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Chapter 9 Case Question Finance Solved

1) The document presents financial projections for introducing a new smart phone over 5 years. It includes estimates for sales volumes, revenues, costs, profits, cash flows and a cumulative cash flow analysis. 2) In year 1, the company estimates selling 74,000 phones, with projected operating cash flow of $8.2 million and a net loss of $5.7 million due to initial capital expenditures. 3) Over the 5 years, cumulative cash flow is projected to be positive, reaching $32.5 million in year 5 as sales increase and the company becomes profitable.

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Owais Khan Khattak
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59 views

Chapter 9 Case Question Finance Solved

1) The document presents financial projections for introducing a new smart phone over 5 years. It includes estimates for sales volumes, revenues, costs, profits, cash flows and a cumulative cash flow analysis. 2) In year 1, the company estimates selling 74,000 phones, with projected operating cash flow of $8.2 million and a net loss of $5.7 million due to initial capital expenditures. 3) Over the 5 years, cumulative cash flow is projected to be positive, reaching $32.5 million in year 5 as sales increase and the company becomes profitable.

Uploaded by

Owais Khan Khattak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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particulars

Amount spent on prototype $ (750,000.00)


Amount spent on study $ (200,000.00)
Variable Cost per Unit $ 185.00
Fixed Costs $ 5,300,000.00
Sales Price per phone $ 480.00
Equipment $ 38,500,000.00
Equipment Salvage Value $ 5,400,000.00 If Conch Republic does not introduce the new smart phone
Net Working Capital 20%
Corportate Tax Rate 35% Year 1
Required Return 12% (74000*480)-(15000*310)-[(80000-15000)*($310-$275)] 28595000

Estimating sales Volume 30870000 - 2275000 33,145,000.00


Year Amount sold price Total Sales net sales 28595000
1 $ 74,000.00 $ 480.00 $ 35,520,000.00 $2,275,000 $ 2,375,000.00 $ 6,925,000.00
2 $ 95,000.00 $ 480.00 $ 45,600,000.00 2275000 $ 43,325,000.00 $ 33,145,000.00 Year 2
3 $ 125,000.00 $ 480.00 $ 60,000,000.00 (95000*480)-(15000*310)-[(60000-15000)*($310-$275)]
4 $ 105,000.00 $ 480.00 $ 50,400,000.00
5 $ 80,000.00 $ 480.00 $ 38,400,000.00 40950000 - 2275000
Sales based on MACRS Depreciation 38675000
Year Beggin Book Value Decreciation % Depreciation Ending Book Value
1 $ 38,500,000.00 14% $ 5,501,650.00 $ 32,998,350.00 (74000*360)-(15000*290)-[(80000-15000)*(290-255)]
2 $ 32,998,350.00 24% $ 9,351,650.00 $ 23,646,700.00 22290000 2275000 20015000
3 $ 23,646,700.00 17% $ 6,733,650.00 $ 16,913,050.00
4 $ 16,913,050.00 12% $ 4,808,650.00 $ 12,104,400.00
5 $ 12,104,400.00 9% $ 3,438,050.00 $ 8,666,350.00 #NAME?
$ 29,833,650.00

Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $ 28,595,000.00 $ 39,375,000.00 $ 60,000,000.00 $ 50,400,000.00 $ 38,400,000.00
Variable Cost $ 13,690,000.00 $ 17,575,000.00 $ 23,125,000.00 $ 19,425,000.00 $ 14,800,000.00
Fixed Costs $ 5,300,000.00 $ 5,300,000.00 $ 5,300,000.00 $ 5,300,000.00 $ 5,300,000.00
Depreciation $ 5,501,650.00 $ 9,351,650.00 $ 6,733,650.00 $ 4,808,650.00 $ 3,438,050.00
EBIT $ 4,103,350.00 $ 7,148,350.00 $ 24,841,350.00 $ 20,866,350.00 $ 14,861,950.00
Taxes $ 1,436,172.50 $ 2,501,922.50 $ 8,694,472.50 $ 7,303,222.50 $ 5,201,682.50
Net Income $ 2,667,177.50 $ 4,646,427.50 $ 16,146,877.50 $ 13,563,127.50 $ 9,660,267.50
Changes Net Working Capital
Year 1 Year 2 Year 3 Year 4 Year 5
Beginning $ - $ 5,719,000.00 $ 7,875,000.00 $ 12,000,000.00 $ 10,080,000.00
Ending $ 5,719,000.00 $ 7,875,000.00 $ 12,000,000.00 $ 10,080,000.00 $ 7,680,000.00
NWC Cash Flow $ (5,719,000.00) $ (2,156,000.00) $ (4,125,000.00) $ 1,920,000.00 $ 2,400,000.00
Opperating Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Opperating Cash Flow $ 8,168,827.50 $ 13,998,077.50 $ 22,880,527.50 $ 18,371,777.50 $ 13,098,317.50
After Tax Salvage Value
Macrs depreciation value $ 8,666,350.00
Actual Salvage Value $ 5,400,000.00
The difference $ 3,266,350.00 Since positive the company depreciated too slow
Taxes $ 1,143,222.50
Taxed Salvage value $ 2,123,127.50
Projected Total Cash Flow
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Operating Cash Flow $ 8,168,827.50 $ 13,998,077.50 $ 22,880,527.50 $ 18,371,777.50 $ 13,098,317.50
Changes in NWC $ (5,719,000.00) $ (2,156,000.00) $ (4,125,000.00) $ 1,920,000.00 $ 2,400,000.00
Capital spending $ (38,500,000.00) $ 2,123,127.50
Total Projected Cash Flows $ (38,500,000.00) $ 2,449,827.50 $ 11,842,077.50 $ 18,755,527.50 $ 20,291,777.50 $ 17,621,445.00
Cumulative cash flow $ (38,500,000.00) $ (36,050,172.50) $ (24,208,095.00) $ (5,452,567.50) $ 14,839,210.00 $ 32,460,655.00
Total Projected Cash Flows
Year Amount
0 $ (38,500,000.00)
1 $ 2,449,827.50
2 $ 11,842,077.50
3 $ 18,755,527.50
4 $ 20,291,777.50
5 $ 17,621,445.00

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