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Group Assignment 6B (Base)

The document estimates cash flows over 4 years for a new business with initial investment of $200,000 and revenues growing at 12% annually. It provides sales, costs, depreciation, taxes, net operating cash flows and calculates NPV of $420,167 and IRR of 50.65%.

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10 views

Group Assignment 6B (Base)

The document estimates cash flows over 4 years for a new business with initial investment of $200,000 and revenues growing at 12% annually. It provides sales, costs, depreciation, taxes, net operating cash flows and calculates NPV of $420,167 and IRR of 50.65%.

Uploaded by

mailsupriyasaha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Estimating Cash Flows The following estimates relate to the costs of starting the business and the subsequent re

The initial investment needed to start $200,000 Straight Line Depreciation


Expected to have a life of 4 yrs
After four years, the salvage value $40,000

The revenues in the first year are expected to be $300,000


Op Cost 40% of revenue
Net Op Working Capital is expected to be 10% of sales
Tax= 40% WACC= 8%
Based on this information, we estimate the operating income

Year 1 Year 2 Year 3 Year 4


Sales $300,000 $336,000 $376,320 $421,478
Costs $120,000 $134,400 $150,528 $168,591
Depreciation $40,000 $40,000 $40,000 $40,000
EBIT $140,000 $161,600 $185,792 $212,887
Taxes $56,000 $64,640 $74,317 $85,155
NOPAT $84,000 $96,960 $111,475 $127,732
+ Depreciation $40,000 $40,000 $40,000 $40,000
Net Op. CF $124,000 $136,960 $151,475 $167,732

Year 0 Year 1 Year 2 Year 3 Year 4


Initial Cost ($200,000)
Op. CF $124,000 $136,960 $151,475 $167,732
NOWC CF ($30,000) ($3,600) ($4,032) ($4,516) $42,148
Salvage CF $40,000
Net CF ($230,000) $120,400 $132,928 $146,959 $249,880

Yr CF DCF
0 ($230,000) ($230,000)
1 $120,400 $107,500
2 $132,928 $105,969
3 $146,959 $104,603
4 $249,880 $158,803

NPV $420,167.42

IRR 50.65%
PVBen $476,875
PVCost $230,000
PI 2.07337154582
s and the subsequent revenues from it.
ine Depreciation Depreciable basis: $160,000
Rate/yr 1 $40,000
2 $40,000
3 $40,000
Growing at a rate of 12% 4 $40,000

CF Due to
Investment
Sales NOWC in NOWC
Year 0 $30,000 ($30,000)
Year 1 $300,000 $33,600 ($3,600)
Year 2 $336,000 $37,632 ($4,032)
Year 3 $376,320 $42,148 ($4,516)
Year 4 $421,478 $42,148

Salvage Value $40,000


Book Value $40,000
Gain or loss $0
Tax on
gain/loss $0
Net Terminal CF $40,000

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