Question

World Wide Cash Flow Template- Solution QSearch Sheet tShare View Home Insert Page Layout Formulas Data Review X Cut AutoSum A A Calibri (Body) 12 General ta Wrap Text x. Fill Copy IU A Merge & Center % Sort & Filter Paste B Conditional Format Table Cell Insert Delete Format Clear Format Formatting Styles Check for Updates Office Update To keep up-to-date with security updates, fixes, and improvements, choose Check for Updates. N27 A B G M C D H N Worldwide Paper Co Cash Flo (estim ed 2018 2016 9017 2019 2020 2021 2022 2. 4 Investment Capital Oultay Net Working Capital (10 % of Sales) S S 16,000.00 2,000,00 S -S S 5 . S 6 400,00 S 600.00 7 Total Invested S 16,000.00 2,400.00 S 600.00 Equipment Salvage Recovery of NWC 9 S 1.080.00 S -1,000.00 10 11 12 13 Earnings before Interest & Tax Sales Revenue T000.00 Sold (75% of Sales) 16 SG&A (5% Sales) 17 Operating Savings 18 Depreciation ($18,000/6* 19 Total Costs & Expenses -200.00 S S 2,000,00 -3,000.00 S -3,000.00 S -3,000.00 5 3.000.00 S .3.000,00 S -3.000.00 -3.000.00 S 4.200.00 20 22 EBIT 23 minus Taxes (40 % ) -200.00 S 80.00 24 Net Operating Profit After Tax (NOPAT) 25 add in Depreciatioin 26 Less Investment 27 equals FREE CASH FLOw -120.00 3.000.00 S 2,400.00 -16.000.00 s 480.00 28 30straight line depreciation 31 32 33 Sheet 120 % Ready -

Q - complete Statement of Cash Flows

Details: Cost of Debt: by using the long term debt, bank rates, etc. A good estimate of the cost of debt for you to use is 3.85% (before tax).

Cost of Equity: The cost of equity is based upon market value, and for your purpose of analysis, use 8.6%

The components of capital breakdown: Debt 20%; Equity 80%

Answer 1

The question does not provide assumptions for future cash flow hence seems incomplete. I have assumed revenue growth at 10% and other costs assumed in same proportion.

Worldwide Paper Co 2,017 2,020 2,022 2,016 2,018 2,019 2.021 Investment Capital Outlay 2,000 16,000 Net working capital 600 400 Total amount invested 600 16,000 2,400 Equipment salvage (1,080) (1,000) Recovery of WC Earning before interest and tax Assumed to grow by 10 % 4,840 5,856 Sales Revenue 4,000 4,400 5.324 6,442 Cost of Goods sold (75% of revenue) (3,000) (3,300) (3,630) (242) (3,993) (266) (4,392) (4,832) (322) (200) SG&A (5% of sales) (220) (293) assumed same as first year Operating savings Depreciation Total cost and expenses 2,000 2,000 2,000 2,000 2,000 2,000 (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (5,685) (3,000) (5,259) (4,200) (4,520) (4,872) (6,154) (3,000) (200) (120) (32) 288 EBIT 65 171 minus Taxes @40% 80 (120) NOPAT add: Depreciation 3,000 (16,000) (2,400) (600) During last year, salvage value and release of WC added back Less Investment 2,080 (600) (16,000) 480 2,080 FREE CASH FLOW