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Part - A
T=0
T=1
$
(110,000) $
1 Cash Flow
2 Discount Rate @ 10%
3 PV
4 NPV( Inflow-Outflow)
Part- B
$
$
1
(110,000) $
3,721
T=2
30,000
0.9091
27,273
T=3
### $ 30,000
0.8264
24,792
0.7513
$
22,539
Part- C
T=2
T=3
1 Cash Flow
Outflow $
(150,000)
Incremental Revenue
1
$
(150,000) $
1,628
40,000
### $
0.9091
36,364
0.8264
$
33,056
40,000
0.7513
30,052
QUE -2
T=1 to 4
T=5
12,000
12,000
4,000
4,000
1,000
1,000
4,000
4,000
3,000
3,000
1,200
1,200
1,800
1,800
-400
0
400
-20,000
0
0
-20,400
5,800
6,200
$1,274
The cash flow projections did not include effect of accounts receivables and payables. The average collection per
expected to be 50 days, and 36 days respectively based on 365 days.
Change in WCR
Accounts receivable
Accounts Payable
(sales/365)* 50
Total Inflow
T=4
T=5
$ 30,000 $ 30,000 $ 150,000
0.683
$
20,490
T=4
40,000
0.6209
$
18,627 $ 113,721
T=5
Total
40,000 $ 200,000
0.683
$
27,320
0.6209
$
24,836
3.7907
$ 151,628
The firm replaces the old machine with new machine. Two years later
improved machine becomes available which makes the existing ma
obsolete with no salvage value. The improved machine will cost $150
last five years. The annual additional cost savings over the previous m
is expected to be $40,000. This machine will be depreciated on a stra
towards a zero book value. Other items remain same
es. The average collection period for receivables and average payment period for payables are
Part B
8. kE: = RF + MRP x E
9. WACC: = kD(1-T)x D/(D+E) + kE x E/D+E
E/(D+E)
D/(D+E)
Refer the document file
B
1.2
1.25
6
0.53
53%
47%
0.95
1.85
7
0.33
33%
67%
1.00
5.05
4.58
0.44
0.56
0.77
5.038
4.95
0.35
0.65
1.35
1.35
7.5
0.57
57%
43%
1.45
1.7
7.25
0.54
54%
46%
1.12
5.056
5.17
0.43
0.57
1.18
5.059
5.07
0.37
0.63
Average
1.55
1.3
3.4
1.91
8.5
7.25
0.35
0.466
35%
47%
65%
53%
1.19
5.060
5.75
0.23
0.77
1.05
5.05
5.10
PART- A
Managerial Income Statement
2003
1 Sales
2 EBIT
3 NOPAT (2x.6)
4 Interest A Tax
5 Net Income
Managerial Balance Sheet
6 Cash
7 Accts. Receivable
8 Inventories
9 Accts. Payables
10 Accrued Expenses
11 WCR (7+8-9-10)
12 Net Fixed Assets
13 Invested Cap (11+12+6)
14 Short Term Debt
15 Long Term Debt
16 Owners Equity
17 Cap Employed (14+15+16)
110
2004
$
22,100
650
386
66
320
130
600
2,730
2,800
1,400
200
3,100
3,200
1,600
260
3,930
1,200
5,730
300
1,300
4,130
5,730
538
0
250
-510
-100
0
-78
200
-100
-200
0
2004
2005
$
24,300
900
538
78
460
267
350
Remarks
$
31,600
1,350
810 Tax @40%
160
650
300
4,200
4,300
2,050
350
4,440
1,300
6,090
6,100
1,440
7,840
500
1,200
4,390
6,090
1,900
1,100
4,840
7,840
Inflow or
Outflow
810
0
538
810 Inflow
50
-1,660
-140
0
-100
-360
178
-1,610 Outflow
-140 Outflow
940 Outflow
160
-1400
100
22
outflow
Inflow
-1140 Inflow
200
0
-200
-178
200 outflow
940 Inflow
PART -D
TABLE - 1
BALANCE SHEET
Item
Cash
New Amt
INCOME STATEMENT
Old Amt
1,285
$300
Item
1. Sales
WCR
3215
6,100
2. EBIT
1440
1,440
3. NOPAT
Invested Capital
5940
7,840
4. Interest1
5. Int. After Tax
1,900
6. EBT (2-4)
1100
1,100
7. Tax 40% of 6
Owners Equity
4840
4,840
Cap. Employed
5,940
7,840
Dividends
Part D: Assume that firm can improve its cash conversion cycle for 2005 such that
i. It will have an average collection period of 30 days, an average payment period of 33
ii. Inventory turnover of 8.
iii. Accrued expenses will remain unchanged.
iv. Further assume that interest expense will be 4% of EBI
v. Tax rate will remain at 40%.
VI. Sales and EBIT will not change.
VII. Use 365 days in a year.
VIII. Assume that dividends in 2005 will be $328 instead of $200,
IX. Any cash savings derived from reduction in working capital will be used to pay short t
sis:
ME STATEMENT
Amount
$31,600
1,350
Item
1. NOPAT .6 x EBIT
2. WCR
Amount
810
Inflow
1,225
Inflow
-140 Outflow
54
4. Cash Balance
-935
32
5. FCF (1+2+3+4)
960
810
1,296
6. Dividends
Inflow
-328
518
7. Int. A. Taxes
778
-600
328
9. FCF (6+7+8)
-960 Outflow
-32
TABLE -2
Item
Formula
Accounts Receivable
Inventories
Sales/365 x 30 days
COGS/8
31600/365 x 30
25100/8 =
Acct. Payables
(COGS + Inventory)/365x 33
25100+(3200-4300)/365 x 33 =
2597
3138
2170
4,200
4,300
2,050
3,100
3,200
1,600
Change in WCR
503 Inflow
63 Inflow
570
90
1,225
Accrued Exp
WCR
350
350
3215
6100
260
4440
PART-B
(4 points)
ROE = Net Inc /Equity = EBIT/Sales x Sales/Inv. Cap x EBT/EBIT x Inv. Cap/Equity x Net Inc/EBT
Particulars
Formulae
1 Op. Margin
EBIT/Sales
2 Turnover
Sales/Inv. Capital emp
3 ROICBTax
EBIT/Inv. Capital emp
4 Int. Factor
EBT/EBIT
5 Lev. Factor
Inv. Cap/Equity
6 Financial Multiplier
EBT/EBIT x Inv Cap/Equity
7 Tax Factor
Net Inc/EBT
8 ROE
Net Inc/Equity
Alternate Formula: ROE = Net. Inc/Equity = ROICAT + (ROICAT Int. RateAT) x D
9 ROICAT
10 Int. RateBT
11 Int. RateAT
12 Spread (9-11)
13 Debt Equity
14 ROE
NOPAT/InvCap
Int./Total Debt
IntAT/T. Debt
(ROICAT Int.RateAT)
T. Debt/Equity
Net Inc/Equity
alysis:
(4 points)
2003
650/22100
2.90%
22100/5730
3.86
650/5730
11.34%
540/650
0.83
5730/4130
1.39
0.83 x 1.39
1.155
320/540
0.59
320/4130
7.75%
+ (ROICAT Int. RateAT) x Debt/Equity
386/5730
110/1600
66/1600
1600/4130
320/4130
6.74%
6.88%
4.13%
2.63%
38.70%
7.75%
2004
2005
Remarks
3.70%
3.99
14.80%
0.86
1.39
1.2
0.6
10.48%
4%
4.031
17%
0.80
1.620
1.30
0.60
13.43%
8.83%
7.65%
4.59%
4.24%
38.70%
10.48%
10.33%
8.90%
5.33%
5.00%
61.98%
13.43%