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Excel Problem Set 4 impairments and restructurings 2008

Excel Problem Set 4 impairments and restructurings 2008 -...

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Excel Problem Set 4, Impairments and Restructurings 2008 2009 2010 2011 2012 Revenue $6,860,000 $6,420,000 $6,020,000 $5,635,000 $5,235,000 COGS $3,975,000 $3,720,000 $3,540,000 $3,380,000 $3,150,000 Gross margin $2,885,000 $2,700,000 $2,480,000 $2,255,000 $2,085,000 Selling, gen & admin $1,080,000 $1,000,000 $970,000 $940,000 $925,000 Net income before tax $1,805,000 $1,700,000 $1,510,000 $1,315,000 $1,160,000 Fed & state income tax $667,850 $629,000 $558,700 $486,550 $429,200 Net income after tax $1,137,150 $1,071,000 $951,300 $828,450 $730,800 Depreciation in COGS $255,000 $248,000 $242,000 $235,000 $220,000 Depreciation in SG&A $78,000 $74,000 $71,000 $66,000 $62,000 Decrease in working capital $22,000 $20,000 $23,000 $26,000 $29,000 Capital expenditures $135,000 $120,000 $110,000 $95,000 $85,000 Free cash flows $1,627,150 $1,533,000 $1,397,300 $1,250,450 $1,126,800 Terminal value (after tax) $3,200,000 Adjusted free cash flows $1,627,150 $1,533,000 $1,397,300 $1,250,450 $4,326,800 20% higher cash flows $1,952,580 $1,839,600 $1,676,760 $1,500,540 $5,192,160 1 Sum of Undiscounted Cash Flows $10,134,700 Book Value $11,900,000 NPV $7,336,658 Impairment Loss $4,563,342 Subsidiary $4,563,342 2 Sum of Undiscounted Cash Flows $12,161,640 Book Value $11,900,000 The asset was impaired because the sum of the undiscounted cash flows was less than the book value. This means that the asset needs to be revalued at the net present value of the cash flows. This results in an impairment loss for the asset. Background: Billings Corp. owns a small subsidiary whose book value was $11,900,000 as of December 31, 2007, and whose revenues are projected to decline over the next few years. The spreadsheet below shows
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