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2-2_sol

# 2-2_sol - (9,500 Earnings before tax 88,500 94,000 99,750...

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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 \$- 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 (11,500) (11,000) (10,500) (10,000)
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Unformatted text preview: (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 96,000 112,000 128,000 144,000 Plus: Additional Depreciation- 16,000 32,000 48,000 64,000 Less: CAPEX (400,000) (80,000) (80,000) (80,000) (80,000) (80,000) 240,000 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) \$55,950 \$91,750 \$127,723 \$163,876 \$465,746 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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