Long-Term Financial Management Decisions

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