Fordham to Shields is additionally an excellent discount for Mr.. Shields to choose should he wish to prioritize the ownership goal over the income increasing goal for 5 years, inefficient him in the long run (this depends largely on his personal discount rate).
In turn the repurchasing incentive benefits Mr.. Fordham who wishes to see his company sold and see his money quicker rather than later.
The investors are simply looking for a good return given the 12 percent typical market rate and the additional risk in this specific venture. The model I have come up with shows that it is very possible within these bounds for Mr.. Shields, Fordham, and the investors all to achieve their objectives B. Pro Formal First Year Monthly: I-YEAR INCOME STATEMENT (MONTHLY):Sales of $850,000 are distributed throughout the year with 50 percent in July- October, 20% November-December, 30% January – June Cost of Goods Sold like in 1 956 equal to 74% of sales, of which Variable Costs 89% Fixed Overhead 11% Gross Profit sales-COGS Selling & Delivery equal to 8 percent of sales each month like in 1 956 Administrative & General equals ask – ask Fordham salary, distributed evenly Shield’s Salary ask split evenly Total SO Expenses equal selling & delivery + administrative & general + Shield’s salary Bond interest equals of 3% current long term debt plus 3% of long term debt, plot monthly and not annually Note interest 6% interest on the notes payable account; notes payable * (6%/ months). Interest Expense equal to bond interest plus note interest Gain on repurchase Discount gained after repurchase of more than the minimum quantity of bonds. May, $50000 bonds repurchased so $ask gain on early buyback. BEET equals gross profit – total SO&A expenses – interest expense Bonus equals 5% BEET for Mr.
Shield’s bonus.BET BEET – Bonus Tax average 46% which is used throughout year, originally calculated as excess of 25,000 taxed at 52% with first 25,000 at 30%. TEABAG BET – tax Amortization is 10 percent of goodwill fixed to be monthly Net income TEABAG – Amortization I-YEAR BALANCE SHEET (MONTHLY): Assets: Cash begins at $100,000, then an if statement reflecting minimum $1 5,000 balance to be kept, otherwise balancing liabilities without notes payable and other assets Accounts receivable equal to the month’s sales, nothing to start with Inventory: Take cost of goods manufactured minus cost of goods sold to adjust inventory.
Production based on 1/6 July, 1/3 August, 1/3 September, 1/6 in October Total Current Assets is Cash + Alarm + InventoryUP&E Yearly 12% depreciation on kick of equipment, 1% per month Goodwill: Initially 50,000 for intangible assets like brand; equals total assets minus total liabilities at the beginning. Don’t amortize goodwill over time. Total assets: equal to goodwill +pee +Current assets Liabilities: Accounts Payable deciding to remain within the 30-day schedule; includes cans and other ingredients, as labor is paid weekly and fruit is paid cash. Using year 1956 guide, 148/630 = 23. 5% of cost of goods manufactured, adjusted according to production schedule for the four producing months.
Bond Interest Payable is equal to 3% per year cost long term debt, plus previous month’s balance. Paid in June and December.Note Interest Payable: Equal to 6%/12 monthly interest on the note value each month, accrued and paid at the end of the year. Notes Payable: Another if statement equating gap between total assets and total liabilities and equity without notes payable. Taxes Payable: Starts at zero as no liabilities were transferred, equals the previous month tax balance plus freshly accrued taxes, at 30% of the first $25,000 income and 52% income over $25,000.
Long term debt, Current Portion: $50,000 to begin with, paid the minimum 3500 off in June Current Liabilities: Sum of A/P, Bond Interest payable, Note Interest Payable, Taxes Payable, and current portion of long term debt.Long Term Debt: Bonds, so initial balance of $300,000 reduced to $250,000 as current portion removes 350,000, then showing the repurchase of $50,000 income bonds before years end. Total Liabilities: Long term debt plus current liabilities. Common Stock: kick in every month. Retained Earnings: Net income for month added to previous month’s balance.
Total Equity: Common Stock plus retained earnings. Liabilities and Equity: Liabilities plus Equity. C. Pro Formal 5 Years Yearly: 5-YEAR BALANCE SHEET (YEARLY): Cash balancing account created as previously stated for the monthly pro formal.
Accounts Receivable all of sales go into receivables, this line balance equals sales for that year.Inventory Each year’s inventory is the previous years beginning inventory. Schedule involves cost of goods manufacture and sold to adjust inventory based on 1/6 canning in July, 1/3 in August and September, and 1/6 in October. But each years is equal to the previous years, or ask. Current Assets Cash +A/R + Inventory. PEE Adjust kick PEE by depreciating at yearly.
Goodwill: Goodwill rests at 50000. Liabilities& Owners Equity: Accounts Payable: Zero annual balance Bond Interest Payable: Balance zero at fiscal year end due to semi annual payments June 30 and December 30. Note Interest Payable: O on a yearly basis. Note Payable: O yearly basis here. Tax Payable: Calculated as previous year’s tax’s payable account. Eng Term Debt (Current): $1 k bonds need to be paid each year. Current Liabilities: A/P + Bond interest payable + tax payable + note payable + LTD current Long Term Debt: previous year long term debt minus current portion and any bonds not repurchased.
Common Stock: Always at kick. Retained Earnings: Net income plus previous year retained earnings. Total Equity: Retained Earnings plus common stock. Total Liabilities and Equity: Current Liabilities plus long term debt plus total equity. Assets minus cash: same as with monthly pro formal. Total Liabilities Equity without N/P: like in monthly pro formal. 5-YEAR INCOME STATEMENT (YEARLY): Sales Projected as in Exhibit 1.
Cost of Goods Sold Same as in monthly, 74% of sales. Includes variable/fixed breakdown same as monthly. Gross Profit sales-COGS. Selling and Delivery same as monthly.
Admit General same as monthly. Shield Salary ask per year. Total SAGA Expenses sum of above. Bond Interest: Sum of interest over year at 3% bonds payable for the year. Note interest: Growth in sales for year multiplied by sales growth of previous year note interest balance. Interest Expense: Sum of bond and note interest. BEET: Gross profit -SAGA-lintiest Expenses Bonus: 5% of BET. Taxes: first ask taxable 30%, anything above table 52%.
Amortization: Reflects goodwill. Net Income: BET after bonus, tax, amortization. D.Statement on Accomplishment of Objectives: Mr. Shields wanted to control Upstate in 5 years and have a good source of income as well. Given that his yearly living expenses are 60% of his income he has 40% to save or use to repurchase shares.
If he uses the balance to repurchase shares, contingent on the agreement of the angel investor, then the 51% majority in outstanding shares will be his by sass’s end. Also, So he to only acquires ownership but has good income and growth prospects for his income, meaning significant financial stability for Mr.. Shields. So he has accomplished his objectives. Mr..
Fordham Accomplishes his objective of wanting to sell his company and making a profit while maintaining the financial security of the company and his income from the bonds. Mr..
Fordham fall get his bonds back within the first 10 years like he wanted; in fact he can get them by 1 960 after just 3 years given potential repurchase rates. With the discount schedule he provides, if Shields buys back quicker (which he has the incentive to do) then Shields benefits but Mr.. Fordham gets his money quicker as well.
Investors Also accomplish their objective of a justified return for their risk. They could, in 1 957, achieve 3-4% on T-Bills. The full extent of repurchasing would yield 25% yield, far more than the 15% market yield for 1 957 (figure from market statistics).
Even losing majority share they have 49% of Upstate after 1960. Though Upstate growth slows at the last year, book value still grows by 26%, another return higher than the average market return.