Case Study 1: Planning for Growth and Du Pont Analysis

Case Study 1: Planning for Growth and Du Pont Analysis (for Chapter 3 & 4)  Total Points = 160 points; Due by Sunday, February 23, 11:59 p.m. (ET); Submit to Assignments on Oncourse. 
Please be reminded that in order to get the full points for the questions, you need to provide the correct answers, with relevant working (calculation(s) and explanation(s) etc.).  
Please read the Case Study - Assessment Rubric which had been posted to Lessons on Oncourse for the First Week (Week of January 13) before you work on this case study.  Your case report (including the answers to the questions and the summary of the case background) should be well-typed using MS Office 2010 (or later) – Word and should be submitted to the corresponding tab under Assignments on Oncourse by the deadline. All your work must be submitted in a single MS Word file. Up to 25% of the case study possible points (i.e. 40 points) will be deducted if you submit your work otherwise. An embedded Excel file in your MS Word file will be considered the same as a separate Excel file submitted. So, if you embed an Excel file in your MS Word file, the same penalty will be given. All the answers as well as the case background summary, except the formulas, must be in your own words. Copy and paste sentence(s)/paragraph(s) from any source, except your own source, is totally unacceptable. Answers submitted in such a way will be subject to severe penalty.   
For this case study, please study the Minicase of Chapter 4 on Pages 120 - 121 of the textbook (can be accessed through Courseload eTexts on Oncourse) and the answers to the questions of the minicase (already posted to Lessons on Oncourse for the Fourth Week (Week of February 3).  
The minicase is a VERY CLOSE example for this Case Study 1. Please print the minicase from Courseload eTexts on Oncourse and its solution from Lessons on Oncourse and study them well before you work on this case study. You can find the instructions on how to print the textbook pages and course materials posted under Syllabus on Oncourse. 
Requirements: You have to provide  (i) a brief summary (must be 350 words or more) (10 points) of the case background description (in your own words) of this case study in the next two pages and  (ii) the answer (in your own words) to each attached question.  
You should write up the summary before you work on the answer to any of the questions in this case study.  
For the summary, I expect you to write in your own words summarizing what are presented in the case study. I want to make sure that you understand everything in this case study and what you are asked to do about it. Only when you understand what are presented and what you are asked to do, then you can do well. Right?  
I do not require you to mention anything about your findings (that is, your answers to the questions) in your summary. You are not expected to add anything new (such as your opinions, explanations etc.) to your summary. I just want to see whether you understand the case study and whether you understand the requirements or not. Therefore, you are expected to restate or summarize in your own words (350 words or more) the background description of this case study including what you are asked to do about it only. In your summary, you need to cover the information contained in the paragraph above the income statement and balance sheet, what you see in the income statement and balance sheet (please do not copy and paste the income statement and balance sheet from the case study to your summary), the information contained in the short paragraph below them, the information contained in the questions and what you are asked to do by the questions. Thank you!
01 Sp14 BUS-F301 Case Study 1 - Description and Requirements                                                            2/3
Wayne Candle Ltd. was founded by Maria Lewis and her husband in 2005 in Richmond, Indiana. Due to the lack of the related expertise, the company has not been using much financial planning for its investment needs. Therefore, WC is currently undergoing some hard times resulted in some severe cash flow problems. In addition to losing sales, WC is also falling short of profit to pay salaries to the founders. So, there is an urgent need for the company to prepare a financial plan for the next year to cope with the anticipated investment requirements.  
Wayne Candle, Inc. 2014 Income Statement Sales  $11,274,000  Cost of goods sold  8,768,500 Other expenses  746,700 Depreciation  435,000 EBIT   $1,323,800  Interest  184,000 Taxable income   $1,139,800  Taxes (40%)   455,920  Net income   $683,880  Dividends  $273,552  Add to retained earnings  $410,328     
Wayne Candle, Inc. 2014 Balance Sheet Assets  Liabilities and Equity Current assets   Current liabilities       Cash $285,000       Accounts payable $532,000      Accounts receivable 578,000      Notes payable 647,000     Inventory 745,000          Total current liabilities  $1,179,000           Total current assets  $1,608,000     Long-term debt $1,462,000 Fixed assets        Net plant and equipment  $3,137,000  Shareholder equity        Common stock $450,000        Retained earnings 1,654,000            Total equity  $2,104,000    Total assets  $4,745,000  Total liabilities and equity  $4,745,000      
WC is looking forward to a growth rate of 15 percent in 2015 (i.e. its sales is expected to increase by 15%). The firm has decided to hire you as a financial consultant to fix all the cash flow problems for them.   1. You are expected to calculate the internal growth rate and sustainable growth rate for WC, and explain to the founders what these numbers mean. (20 points) 2. WC is currently operating at full (100%) capacity. Maria Lewis, one of the founders of the company, would like you to advise them on what amount of external financing will be needed (EFN) for 2015 and whether WC’s sales can rise at this particular rate of growth?
01 Sp14 BUS-F301 Case Study 1 - Description and Requirements                                                            3/3
Please be reminded to include the necessary assumptions, pro forma income statement and pro forma balance sheet in your answer in addition to other workings. (50 points) 3. WC’s fixed assets can only be acquired in multiples of $1,200,000 (i.e. adding a new product line will call for an additional investment of $1,200,000 in new equipment) once WC has reached its full operating capacity. Maria is eager to know what the new external financing needed (EFN) should be as the firm is now already operating at its full capacity. In addition, she also asks you to estimate the new level of capacity utilization of the fixed assets for WC in next year when the new production line has been implemented. Please be reminded to include the new pro forma income statement and pro forma balance sheet in your answer in addition to other workings. (50 points)   4. Maria is interested in knowing as well how the firm’s ROE will change from 2014 to 2015 according to the projected growth rate (subject to the condition that the firm can only acquire the required fixed assets in multiples of $1,200,000, the owners are not going to put in more capital and the firm’s payout ratio remains at the 2014 level). You are expected to do a Du Pont analysis comparison between the two years. For the Du Pont analysis, you must include both the calculations and the explanations. (30  points) 
   
Important Reminder “If you choose to turn in a late case study, you will lose 25% of the points for each day past-due for that case study. Penalty will be given immediately after the deadline. As I need to return the case study and post the answers to the case study, no case study will be accepted for grading after 4 days pastdue” - 4-day penalty rule. It is your responsibility to make sure that you do turn in the case study and submit the right case study file when you turn it in. Please make sure that you check to get this done by the deadline. You are required to save frequently at least one backup copy of the case study before you submit it. Past-due submission because of computer crash, misplacing of your memory stick (jump drive) or failing to submit the correct file by the deadline will be penalized according to the above