Estimating Equity Free Cash Flow All equity financed Project(Unlevered)

Price of balls in first year 20 dollars

Price increase rate 2%
Production cost per unit at t= 1 10 dollars
Increase in production cost 10% per year
Working capital investment (year 0 ) 10000
CAPEX (year 0) 100000
Tax 34%
Net Working Capital (GIVEN) 10000

Proforma Income statement 1 2 3 4 5

Sales 100000 163200 249696 212241.6 129891.9

Cost of goods sold including operating expenses 50000 88000 145200 133100 87846
Gross Profit 50000 75200 104496 79141.6 42045.86
Operating expense(before depreciation)
EBITDA 50000 75200 104496 79141.6 42045.86
Depreciation expense 20000 32000 19200 11500 11500
EBIT 30000 43200 85296 67641.6 30545.86
Interest expense 0 0 0 0 0
Profit before tax 30000 43200 85296 67641.6 30545.86
Tax 10200 14688 29000.64 22998.14 10385.59
Net Income 19800 28512 56295.36 44643.46 20160.27

Proforma Balance sheet 0 1 2 3 4 5

Net Working Capital 10000 10000 16320 24969.6 21224.16 0

Gross Plant and Equipment 100000 100000 100000 100000 100000 100000
Less Accumulated depreciation 0 20000 52000 71200 82700 94200
Net Plant and Equipment 100000 80000 48000 28800 17300 5800
Total Assets 110000 90000 64320 53769.6 38524.16 5800
Interest bearing Debt 0 0 0 0 0 0
Equity 110000 90000 64320 53769.6 38524.16 5800
Total Liabilities and equity 110000 90000 64320 53769.6 38524.16 5800

Equity Free Cash Flow 0 1 2 3 4 5

Net Income 19800 28512 56295.36 44643.46 20160.27
Plus Depreciation and Amortization 20000 32000 19200 11500 11500
Less Capital Expenditure 100000 0 0 0 0 -21772
Less change in Working Capital 10000 0 6320 8649.6 -3745.44 -21224.2
Less principal payments on debt 0 0 0 0 0
Plus Proceeds from new debt issues 0 0 0 0 0
Opportunity cost (after tax values) 150000 -150000
Equity Free Cash Flow -260000 39800 54192 66845.76 59888.9 224656.4

NPV (@ 15%) ₹ 5,473.43

Year Quantity produced Price Production cost per unit Cost of goods sold
1 5000 20 10 50000
2 8000 20.4 11 88000
3 12000 20.808 12.1 145200
4 10000 21.22416 13.31 133100
5 6000 21.64864 14.641 87846

MACRS Table

Year 3-year 5-year 7-year 10-year

1 0.333 0.2 0.143 0.1
2 0.445 0.32 0.245 0.18
3 0.148 0.192 0.175 0.144
4 0.074 0.115 0.125 0.115
5 0.115 0.089 0.092
6 0.058 0.089 0.074
7 0.089 0.066
8 0.045 0.066
9 0.065
10 0.065
11 0.033

salvage value 21772

Sony International has an investment opportunity to produce ne
depreciate the investment to zero using straight line method ove
: 34%. Price of product will be $495 per unit in real terms and w
real terms and will increase at 2% per year in real terms. Energy
5% per year. Revenues are received and costs are paid at year en

Year 1
Physical production (in 140000
units)
Labor Input (in hours) 1120000
Energy input (in units) 210000

Real Discount rate 4%

Price of product 495
Labor costs 15.75
Energy costs 3.80
Inflation 5%
capex 165.00
0
Sales Revenue
Labor costs
Energy costs
EBITDA
Depreciation
EBIT
EBIT (1-T)
OCF
CAPEX 165
CHANGE IN WC 0
FCF -165

NPV 13.26843
 t opportunity to produce new HDTV. The required investment on Jan 1 of this
ng straight line method over four years. The investment has no resale value a
per unit in real terms and will not change over the life of the project. Labor c
er year in real terms. Energy costs $3.8 per physical unit in real terms and incr
and costs are paid at year end. Production schedule is given:-

Year 2 Year 3
150000 170000
1200000 1360000
225000 255000

0.042

dollars per unit real

dollars per hour increase by 2% per year in real terms

dollars per unit increase by 3% per year in real terms

million dollars
1 2
69.3 74.25

17.64 19.278

0.798 0.88065

50.862 54.09135

39.2857142857 37.4149659864

11.5762857143 16.6763840136

7.6403485714 11.006413449

46.9260628571 48.4213794354
 46.9260628571 48.4213794354

million dollars
nvestment on Jan 1 of this year is $165 million. The firm will
ment has no resale value after the completion of the project. Tax rate
fe of the project. Labor costs for Year 1 will be $15.75 per hour in
unit in real terms and increase at 3% rate in real terms. Inflation is
s given:-

Year 4
160000
1280000
240000

3 4
84.15 79.2

22.285368 21.3939533

1.0280121 0.99656702

60.8366199 56.8094797

35.6333009394 33.9364771

25.2033189606 22.8730026

16.634190514 15.0961817

52.2674914534 49.0326588
52.2674914534 49.0326588
ax rate
our in
on is