Reference no: EM133457530

Question 1. Company A has forecast a sales growth rate of 20% for next year. The current financial statements are in attached Excel file (Q1).
a. Calculate the external funds needed for next year.
b. Construct a pro-forma balance sheet for next year and confirm the external funds needed (that you calculated in a).
c. Can the company eliminate the need for external funds by changing its dividend policy, for example not paying out dividends? Should company do so?

Question 2. A firm is considering an investment in a new machine with a price of $20 million to replace its existing machine. The current machine has a book value of $6 million and a market value of $5 million. The new machine is expected to have a 4-year life and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $7 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it also will need an investment of $200,000 in net working capital. The required return on the investment is 12 percent and the tax rate is 21 percent. The company uses straight-line depreciation. What are the NPV and IRR of the decision to replace the old machine? Inputs for this question are entered in attached Excel file (Q2). You will need to show your work in the output area.

Question 3. A firm's economists estimate that recession, average-growth and strong-growth business environment are equally likely. The managers must choose between two mutually exclusive projects. Assume that the project the company chooses will be the firm's only activity and that the firm will close one year from today. The company is obligated to make a $3,800 payment to bondholders at the end of the year. The projects have different volatilities. The information is provided in attached Excel file (Q3).

a. Calculate the expected value of the company if the low-volatility project is undertaken and if the high-volatility project is undertaken. Which of the two strategies maximize the expected firm value?
b. Calculate the value of equity if the low-volatility project is undertaken and if the high-volatility project is undertaken. Which project would shareholders prefer and why?
c. Suppose bondholders impose a bond covenant to stipulate that the bondholders can demand a higher payment if the company chooses to take on the high-volatility project. What payment to bondholders would make stockholders indifferent between the two projects?

Question 4. Calculate the cost of capital (WACC) for Target using company's most recent financial statements (2022 annual if available, if not, then 2021). Use external sources to find additional information you need. Discuss and show what inputs and methodology you used to calculate cost of debt, cost of equity, and total weighted average cost of capital. You can refer to Walmart case discussions to apply similar methods, but you need to use a more up-to-date financial data. Present your data, inputs and calculations in tab Q4 in the attached file.