Long-Term Financial Management Decisions
Essay by 24 • April 28, 2011 • 596 Words (3 Pages) • 1,796 Views
Working Capital Won't change, at the end of year 8 it will be $200,000
Depreciation = $200,000 for the first 5 years.
Invest in plant and equipment $1,000,000 / 5 = $200,000
The depreciation is $0 for 6-8 years
Years Zero One Two Three Four Five Six Seven Eight
Revenues (RV) 0 950 1500 1500 1500 1500 1500 1500 1500
Expenses (E) 0 602.5 905 905 905 905 905 905 905
Depreciation (D) 0 200 200 200 200 200 0 0 0
Income Before Tax (IBT) 0 147.5 395 395 395 395 595 595 595
( RV - ( E + D )
Taxes (T) 0 51.625 138.2 138.2 138.2 138.2 238.2 238.3 238.2
Net Income (NT) 0 95.6 256.8 256.8 256.8 256.8 356.8 356.8 356.8
( IBT - T )
Cash Flow (CF) 0 295.9 456.8 456.8 456.8 456.8 356.8 356.8 356.8
( RV- E - T )
Investment (I) -1000 0 0 0 0 0 0 0 0
Change in WC (WC) -200 0 0 0 0 0 0 0 200
Total Cash Flow -1200 0 0 0 0 0 0 0 200
( I + WC)
Total Cash Flow (TCF)
-1200 295.9 456.8 456.8 456.8 456.8 356.8 356.8 556.8
(CF + TCF)
(I) = $1,000,000
Working Capital (WC) = $200,000
Current WC = 0
CHWC= $200,000
Revenues = $950,000
Between Two Through Eight years = $1,500,000
formula 55% / 100 = 0.55
Expenses 55%
Formula IC + E * R1 = E1
$80,000 + 0.55 * $950,000 = $602,500
Formula E * R2 = E2
$80,000 + 0.55 * $1,500.000 = $905,000
Formula IC + R3 = E3
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R4 = E4
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R5 = E5
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R6 = E6
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R7 = E7
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R8 = E8
$80,000 + 0.55 * 1,500.00 = $905,000
Taxes are 35%
(T) * (RV - E - D ) = Taxes
0.35 * ($950,000 - $602,500 - $200,000) = $51,625
(T) * (RV - E - D ) = Taxes
0.35 * ( $1,500,000 - $905,000 - $200,000) = $138,250
(T) * (RV - E - D ) = Taxes
0.35 * ( $1,500,000 - $905,000 - $200,000) = $138,250
(T) * (RV - E - D ) = Taxes
0.35
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