ENGSCI 9501 Business And Management

It is early in 2020. Samantha Stevens has asked you to project the financial statements for her engineering components business for the next two years. She anticipates significant growth ahead withexpected 20% compound growth in sales, although she is concerned that under a pessimistic scenario they would only grow at a compounded rate of 5%. She is interested in knowing whether she will require additional financing for her business. See appendix 1 that has financial statements for the years ended December 31, 2019. You are provided with some additional information:

1) Samantha anticipates that gross margins and working capital “days” will remain the same going forward.
2) Samantha considers SG&A expense to be fixed, and anticipates that the amount will rise by $200K each year.
3) Samantha anticipates spending $800K in fixed assets in 2020 and $900K in fixed assets in 2021. These assets have an estimated useful life of 10 years. Depreciation expense relating to existing fixed assets is expected to be $400K a year in both 2020 and 2021.
4) The company has a term loan outstanding that it took out at the beginning of 2019 for $5M. Principal on the loan is payable in 10 equal annual instalments on Jan 1. Interest expense for 2019 of 9% was paid at the end of 2019.
5) The company’s tax rate is 25%.
Prepare the 2020 and 2021 projected financial statements. How profitable will the company be and much financing will Samantha require?