cash $600 $2,915 $5,063 $6,002 $7,029 $7,218
Accounts receivable $702 $5,850 $9,790 $13,000 $14,575 $21,000
Inventories $926 $7,719 $12,919 $18,600 $21,000 $24,000
Other current assets $2,000 $4,800 $6,100 $7,200 $7,800 $9,800
Net plant and equipment $6,000 $7,019 $7,218 $7,535 $7,960 $9,800
Liabilities
Accounts payable $2,000 $4,800 $6,100 $7,200 $7,800 $9,800