Problem:
Georgia, Inc. has Total Assets of $100 million. It has a current ratio of 2.0. The debt/equity ratio is 1 to 2. And fixed assets total $20 million. Sales are $100 million and profits are 10% before taxes.
Construct a beginning balance sheet.
There are $20 million of potential capital projects in the coming year. Build a new plant for $8 million. It will provide increased earnings of $1,000,000 each year. Purchase a company similar to Georgia, Inc. for $10 million. It will increase earnings by $1 million a year. $1 million of projects mandated by the ADA and OSHA. And $1 million of technology upgrades estimated to improve efficiency by 10%.
The Board has set a minimum return rate of 12%.
Which of the project, if any, do you do? How do you finance them? Construct an ending balance sheet with your projects included.