Running head: ASTRAL RECORDS 1

ASTRAL RECORDS
ASTRAL RECORDS 2

Table of Contents
Question 1....................................................................................................................................2

Question 2....................................................................................................................................4

Question 3....................................................................................................................................7

Question 4....................................................................................................................................8
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Astral Records
Final Exam
Case Questions

Question 1
Answer: Astral Records Limited was formed in N. America. The firm is in the cooperation

between the ARL and an American progress resource firm, Bendini, Lambert, and Locke. The

firm is working in a tight market and the firm is also known to be the manufacturer of solid

disks. According to the F.Statment of the firm, the last performance and financial health of the

firm can be seen.

It is clear from the examination of the performance over the past 4y that the business life

of the firm is decreasing with every year passing. Although resumed revenue expansion has been

shown and total revenues have grown by more than 50% in the past 4 y, but with the rise in the

revenue, the COGS has also increased importantly, showing a 6% increase in revenue.

Furthermore, the company is not able to balance its working costs and the firm’s resource

level has grown by more than 100%, which may be due to high demand but, a greater level of

symptoms that the firm is financing. In addition, the firm is largely in dues and the firm’s

investing rate is increasing, which means that the firm is depending on dues to expand, which

could lead to a decrease in investor trust.

It is expected that the firm’s income will not grow as expected due to a remarkable

increase in costs compared to sales. Furthermore, a rise in the debt ratio also risen the interest

rates. As the Rising interest rates also decrease the firm’s profits. Increased assets and an

increase in interest- significance dues also decrease a firm’s ability to meet its recent dues

commissions. The current rate and the firm’s growth rate are also low in comparison to its rivals,

which shows that it can create tension among the firm’s current stakeholders. Apart from all
ASTRAL RECORDS 4

these things, the profitableness of the firm is good which means that there is a great opportunity

for expansion and all these important problems can be caused by poor administration

STRENGTHS:
Following are the strength of the company
 Value of the organization in the customer’s mind.

 The workings of the firm are better than rivals.

 Individual resources and decreased cost assets that the firm has.

 The working and resources market looks like the firm’s biggest strength.

 The USP of the firm is its biggest strength

WEAKNESSES:

 Development that could be done for improvement

 Workings that can be neglected for Astral Records Ltd North America Some Financial

Concerns.

 Workings can be calculated as the firm’s weakness in the market.

 Possibilities that can decrease sales.

 Rival’s workings can be seen the Astral Records Weaknesses.

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Question 2
Forecasted Income Statement and Balance Sheet for the year 1994 to 1995

1992 1993 1994 1995

 
(actual) (actual) forecasted forecasted
1 Sale $34,010 $39,792 47352 $56,822

O.E.
19% 20%
2 Production costs
17,847 22,335 31,895
and exp
26579
3 Admin. and
7,020 7,970 11,381
selling exp 9484
4 Depricition 2,667 2,667 3,809
3174

5 Total working exp -27,534 -32,972

-39237 -47085
6 O.M 6,476 6,820 8,116 9,739
7 I.E -3,265 -3,222 3,834 4,601

8 EBT 3,212 3,598

4,282 5,138
9 Income taxes -1,269 -1,403 1,670 2,004
10 Net earnings 1,943 2,195 2,612 3,134
Dividends
on:  
11 Dividends to all
1,000 1,000 1,000 1,000
C.S

12 Retentions of
$943 $1,195
earnings
1,612 2,134

  1992 1993 1994

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  (actual) (actual) Forecasted For

Assets: 19%
1 Cash $2,905 $1,540 $1,833
2 A.Reciva 10,311 13,316 15,846
3 Inventory 25,643 34,717 41,313
4 T.C.A 38,859 49,573 $58,992
5 Gross property,
26,667 26,667 31,734
plant

6 A.depreciation -7,538 -10,205 12,144

7 Total property,
19,129 16,462
plant, 19,590
8 T.A 57,988 66,035 $78,582
Liabilities and
stockholders’
Equity: $1,901
9 Short-term
19,680 25,802 30,704
borrowings (bank)
10 A.P 4,705 5,328 6,340
11 O.C.L 9,616 9,723 11,570

12 T.C.L 34,001 40,853 48,614

13 Long-term debt 10,000 10,000 10,000
14 Shareholders’
13,987 15,182 18,067
equity
15 Total liabilities
& Shareholder’s $57,988 $66,035
equity 78,582

The required funding is used to know the amount of funding that a firm will need based

on a change in figures from one year to another. If not, funding will be required, and the firm

will have to borrow a loan or sell some of the assets. But by forecasting the financial statement

of the astral record firm I don't think so that they will need any financing because I see the

continuous improvement in the sales. Particularly the net income of $3134 shows that their net

income has improved over the years from the year 1990 till the forecasted year. And in my
ASTRAL RECORDS 7

opinion, if the company wants to take the loan they can easily pay them in time. Because of the

positive figures of its assets.

Question 3

The average cost of capital (WACC) is the calculation of the cost of a financial company

in which each class of income is measured equally. All sources of revenue, including ordinary

stock, preferred stock, bonds, and any other long-term debt, are included in the WACC

calculation.

The company's WACC is growing as beta and the rate of return on investment increases

because the increase in WACC means a decrease in estimates and an increase in risk.

To get the full value of the business, it is necessary to identify the appropriate amount of

the discount. Astral WACC is calculated with the help of the capital pricing model. With the help

of the capital asset model, the cost of equity is recognized, and by applying this equity cost,

including the capital expense of the firm.

WACC is based on individual weighting and individual refund of debt and equity.

Equivalent costs are determined by the asset model (CAPM) model. That is a widely used and

accepted method of calculating costs. A key risk factor in the company’s initial risk rating is that

5% growth is considered a long-term trend that does not appear to be a valid assumption. The

second assumption is that the WACC remains statistically inconsistent with valid reasoning

because any variables used to change value. Risks are acceptable because this assumption is

valid for wishing value. It is also assumed that changes in the WACC are also accidentally

adjusted for these changes. This is the only solution that is part of the sample.
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There is a certain assumption taken into account when calculating the cost of equity in

the price model of the principal asset. Compared industrial Beta is expected to be used in this

formula. By taking the central beta of the same industry and inserting the company structure,

equity beta is evident.

Risk-free loans and the company's risk premium are identified by taking certain

considerations such as using a 30-day free cash loan and using Libor and a three-month fixed

market treasury rate. By using equity beta, free risk measurement, and market risk premium,

equity costs are reflected at 20.3%.

Question 4

  1994 1995
forecasted forecasted
1 Sale 47352 $56,822.00
Operating
expenses: 19% 20%

2 Production costs and

31,895
expenses
26579
3 Admin. and selling
11,381
expenses 9484
4 Depreciation 3174 3,809

5 Total operating expenses

-39237 -47085

6 Operating margin 8,116 9,739

7 Interest expense 3,834 4,601

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8 Earnings before taxes

4,282 5,138
9 Income taxes 1,670 2,004
10 Net earnings 2,612 3,134

Dividends on:
   

11 Dividends to all
1,000 1,000
common shares

12 Retentions of earnings
1,612 2,134

FCFF Valuation 1 2
        1994 1995
EBIT       4,282 5,138

EBIT*(1-T)       2997.274 3596.6

Add: Depreciation       871.2768 1045.525

Less: Change in NWC       944.1989 1133.031

Less: CAPEX       207.8753 249.4486

FCFF       2716.477 3259.646

To get the total value of the business, it is important to know the suitable amount of the

discount. Astral WACC is calculated with the help of the capital pricing model. With the help of

the capital asset model, the cost of equity is realized and by applying this cost of equity,

including the capital expense of the firm.

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There was a certain forecast taken into consideration when calculating the (COE) in the

price model of the main asset. Compared market Beta is expected to be used in this formula. By

taking the main beta of the same industry and inserting the firm’s structure, equity beta is

obvious.

Risk-free loans and the firm’s risk installment are identified by taking certain

assumptions such as using a 30d free cash loan and using Libor and a 3 months fixed market

funds rate. By using equity beta, free risk toll, and market risk installment, equity costs are

reflected at 20.3%.

Using interest rates for the past four years take into account the cost of the loan, and then

calculate the cost of the loan, the amount of the loan, the equity cost, and the equity value in the

WACC formula, including capital costs 11.6%. The amount of credit and equity is determined

with the help of ratios and using the growth rate between the amounts of the loan, the current

amount of credit is determined.

Business value and factory value

By using the discount rate calculated with the help of the capital asset, the fair value

model is identified. By reducing the free cash discount by an 11.6% discount rate, the total value

of the company is reflected.

The company is expected to produce the current net worth of $ 343390. To determine the

proportion of the balance in the current surplus, the total interest-bearing on the loan is deducted

from that amount. It is expected that the total interest on the company's debt is $ 50853. By

subtracting this value from the present value, the company's equity value is identified at $

292537.
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Therefore, there is great potential for growth in the company in terms of future revenue

and it is expected that future cash flows are greater than the company's total debt, indicating that

in the next five years the company can solve the problems it currently faces. through better

management and efficiency.