2-2sol - (11,500(11,000(10,500(10,000(9,500 Earnings before...

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Problem 2-2 Page 1 PROBLEM 2-2 Given Solution Legend Growth rate for years 1-5 5% = Value given in problem EBIT (1) $100,000 = Formula/Calculation/Analysis required CAPEX for year 0 $400,000 = Qualitative analysis or Short answer required CAPEX for years 1-5 $20,000 per year over and above annual depreciation expense = Goal Seek or Solver cell Depreciation Expense in year 0 $80,000 = Crystal Ball Input Tax rate 30% = Crystal Ball Output Debt Retirements for years 1-5 $15,000 per year New borrowing for years 1-5 $10,000 per year New working capital for years 1-5 20% of new EBIT Interest rate on debt (all years) 10% Debt Outstanding (0) $120,000 Solution Year 1 2 3 4 5 Debt financing (End of Year) $115,000 $110,000 $105,000 $100,000 $95,000 11,500 11,000 10,500 10,000 9,500 Year 0 1 2 3 4 5 EBIT $100,000 $105,000 $110,250 $115,763 $121,551 Less: Interest expense
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Unformatted text preview: (11,500) (11,000) (10,500) (10,000) (9,500) Earnings before tax 88,500 94,000 99,750 105,763 112,051 Taxes (26,550) (28,200) (29,925) (31,729) (33,615) Net Income $61,950 $65,800 $69,825 $74,034 $78,435 Plus: Depreciation 80,000 100,000 124,000 152,800 187,360 Less: CAPEX (400,000) (100,000) (120,000) (144,000) (172,800) (207,360) 400,000 Less: New working capital needs (20,000) (1,000) (1,050) (1,103) (1,158) 24,310 Less: Principal repayments (15,000) (15,000) (15,000) (15,000) (15,000) Plus: New debt issues 120,000 10,000 10,000 10,000 10,000 10,000 Equity Free Cash Flow (EFCF) $(300,000) $35,950 $39,750 $43,723 $47,876 $477,746 Interest Expense (based on EOY balance) Plus: Salvage Value of fixed assets = Net fixed assets at the end of year 5 (see Problem 2.1)...
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This note was uploaded on 07/24/2009 for the course FIN FIN taught by Professor Robbani during the Summer '09 term at University of Maryland Baltimore.

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