ModifiedExhibit6-Superproject

ModifiedExhibit6-Superproject - OCF = Net Income...

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Table II - Management's Analysis If We Deduct Depreciation From Taxable Income This should be your starting point to write the case, together with the handout 0 1 2 3 4 5 6 7 8 9 10 Capital Expenditures Buildings (80.0) Depreciation* ** 3.902 3.805 3.707 3.610 3.512 3.415 3.317 3.220 3.122 3.024 Accumulated Depreciation 3.9 7.7 11.4 15.0 18.5 22.0 25.3 28.5 31.6 34.6 Book Value of Building 76.1 72.3 68.6 65.0 61.5 58.0 54.7 51.5 48.4 45.4 Machine and Equipment (120.0) Depreciation* ** 15.000 14.000 13.000 12.000 11.000 10.000 9.000 8.000 7.000 6.000 Accumulated Depreciation 15.0 29.0 42.0 54.0 65.0 75.0 84.0 92.0 99.0 105.0 Book Value of Machinery 105.0 91.0 78.0 66.0 55.0 45.0 36.0 28.0 21.0 15.0 Operating Cash Flows Net Sales 2,112.0 2,304.0 2,496.0 2,688.0 2,880.0 2,880.0 3,072.0 3,072.0 3,264.0 3,264.0 COGS (1,100.0) (1,200.0) (1,300.0) (1,400.0) (1,500.0) (1,500.00) (1,600.0) (1,600.0) (1,700.0) (1,700.0) Advertising Expenses (1,100.0) (1,050.0) (1,000.0) (900.0) (700.0) (700.0) (730.0) (730.0) (750.0) (750.0) Start Up Costs (15.0) Test Market Expenses (360.0) Erosion Adjustment*** (180.0) (200.0) (210.0) (220.0) (230.0) (230.0) (240.0) (240.0) (250.0) (250.0) Depreciation (18.9) (17.8) (16.7) (15.6) (14.5) (13.4) (12.3) (11.2) (10.1) (9.0) EBIT (661.9) (163.8) (30.7) 152.4 435.5 436.6 489.7 490.8 553.9 555.0 Taxes 344.2 85.2 16.0 (79.2) (226.5) (227.0) (254.6) (255.2) (288.0) (288.6) Investment Tax Credit**** 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.0 0.0 Net Income (316.7) (77.6) (13.7) 74.1 210.0 210.6 236.0 236.6 265.9 266.4
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Unformatted text preview: OCF = Net Income + Depreciation (297.8) (59.8) 3.0 89.8 224.5 224.0 248.4 247.8 276.0 275.4 Net Working Capital NWC****** 0.0 329.0 274.0 271.0 264.0 241.0 242.0 255.0 255.0 267.0 267.0 Changes in NWC 0.0 (329.0) 55.0 3.0 7.0 23.0 (1.0) (13.0) 0.0 (12.0) 0.0 * Depreciation calculation uses the "sum of year's digits formula": Depreciation at time t = (years to asset death) / (sum of all years digits) ** The useful life is 15 years for the machinery, and 40 years for the building *** Notice we are using the values estimated by management **** When we make an investment in fixed capital we can take a tax credit ***** Notice Net Working Capital is only required in the end of the first year, according to Exhibit 6 Capital Budgeting Analysis Average net income 109.2 Average Book Value of Assets 114.1 Average Net Working Capital 266.5 Average Accounting Return* 28.7% 0 1 2 3 4 5 6 7 8 OCF (297.8) (59.8) 3.0 89.8 224.5 224.0 248.4 247.8 Capital Expenditures (200.0) Increase In NWC (329.0) 55.0 3.0 7.0 23.0 (1.0) (13.0) 0.0 Total net funds (200.0) (626.8) (4.8) 6.0 96.8 247.5 223.0 235.4 247.8 Cumulative total net funds (200.0) (626.8) (631.6) (625.7) (528.9) (281.4) (58.4) 177.0 424.8 Payback* 7.00 years * Based on OCF calculated as above Since the depreciation amount is small, there is only a small difference in comparison with Exhibit 6 * Notice this takes NWC into account...
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