235786976-Case-03-The-Lazy-Mower-Solution - Solution to...

This preview shows page 1 - 4 out of 7 pages.

Solution to Case 03Cash Flow Analysis The Lazy Mower: Is it really worth it?Questions:1.Prepare a Pro Forma Statement showing the annual cash flows resulting from the Lazy Mower project. (See table on next page)1
012345678910Sales (units)30,000 34,000 38,800 38,000 36,000 36,000 35,500 35,000 34,500 34,000 Adjusted SalesPrice1,000 1,000 1,000 950 950 950 950 900 900 900Revenues30,000,000 34,000,000 38,800,000 36,100,000 34,200,000 34,200,000 33,725,000 31,500,000 31,050,000 30,600,000Variable Cost12,000,000 13,600,000 15,520,000 15,200,000 14,400,000 14,400,000 14,200,000 14,000,000 13,800,000 13,600,000Fixed Costs1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000Rent ($10,000 per month)120,000 120,000 120,000 120,000 120,000 120,000120,000 120,000 120,000 120,000EBIT16,380,000 18,780,000 21,660,000 19,280,000 18,180,000 18,180,000 17,905,000 15,880,000 15,630,000 15,380,000MACRS Rates0.143 0.245 0.175 0.125 0.089 0.0890.089 0.045 Depreciation2,858,000 4,898,000 3,498,000 2,498,000 1,786,000 1,786,000 1,786,000890,000 - - Taxes4,597,480 4,719,880 6,175,080 5,705,880 5,573,960 5,573,960 5,480,460 5,096,600 5,314,200 5,229,200OCF11,782,520 14,060,120 15,484,920 13,574,120 12,606,040 12,606,040 12,424,540 10,783,400 10,315,800 10,150,800Net Working Capital (5% of Revenues)900,000 1,500,000 1,700,000 1,940,000 1,805,000 1,710,000 1,710,000 1,686,250 1,575,000 1,552,500 1,530,000Investment in WC(900,000)(600,000)(200,000)(240,000)135,000 95,000 - 23,750 111,250 22,500 1,552,500Capital Investment(20,000,000) 2,640,000Total Cash Flow(20,900,000) 11,182,520 13,860,120 15,244,920 13,709,120 12,701,040 12,606,040 12,448,290 10,894,650 10,338,300 14,343,3002
2.Use a scenario analysis to show how the cash flows would change if the sales forecasts were 15% worse (Pessimistic) and 15% better (Optimistic) than the stated forecast (base).3.Realizing that the CIC will demand some kind of sensitivity analyses, how should Dave and Rick prepare their report? Which variables or inputs are obvious ones that need to be analyzed using multiple values? Explain by performing suitable calculations.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture