SKM_658e XXXXXXXXXX
FIN 320 Project Two Financial Assumptions
Whenever a business needs to make an investment, the financial options associated with that
investment must be carefully considered. This is true whether the business seeks to purchase something
as simple as a new building or a piece of equipment, or something as complex as acquiring a new
usiness. Business leaders need to be able to estimate cash flows from an investment and use the net
present value (NPV) method to figure out if the investment is worthwhile.
This document includes lists for three financial options and their associated assumptions. For your
Project Two assignment, analyze all three financial options provided, then select the option or options
that add the most value to the business you have selected based on all the information you’ve gathered.
Your recommendation should include careful analysis of NPV calculations, financial ratios, working
capital analysis, and supportive documents.
Remember to evaluate each financial option in the context of the financial ratio analysis and working
capital analysis to help you decide which option(s) to recommend to your chosen business in your
Project Two assignment.
Financial Option 1: Purchase a $10 Million Building
Rationale for investment: The business is considering environmental, social, and corporate governance
(ESG) factors as part of its investment into a new building for its headquarters. The building itself will be
a Leadership in Energy and Environmental Design (LEED)-certified building, but the new site being
considered cu
ently houses a large, inactive gas station that sold both gasoline and diesel fuel. The new
site also has a sizable repair facility left over that was used for deliveries and tractor-trailer trucks for
more than 50 years. While some restoration was performed on the site prior to the new building’s
construction, the previous owner ran out of funds before they were ever able to
ing the site up to
LEED standards. Four large fuel tanks remain on the site, and they will also need to be addressed per
LEED standards.
Assumptions to consider:
• $10 million cash purchase
• Building generates additional net profits after tax of $1.25 million per year
• 20 year expected useful life of building
• Salvage value: $1.5 million
• Discount rate is 10%
Financial Option 2: Purchase of $25 Million in Equipment
Rationale for investment: The business’s cu
ent equipment is efficient, but it uses a substantial amount
of electricity. Operating the production line also creates significant waste material, including waste
plastics. The business is looking into purchasing newer, more environmentally friendly equipment that
will still allow it to be at least as efficient in production as it is now.
Assumptions to consider:
• Annual cash flows generated with equipment: $4 million
• Discount rate is 12%
• 15-year useful life
• No salvage value
Financial Option 3: $30 Million Investment in Bonds
Rationale for investment: The business that’s offering these bonds for sale contracts with another
usiness in China to assemble computer components. The Chinese business is known to have used child
labor in the past, but claims it has stopped this practice. However, the U.S. business selling these bonds
has not investigated to verify whether these claims are true or not.
Assumptions to consider:
• 10-year bond
• 8% coupon
• Priced at a discount: $95
• Discount rate is 9%
FIN 320 Project Two Financial Assumptions
Financial Option 1: Purchase a $10 Million Building
Financial Option 2: Purchase of $25 Million in Equipment
Financial Option 3: $30 Million Investment in Bonds
Untitled Spreadsheet
BalanceSheet
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it
Tesla Inc (NMS: TSLA)
Exchange rate used is that of the Year End reported date
Standardized Quarterly Balance Sheet
Report Date 03/31/2021
1st Quarte
Cu
ency USD
Audit Status Not Qualified
Consolidated Yes
Scale Thousands
Cash & Equivalents 17,141,000.00
Cash & Equivs & ST Investments 17,141,000.00
Receivables (ST) 1,890,000.00
Inventories 4,132,000.00
Other Cu
ent Assets 1,542,000.00
Total Cu
ent Assets 24,705,000.00
Gross Property Plant & Equip 19,257,000.00
Accumulated Depreciation 5,389,000.00
Net Property Plant & Equip 13,868,000.00
Receivables (LT) -
Intangible Assets 505,000.00
Other Assets 13,894,000.00
Total Assets 52,972,000.00
Accounts Payable & Accrued Exps 10,139,000.00
Accounts Payable 6,648,000.00
Accrued Expenses 3,491,000.00
Cu
ent Debt 1,819,000.00
Other Cu
ent Liabilities 2,919,000.00
Total Cu
ent Liabilities 14,877,000.00
LT Debt & Leases 9,053,000.00
Defe
ed LT Liabilities 1,438,000.00
Minority Interests 1,448,000.00
Other Liabilities 3,139,000.00
Total Liabilities 29,955,000.00
Common Share Capital 1,000.00
Additional Paid-In Capital 27,623,000.00
Retained Earnings (4,750,000.00)
Accum Other Comprehensive Income 143,000.00
Other Equity - 0
Total Equity 23,017,000.00
Total Liabilities & Equity 52,972,000.00
IncomeStatement
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it
Tesla Inc (NMS: TSLA)
Exchange rate used is that of the Year End reported date
Standardized Quarterly Income Statement
Report Date 03/31/2021
1st Quarte
Cu
ency USD
Audit Status Not Qualified
Consolidated Yes
Scale Thousands
Sales Revenue 8,705,000.00
Other Revenue 1,684,000.00
Total Revenue 10,389,000.00
Direct Costs 8,174,000.00
Gross Profit 2,215,000.00
Selling General & Admin 1,056,000.00
Research & Development 666,000.00
Restruct Remediation & Impair (101,000.00)
Other Operating Expense - 0
Total Indirect Operating Costs 1,621,000.00
Operating Income 594,000.00
Interest Income (89,000.00)
Other Non-Operating Income 28,000.00
Total Non-Operating Income (61,000.00)
Earnings Before Tax 533,000.00
Taxation 69,000.00
Minority Interests 26,000.00
Extraordinary Items - 0
Accounting Changes - 0
Net Income 438,000.00
Preference Dividends & Similar - 0
Net Income to Common 438,000.00
Average Shares Basic 961,000.00
EPS Net Basic 0.46
EPS Continuing Basic 0.46
Average Shares Diluted 1,133,000.00
EPS Net Diluted 0.39
EPS Continuing Diluted 0.39
Shares Outstanding 963,000.00
CashFlow
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it
Tesla Inc (NMS: TSLA)
Exchange rate used is that of the Year End reported date
Standardized Quarterly Cumulative CF
Report Date 03/31/2021
1st Quarte
Cu
ency USD
Audit Status Not Qualified
Consolidated Yes
Scale Thousands
Net Income (Cumu) 464,000.00
Adjustments from Inc to Cash (Cumu) 1,189,000.00
Change in Working Capital (Cumu) (12,000.00)
Cash Flow from Operations (Cumu) 1,641,000.00
Purchase of Pty Plant & Equip (Cumu) (1,360,000.00)
Change in Business Activities (Cumu) -
Other Investing Cash Flows (Cumu) (1,222,000.00)
Cash Flow from Investing (Cumu) (2,582,000.00)
Change in LT Debt (Cumu) (1,162,000.00)
Change in Equity (Cumu) 183,000.00
Payment of Dividends (Cumu) (32,000.00)
Other Financing Cash Flows (Cumu) (5,000.00)
Cash Flow from Financing (Cumu) (1,016,000.00)
Effect of Exchange Rate (Cumu) (221,000.00)
Change in Cash (Cumu) (2,178,000.00)
Opening Cash (Cumu) 19,901,000.00
Closing Cash 17,723,000.00
Depn & Amortn (CF) (Cumu) 621,000.00
Net Purch of Pty Plant & Equip (Cumu) (1,360,000.00)
Monthly
Time Value of Money - Monthly Compounding
Rate of Return Year 1
Initial Investment Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 2
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 3
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 4
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 5
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 6
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 7
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 8
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 9
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 10
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Annual
Time Value of Money - Annual Compounding
Rate of Return Year 1 2 3 4 5 6 7 8 9 10
Initial Investment Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
PV
Time Value of Money - Present Value Annuity
Number of Years
Rate of Return $0.00
Payment
FV
Time Value of Money - Future Value Annuity
Number of Years
Rate of Return $0.00
Payment
PV - Lump Sum
Time Value of Money - Present Value of Lump Sum
Rate
Years $0.00
Initial Investment
FV - Lump Sum
Time Value of Money - Future Value of Lump Sum
Rate
Years $0.00
Initial Investment
NPV
Net Present Value (NPV) Calculato
Building
Initial Investment $10,000,000 Year 1 2 3 4 5 6 7 8 9 10
Annual Cash Inflows $1,250,000 Cash Flows $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000
Discount Rate 10% NPV = $864,920 Year 11 12 13 14 15 16 17 18 19 20
Number of Years 20 Cash Flows $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $2,750,000
Salvage Value $ 1,500,000
Equipment
Initial Investment $25,000,000 Year 1 2 3 4 5 6 7 8 9 10
Annual Cash Inflows $4,000,000 Cash Flows $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000
Discount Rate 12% NPV = $2,243,458 Year 11 12 13 14 15 16 17 18 19 20
Number of Years 15 Cash Flows $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000 $0 $0 $0 $0 $0
Salvage Value $ - 0
Bonds
Initial Investment $30,000,000
Annual Cash Inflows
Discount Rate 9% NPV = ($30,000,000) Year 1 2 3 4 5 6 7 8 9 10
Number of Years 10 Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Principal Returned
RATIOS
ACCOUNTING & FINANCIAL RATIOS
CURRENT RATIO (Cu
ent Assets / Cu
ent Liabilities) TOTAL ASSET TURNOVER RATIO (Total Revenue / Total Assets)
Cu
ent Assets XXXXXXXXXX Total Revenue XXXXXXXXXX
Cu
ent Liabilities XXXXXXXXXX 1.66 Total Assets XXXXXXXXXX 0.20
WORKING CAPITAL (Cu
ent Assets - Cu
ent Liabilities) FINANCIAL LEVERAGE (Total Assets / Shareholder's Equity)
Cu
ent Assets XXXXXXXXXX Total Assets XXXXXXXXXX
Cu
ent Liabilities XXXXXXXXXX XXXXXXXXXX Shareholder's Equity XXXXXXXXXX 2.30
DEBT RATIO (Total Debt / Total Assets) NET PROFIT MARGIN (Net Income / Total Revenue)
Total Debt XXXXXXXXXX Net Income XXXXXXXXXX
Total Assets XXXXXXXXXX 0.57 Total Revenue XXXXXXXXXX 4.22%
EARNINGS PER SHARE (Net Income / Weighted Average Common Shares Outstanding) RETURN ON ASSETS (Net Income / Total Assets)
Net Income XXXXXXXXXX Net Income XXXXXXXXXX
Shares Outstanding XXXXXXXXXX 0.46 Total Assets XXXXXXXXXX 0.83%
PRICE EARNINGS RATIO (Share Price (end of quarter / EPS) RETURN ON EQUITY (Net Income - Prefe
ed Dividends / Shareholder's Equity)
Stock Price 667.93 NI - Pref. Div. XXXXXXXXXX
EPS XXXXXXXXXX XXXXXXXXXX Shareholder's Equity XXXXXXXXXX 1.90%
FIN 320 Project Two Financial Analyst Report
[Note: To complete this template, replace the
acketed text with your own content. Remove this note before you submit your report.]
Financial Analysis, Financial Evaluation, and Financial Recommendation(s)
Financial Analysis
A. Financial Calculations:
Using the most cu
ent quarter’s financial statements for your chosen business and the
Financial Formulas spreadsheet, calculate the financial formulas below to assess the
usiness’s financial health.
· Working capital:
· [Write the result of the calculation and what it says about the company’s health.]
· Cu
ent ratio:
· [Write the result of the calculation and what it says about the company’s health.]
· Debt ratio:
· [Write the result of the calculation and what it says about the company’s health.]
· Earnings per share:
· [Write the result of the calculation and what it says about the company’s health.]
· Price/earnings ratio:
· [Write the result of the calculation and what it says about the company’s health.]
· Total asset turnover ratio:
· [Write the result of the calculation and what it says about the company’s health.]
· Financial leverage:
· [Write the result of the calculation and what it says about the company’s health.]
· Net profit margin:
· [Write the result of the calculation and what it says about the company’s health.]
· Return on assets:
· [Write the result of the calculation and what it says about the company’s health.]
· Return on equity:
· [Write the result of the calculation and what it says about the company’s health.]
B. Working Capital Management:
[In one paragraph, explain the impact of working capital management on the business’s operations.