Water Treatment Facility Harvard Case Solution & Analysis

Water Treatment Facility Case Study Solution

The income statement and cash flows for each company:

The income statement for both the company is created by using eth direct method. The company Hyde Park shows the bid cost of 60,000 and deducting eth tax results in 21,000 net incomes in 2018, while the Evanston Company is getting mark up of 15% on the bid cost that increases the net income of 24,150.

The cash flows is the distinction in measure of money accessible toward the start of a period (opening balance) and the sum toward the end of that period (closing balance). It is called positive if the end adjust is higher than the opening balance. Income is expanded by (1) offering more merchandise or services, (2) offering a net profit, (3) decreasing costs, (4) expanding the selling price, (5) changes in assets (6) paying slower, (7) acquiring more value, or (8) loan taking.[1]

By marinating the lowest amount possible the Hyde Company would be able to earn profit more profit as compared to without earning return of 11% as shown below.

Along with this, it is observed that the company can bid lowest cost of 53,400 in order to earn the same 11% return and make the competitive advantage by bidding at lowest cost.

Income statement
Hyde park industrialEvanston Amalgamated
Bids request cost60,000Bids request cost60,000
Tax39,000Total cost plus69,000
Net income21,000Tax44,850
Net income24,150
Cash flows
Net income21,000Net Income24,150
net income adjustment10,000net income adjustment44,850
A/R14,000A/R14,000
Changes in inventory5,000Changes in inventory5,000
liabilities20,000Liabilities20,000
total cash flows70,000total cash flows108,000

Hyde Park to bid the lowest amount possible such that it still earns it’s 11% required return. 

Bids request cost60,000
return6,600
Total 66,600
Tax43,290
net income23,310
Cash  flows for 2018
Net income23,310
net incom adjustmentq10,000
A/R14,000
Changes in inentoru5,000
liabilities20,000
total72,310

Lowest bid:

lowest bid53,400
%11%

 

Problem 2:

How much goodwill will be added to Hyde Park’s balance sheet as a result of this transaction?

Based on the information given the goodwill will be added as fair value of intellectual property and the additional amount would be added as 60,000 in the assets side and it will increase the assets by 106,534[2].

The company’s intellectual property is now only worth $19,500. 

On the other hand if we assume the fair market value of goodwill is 92,000 and it is declined to 19,500, therefore, it would result in write down of 72,500 in value. And hence it will lead to loss and company’s position cannot be stable.

Cash and Cash Equivalents11,500 Accounts Payable1,200
Accounts Receivable900Accrued and Other Liabilities250
Other Current Assets425 Total Current Liabilities1,450
Total Current Assets12,825
Long Term Debt1,600
Other Long Term Liabilities120
additional debt for goodwill30,000
Property Plant & Equipment1,250Total Liabilities33,170
Intellectual Property - Capitalized Research32,000Common Stock & Paid-in Capital38,809
Goodwill60,000additional shares for GW30,000
Other Non-Current Assets459 Retained Earnings4,555
Total Assets106,534 Total Liabilities & Owners' Equity106,534

 

Problem 3:  Cambridge Interactive Sports Gaming

Provide an estimate of CISG’s 2017 revenue

The revenue is recognized as 35% decrease on previous year’s sales as there is 60% probability that legislation would pass and 40% chance is that legislation would not pass and hence the collective probability results in decline in sales by 35%. And the revenue is resulted as 384,370.

legislation passes55% decrease in revenue
Legislation do not pass6% increase in revenue
Probability that legislation passes is 60%
1-p40%
revenue would decrease by35%

Provide an estimate of Cambridge’s 2017 EBIT.  Please be sure to footnote and describe any assumptions you make.

The Estimated EBIT results in decrease in the income by 19,733 as compared to 62,020 in 2016 because there has been estimated that legislation will pass and it would decrease the revenue by 35%.

Operating Results:2012 2013 2014 2015 2016 2017 estimated
Revenue400,000 550,000 625,500 685,000 595,000 384,370
Less:  Cost of Goods Sold268,000 330,000 350,280 383,600 422,450 272,903[3]
Gross Profit132,000 220,000 275,220 301,400 172,550 111,467
Less:  SG&A32,000 71,500 100,080 102,750 41,650 26,906
EBIT100,000 148,500 175,140 198,650 130,900 84,561
Less:  Interest Expense23,438 31,765 39,859 36,818 38,333 24,763
EBT76,563 116,735 135,281 161,832 92,567 59,798
Less:  Taxes25,266 38,523 44,643 53,405 30,547 40,065
Net Income51,297 78,213 90,638 108,427 62,020 19,733

 

[1]  The cash flows as of 2018 for both company is prepared by taking assumption as depreciation is 10,000; changes in accounts receivables by 14,000 and changes in inventory by 5,000. Therefore, it results in cash flows of 70000 and 108,000 for Hyde Park and Evanston Company respectively.

Water Treatment Facility Harvard Case Solution & Analysis

 

 

[2]  Hence, in order to make the accounting equation equal it is estimated that the company would have used goodwill by issuing 50% debt and 50% equity and it also increases eth liabilities and equity side by 30,000 and 30,000 respectively.

[3] The EBIT is estimated by using the vertical analysis, in which the sales are taken as 100% and taking the average of percentages..............

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Other Similar Case Solutions like

Water Treatment Facility

Share This