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As the newly-appointed Chief Financial Officer of BnB Construction Inc. State whether the company is likely to be successful if it approaches its bank Republic Limited for a loan to undertake the expansion project at a cost of $500.00 million. You should analyse the current financial position and recent financial performance of the company (liquidity, profitability, leverage, asset management, market value- 2 to 3 ratios for each category). Comment on whether the firm has a great chance of success with the loan or whether alternative forms of financing should be sought. Give justification for your answer.

As the newly-appointed Chief Financial Officer of BnB Construction Inc. State whether the company is likely to be successful if it approaches its bank Republic Limited for a loan to undertake the expansion project at a cost of $500.00 million. You should analyse the current financial position and recent financial performance of the company (liquidity, profitability, leverage, asset management, market value- 2 to 3 ratios for each category). Comment on whether the firm has a great chance of success with the loan or whether alternative forms of financing should be sought. Give justification for your answer.

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 55C
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As the newly-appointed Chief Financial Officer of BnB Construction Inc. State whether the company is likely to be successful if it approaches its bank Republic Limited for a loan to undertake the expansion project at a cost of $500.00 million. You should analyse the current financial position and recent financial performance of the company (liquidity, profitability, leverage, asset management, market value- 2 to 3 ratios for each category). Comment on whether the firm has a great chance of success with the loan or whether alternative forms of financing should be sought. Give justification for your answer.

BnB Caribbean Inc. (BnB) is a leading construction company founded in 2001 and is based in Jamaica. The company has within recent years been experiencing increases in revenues from its construction related services such as design, build, expansion and remodeling, and emergency services. It's main line of business is from the construction of roads and commercial buildings within Jamaica and to a lesser extent a few other Caribbean countries. Since the growth of the tourism sector in the Caribbean, BnB Caribbean has become concerned about the number of other construction companies which have entered the market to provide similar services around the Caribbean region. Business overseas contributes to 40% of the company's revenues, while the other 60% comes mainly from works done in the domestic market. The COVID-19 pandemic has caused a slowdown in overall operations leading to prolonged delays in delivery of raw materials from abroad. The CEO of the company is optimistic that there will be a turnaround in operations in 2021, and is therefore considering contracting a loan of $500.0 Million from its local bank to help rebuild its lead position in the market and to expand its line of business to include the sales of heavy equipment. The company has over the years relied mainly on issuing long-term bonds to finance its capital projects. As of today, the firm has 50.0 million shares of common stock outstanding. You are hired as the Chief Financial Controller of the company to advise the CEO and board of the company of the current financial health of the company and to assist them in determining whether they would be successful with the new loan. You began by gathering the following financial statements and other data about the firm.
Transcribed Image Text:BnB Caribbean Inc. (BnB) is a leading construction company founded in 2001 and is based in Jamaica. The company has within recent years been experiencing increases in revenues from its construction related services such as design, build, expansion and remodeling, and emergency services. It's main line of business is from the construction of roads and commercial buildings within Jamaica and to a lesser extent a few other Caribbean countries. Since the growth of the tourism sector in the Caribbean, BnB Caribbean has become concerned about the number of other construction companies which have entered the market to provide similar services around the Caribbean region. Business overseas contributes to 40% of the company's revenues, while the other 60% comes mainly from works done in the domestic market. The COVID-19 pandemic has caused a slowdown in overall operations leading to prolonged delays in delivery of raw materials from abroad. The CEO of the company is optimistic that there will be a turnaround in operations in 2021, and is therefore considering contracting a loan of $500.0 Million from its local bank to help rebuild its lead position in the market and to expand its line of business to include the sales of heavy equipment. The company has over the years relied mainly on issuing long-term bonds to finance its capital projects. As of today, the firm has 50.0 million shares of common stock outstanding. You are hired as the Chief Financial Controller of the company to advise the CEO and board of the company of the current financial health of the company and to assist them in determining whether they would be successful with the new loan. You began by gathering the following financial statements and other data about the firm.
BnB Construction Inc. Balance Sheet (Millions of Dollars) 2021 2021 Assets 2020 2019 Liabilities 2020 2019 Est Est Cash and Cash 15 10 15 Accounts payable 115 60 30 Equivalents Short-Term 10 65 Overdrafts 115 110 60 investments Accounts Receivable 420 375 315 Accruals 260 140 130 Inventories 700 615 415 Total Current Liabilities 490 310 220 Long-Term Bonds and Total Current Assets 1,145 1,000 810 1300 754 580 New Loan Net Plant and 1884 1,190 870 Total Debt 1790 1,064.00 800 Equipment Preferred Stock 40 40 40 Common Stock 130 130 130 Retained Earnings 1069 956 710 Total Common Equity 1199 1086 840 $ $ $ Total Liabilities and $ 2$ Total Assets 3,029 2,190 1,680 Equity 3,029 2,190 1,680 Est. Estimate BnB Construction Inc. Income Statement (Millions of Dollars) 2021 Est. 2020 2019 Net Sales 4,000 3,000 2,850 Operating Costs 3,100 2,300 2,100 EBITD 900.00 700 750 Depreciation 110 100 90 Amortizaton Depreciation and Amortization 110 100 90 EBITD 790 600 660 Interest 100 88 60 Earnings Before Taxes Taxes (40%) 690 512 600 276 204.8 240 Net Income Before preferred Dividends Preferred Dividends 414 307.2 360 4 4 4 Net Income $ 410.0 303.2 2$ 356.0 Common Dividends 57.5 57.5 53 Addition to retained Earnings 352.50 $ 245.70 303.0 Per Share Date 2021 2020 2019 Common Stock Price 28.0 23.00 26.00 2$ Earnings Per Share (EPS) Dividend Per Share (DPS) Book Value Per Share (BVPS) ??? 6.06 7.12 ???? 1.15 $ 1.06 ???? 21.72 16.80 Cash Flow Per Share ???? 8.06 8.92
Transcribed Image Text:BnB Construction Inc. Balance Sheet (Millions of Dollars) 2021 2021 Assets 2020 2019 Liabilities 2020 2019 Est Est Cash and Cash 15 10 15 Accounts payable 115 60 30 Equivalents Short-Term 10 65 Overdrafts 115 110 60 investments Accounts Receivable 420 375 315 Accruals 260 140 130 Inventories 700 615 415 Total Current Liabilities 490 310 220 Long-Term Bonds and Total Current Assets 1,145 1,000 810 1300 754 580 New Loan Net Plant and 1884 1,190 870 Total Debt 1790 1,064.00 800 Equipment Preferred Stock 40 40 40 Common Stock 130 130 130 Retained Earnings 1069 956 710 Total Common Equity 1199 1086 840 $ $ $ Total Liabilities and $ 2$ Total Assets 3,029 2,190 1,680 Equity 3,029 2,190 1,680 Est. Estimate BnB Construction Inc. Income Statement (Millions of Dollars) 2021 Est. 2020 2019 Net Sales 4,000 3,000 2,850 Operating Costs 3,100 2,300 2,100 EBITD 900.00 700 750 Depreciation 110 100 90 Amortizaton Depreciation and Amortization 110 100 90 EBITD 790 600 660 Interest 100 88 60 Earnings Before Taxes Taxes (40%) 690 512 600 276 204.8 240 Net Income Before preferred Dividends Preferred Dividends 414 307.2 360 4 4 4 Net Income $ 410.0 303.2 2$ 356.0 Common Dividends 57.5 57.5 53 Addition to retained Earnings 352.50 $ 245.70 303.0 Per Share Date 2021 2020 2019 Common Stock Price 28.0 23.00 26.00 2$ Earnings Per Share (EPS) Dividend Per Share (DPS) Book Value Per Share (BVPS) ??? 6.06 7.12 ???? 1.15 $ 1.06 ???? 21.72 16.80 Cash Flow Per Share ???? 8.06 8.92
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