Star River, with high Debt-To-Capital Ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk. What methods did you use to estimate the WACC? Banks will be very unlikely to provide any loan in this situation.
I applied that average going forward for 00 and Star River Electronics financial performances are disappointing compared to the industry average. Based on that we can deduct that the increase of sales that the company generated was all placed in inventory.
From the above statements projected DSCR for year and is 4. Also, in forecasting the balance sheet, we only showed debt financing for the capital expenditure of the DVD manufacturing equipment, which was the requested structure.
Inthe increase in sales appears to be primarily due to increase in inventory, and accordingly, the company generated increased costs in warehouse storage. This situation increases costs for Start River, and impacts negatively the cash flow situation. To mitigate the current liquidity problem one thing Star River Electronics Ltd.
The new machine will also provide enough capacity to cover all the packaging needs in the foreseeable future. Long term debt calculation includes private placement of 10mill loan, SGD8.
The current ratio is a financial ratio that measures whether or not a firm as enough resources to pay its debts over the next 12 months. This means, if Star River continues with their current borrowing structure, they will not be able to cover all of their current obligations.
The higher the debt-to-capital ratio, the more debt the company has compared to its equity. In calculating our WACC, we took a weighted cost of our short-term debt and long-term debt to determine the appropriate borrowing rate.
The cost of debt is based on the average of short-term and long-terms loans. Please forecast the financial statements of the firm for 00 and What key assumptions especially influence WACC? It shows that though sales are increasing at a substantial rate, increase in interest payment slows the growth of Net Earnings.
Reduce Inventories The days in receivables has been substantially increasing throughout the past few years, which adds to holding costs. Another problem we found with their ratios is that they are having problems collecting on their receivables.
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To unlever the betas, I used the debt to equity ratio.
The higher the number the better. Selling expenses I applied the same principle, but did not use the growth rate going forward because I assumed that the financial health of the company would not allow it to increase the OH costs.
The underlying assumptions were: Once we determined the appropriate WACC, we looked at the price difference of the new equipment waiting three years and the costs associated with the old equipment; then we looked at the costs associated with purchasing the new equipment at the current time.On July 5,Adeline Koh, the newly introduced CEO of Star River Electronics Ltd., was assigned to make important financial decisions that would affect the firms’ financial future.
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Star River Electronics Ltd.
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