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The question from ?PRIMO BENZINA AG? 1. Based o...

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The question from ?PRIMO BENZINA AG? 1. Based on the information provided in Exhibit 2, prepare the Company?s Statements of Cash Flows for each of the two years ended on December 31, 2008 and 2009. 2. Analyze the Company?s cash flow pattern based on the graphs studied and explain it based on the Company?s Strategy. 3. Do you think that, based on the Company?s cash flow pattern and history and on its financial condition as depicted in Exhibit 2?,Exhibit 2. Financial Statement Information Income Statement (In thousands of euros) For the Year Ending December 31 2008 2009 Sales 10,887 38,103 Cost of goods sold (7,403) (27,815) Gross Profit 3,484 10,288 Depreciation expense 138 557 Other operating expenses 1,742 6,859 Operating Income 1,604 2,872 Interest expense 163 653 Income before income tax expense 1,441 2,219 Income tax expense 360 555 Net income 1,081 1,664,Statement of Retained Earnings (In thousands of euros) For the Year Ending December 31 2008 2009 Retained Earnings?beginning of the year 332 613 plus net income 1,081 1,664 less dividends (800) (800) Retained Earnings?end of the year 613 1,477,Balance Sheet (In thousands of euros) December 31 2008 2009 Current Assets Cash 896 3,136 Receivables 1,640 7,830 Inventory 1,217 4,953 Total current assets 3,753 15,919 Property and equipment (at cost) 3,110 13,608 Accumulated depreciation (292) (849) Total assets 6,571 2,867 Current Liabilities Accounts payable 674 3,458 Short-term loans payable 1,895 9,743 Total current liabilities 2,569 13,201 Long-term debt 1,600 6,000 Total liabilities 4,169 19,201 Stockholders? Equity Paid-in capital 1,789 8,000 Retained earnings 613 1,477 Total stockholders? equity 2,402 9,477 Total liabilities and stockholders? equity 6,571 28,678,The Financial Situation Primo Benzina had relied heavily on short-term loans from Dresdner Bank, which had recently increased the company?s term loan to ?12 million. Exhibit 2 provides balance sheet and income statement data for the years 2006-2009. The term loan was funded (or repaid) on June 30 of each year, and bore an interest rate of six percent per year, or about 200 basis points above the prime interest rate. If Primo Benzina utilized the maximum amount of the term loan, which Heuermann believed would be necessary in 2010, the short-term interest obligation would be around ?739,000. The short-term loan was secured by a lien on all of Primo Benzina?s accounts receivable and inventories, while the loan?s covenants specified minimum levels of working capital and net worth that had to be maintained. Information about the company?s product lines, petrol, and food, snacks, Purchased by kanyanat onke (kanyanat2525@gmail.com) on May 15, 2012 4 TB0013 and drinks The company?s outstanding long-term debt of ?6 million was financed by Gerhard Schroder, a billionaire property developer and Otto Schroder?s son, and was due and payable on June 30, 2012. In 2009, Gerhard Schroder had provided ?4.4 million in additional loans, and indicated that he would be unwilling to increase his commitment to the business, but that the interest rate of eight percent per year would remain in effect on all long-term debt. Another important source of financing Primo Benzina?s working capital needs over the last few years prior to 2010 had been the practice of stretching payables, i.e., delaying payments of accounts payable to the company?s suppliers. Most suppliers offered terms of 2% 10, net 30, but Primo Benzina had stretched its payables to the point that several of its suppliers had called Otto Schroder to complain about the slowdown. Helmut Scharf, the CEO of Petrol Jetzt AG, called to say he was also a small businessman who had bills to pay. In 2009, Primo Benzina issued ?6.211 million of new equity to Schroeder, the company?s chief executive officer and major shareholder, but he had indicated that he was unwilling to dilute his shareholdings or provide additional equity during the next two years. The company?s short-term bonus scheme paid-incentive compensation was based on earnings before interest, taxes, depreciation, and amortization (EBITDA). Under the plan, the bonus pool was ten percent of EBITDA if EBITDA exceeded ?1 million, and zero otherwise. To ensure that top management did not view cash outlays on capital investment as a free good, Heuermann had recently recommended to the company?s board of directors that the bonus plan in the future should be based on free cash flow, which she defined as EBITDA less capital expenditures (CapEx), or even cash flow from operations less capital expenditures.,The Future The company anticipated spending ?3.402 million to build three new retail outlets in Heilbronn. Based on extensive market research, Heuermann estimated that sales would increase 25 percent in 2010, and that the company?s cash on hand would need to grow at a rate consistent with sales growth to maintain adequate cash for daily transactions. Outlays on property and equipment would continue to be depreciated over 15 years for tax and reporting purposes.2 The company?s tax rate was 25 percent of pre-tax profits. The company planned to maintain its dividend payments at ?800,000 per year for the foreseeable future. As Schroder and Heuermann contemplated the company?s growing need for additional cash, they wondered whether the company?s financial structure was the ideal arrangement. They foresaw increasing difficulties in future negotiations with Dresdner Bank. To add to the company?s difficulties, Deutsche Bank (January 9, 2010) noted that, ?With petrol prices now at record levels, we expect that consumers will remain focused on low-price operators, making the next two years very difficult for family-operated service stations?perhaps even the death of small operators. Only the mega-unit operators will be able to reduce costs enough to remain competitive.?,This is enough to do these 3 question.,"Exhibit 2. Financial Statement Information Income Statement (In thousands of euros) For the Year Ending December 31 2008 2009 Sales 10,887 38,103 Cost of goods sold (7,403) (27,815) Gross Profit 3,484 10,288 Depreciation expense 138 557 Other operating expenses 1,742 6,859 Operating Income 1,604 2,872 Interest expense 163 653 Income before income tax expense 1,441 2,219 Income tax expense 360 555 Net income 1,081 1,664,you promissed to answer 3 question per a day and you still haven't answered any questions,I have a doubt about this.,again.

 

Paper#9370 | Written in 18-Jul-2015

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