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Cash Flow Model

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Vinay Kumar
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89 views

Cash Flow Model

Uploaded by

Vinay Kumar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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ABC Company ©

Free Cash Flow Template


http://www.hcfsinternational.com/
Assumptions Variables Definitions
Sales growth, Years 1 - 5 10% Incremental Investments - Additional Investments required for additional sales
Sales growth, Years 6 - 10 5% Net working capital/sales - Ratio of additional working capital required to generate additional sales
Sales growth, Years 11+ 2.50% Fixed assets/sales - Ratio of additional fixed assets required to generate additrional sales
Operating profit margin 8% Other assets/sales - Ratio of other long term assets required to generate additional sales
Tax Rate 40%
Net working capital/sales 6% Weighted cost of capital - After tax cost of debt x % Debt Financing) + Cost of equity x % Equity Financing)
Fixed assets/sales 40% After tax cost of debt - Before tax cost of debt x (1-Tax Rate)
Other assets/sales 2% Cost of equity - Risk free rate + (Company beta x Market risk premium)
Sales for the year prior to Year 1 $ 100,000 Market risk premium - Rate of return above the risk free rate that an investor would be expected to earn
Financing Company beta - Company's risk compared to the risk of overall market
Equity 25%
Debt 75%
Before tax cost of debt 7.50% Economic Value of Project $37,060
After tax cost of debt 5%
Risk free rate 6% Change the Sales growth % to see the effect on the Economic Value of Project
Market risk premium 8%
Company beta (estimated) 1.35
Weighted cost of capital 12.08%
Years
1 2 3 4 5 6 7 8 9 10 11
Present
Value Drivers Value Estimated Percentages
Sales growth 10.0% 10.0% 10.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0% 2.5%
Operating profit margin 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Tax rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Net working capital/sales 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Fixed assets/sales 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Other assets/sales 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Free Cash Flow Calculations
Sales 110,000 121,000 133,100 146,410 161,051 169,104 177,559 186,437 195,758 205,546 210,685
Operating profit 8,800 9,680 10,648 11,713 12,884 13,528 14,205 14,915 15,661 16,444 16,855
Taxes 3,520 3,872 4,259 4,685 5,154 5,411 5,682 5,966 6,264 6,577 6,742
After-tax operating profits 5,280 5,808 6,389 7,028 7,730 8,117 8,523 8,949 9,396 9,866 10,113

Incremental Investments
Net working capital 600 660 726 799 878 483 507 533 559 587 308
Fixed assets 4,000 4,400 4,840 5,324 5,856 3,221 3,382 3,551 3,729 3,915 2,055
Other assets 200 220 242 266 293 161 169 178 186 196 103
Total investment 4,800 5,280 5,808 6,389 7,028 3,865 4,058 4,261 4,474 4,698 2,467
Free cash flow 480 528 581 639 703 4,252 4,464 4,688 4,922 5,168 7,646
Present value (estd. @ 12.08%) 11,519 428 420 413 405 397 2,145 2,010 1,883 1,764 1,653
Residual Value in year 10 (perpetuity) ** 25,540 79,857
Economic Value 37,060

** Residual Value in year T for perpetuity is calculated as : (Free Cash Flow in year T+1)/(Cost of Capital - Growth rate)

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