Assignment Finance Questions and Solutions

Added on - 25 Nov 2019

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Part A Solutions1.Base CaseAssumptionsCost1,650,000n-years8Cost of capital16%tax rate30%Resale value100,000Revenues10.00%Cost6.00%Income statementRevenue1,445,0001,589,5001,748,4501,923,2952,115,6252,327,1872,559,9062,815,896Cost of Goods--------Gross Profit1,445,0001,589,5001,748,4501,923,2952,115,6252,327,1872,559,9062,815,896operating costs1,181,0001,251,8601,326,9721,406,5901,490,9851,580,4441,675,2711,775,787EBITDA264,000337,640421,478516,705624,639746,743884,6351,040,109Depreciation Exp206,250206,250206,250206,250206,250206,250206,250206,250EBIT57,750131,390215,228310,455418,389540,493678,385833,859Interest Exp00000000EBT57,750131,390215,228310,455418,389540,493678,385833,859Tax17,32539,41764,56993,137125,517162,148203,515250,158Net Income40,42591,973150,660217,319292,872378,345474,869583,701
Periods012345678Cash Flow –In01,445,0001,589,5001,748,4501,923,2952,115,6252,327,1872,559,9062,815,896Cash Flow -Out investing1,650,000(70,000)Cash Flow -Out operating1,198,3251,291,2771,391,5401,499,7261,616,5021,742,5921,878,7862,025,945a)After Tax Net CashFlow(1,650,000)246,675298,223356,910423,569499,122584,595681,119859,951Cumulative CF(1,650,000)246,675544,898901,8081,325,3761,824,4992,409,0943,090,2133,950,164b) Pay Back period4.650Discounted CF(1,650,000)212,651221,628228,657233,933237,639239,942241,000262,307Cumulative DCF(1,650,000)212,651434,279662,936896,8691,134,5081,374,4501,615,4511,877,758c) Discounted PBP7.132d) NPV$ 227,758e) Profitability Index1.13803
2.Worst caseAssumptionsCost1,650,000n-years8Cost of capital16%tax rate30%Resale value100,000Revenues6.00%Cost10.00%Income statementRevenue1,445,0001,531,7001,623,6021,721,0181,824,2791,933,7362,049,7602,172,746Cost of Goods--------Gross Profit1,445,0001,531,7001,623,6021,721,0181,824,2791,933,7362,049,7602,172,746operating costs1,181,0001,299,1001,429,0101,571,9111,729,1021,902,0122,092,2142,301,435EBITDA264,000232,600194,592149,10795,17731,724(42,453)(128,689)Depreciation Exp206,250206,250206,250206,250206,250206,250206,250206,250EBIT57,75026,350(11,658)(57,143)(111,073)(174,526)(248,703)(334,939)Interest Exp00000000EBT57,75026,350(11,658)(57,143)(111,073)(174,526)(248,703)(334,939)Tax17,3257,905(3,497)(17,143)(33,322)(52,358)(74,611)(100,482)Net Income40,42518,445(8,161)(40,000)(77,751)(122,168)(174,092)(234,457)
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