# Case2

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```					The instruction of the case; 7 pages
The example for Deliverable 2 ( on the book 8-20)
Here the answer for question 8-20

8-20.   a.                                                         (\$ in thousands)

2010       2011        2012       2013       2014

Net Income                       \$10,650    \$16,335     \$22,440    \$27,720    \$32,076

+ Depreciation               12,000     18,000      24,000     28,800     32,400

–  in Current assets         3,500      9,875       9,825      7,800      5,850

–  in Gross final assets    33,000     53,500      59,500     57,200     53,700

+  Accounts Payable          6,000      6,750       6,750      5,400      4,050

Cash Flow                        \$–7,940   \$–22,290   \$–16,135     \$–3,080     \$8,976

b.         Cash flow 2015 = 1.05  \$8,976 = \$9,424.80

g = 5% r = 15%

CF2015 \$9,424 .80
PV2014                       \$94 ,248
rg    .15  .05

c.

End of Year Cash Flow PV of CF beyond 2014 Total Cash Flow

2010         \$–7,940                              \$–7,940

2011         –22,290                              –22,290

2012         –16,135                              –16,135

2013          –3,080                               –3,080

2014          –8,976         94,248               103,224

PV Total Cash Flow @15% at the end of 2009 = \$15,192
d.        Fusion Chips

(\$ thousands)

Income Statement                     2010       2011          2012         2013       2014

Sales (+10%)                     \$110,000      \$165,000     \$220,000      \$264,000   \$297,000

– COGS (1–.45)                   60,500     90,750      121,000       145,200    163,350

Gross Profit (0.55)                  \$49,500    \$74,250      \$99,000      \$118,800   \$133,650

– Oper Expenses                  13,200     18,975       24,200        27,720     29,700

– Depreciation                   12,000     18,000       24,000        28,800     32,400

Pre–Tax Income                       \$24,300    \$37,275      \$50,800       \$62,280    \$71,550

– Taxes (0.34)                    8,262     12,674       17,272        21,175     24,327

Net Income                           \$16,038    \$24,601      \$33,528       \$41,105    \$47,273

+ Depreciation                   12,000     18,000       24,000        28,800     32,400

– Current Assets*                3,100      9,750        9,750         7,800      5,850

– Gross Fixed Assets            33,000     53,500       59,500        57,200     53,700

+ Accts. Pay (+30%)             10,050      8,775        8,775         7,020      5,265

Cash Flow                             \$1,988   \$–11,874      \$–2,947       \$11,925    \$25,338

e.        Cash Flow 2015 = 1.05  \$25,338 = \$26,604.90

g = 5% r = 15%

CF2015 \$26 ,604 .90
PV2014                        \$266 ,049
rg    .15  .05

*
Reflects reduction of cash balances to \$0
f.

End of Year Cash Flow PV of CF beyond 2014 Total Cash Flow

2010      \$1,988                                \$1,988

2011     –11,874                               –11,874

2012      –2,947                                –2,947

2013      11,925                                11,925

2014      25,338          266,049              291,387

P.V. Total Cash Flow @15% at end of 2009 = \$142,502

g.        Fusion Chips

Cash Flows from Technology Integration (\$ thousands)

2010      2011       2012      2013       2014      2015

PBDT                                     \$20,000   \$30,000   \$15,000    \$15,000    \$15,000

– Depr. (\$50K/8)                       6,250     6,250      6,250      6,250     6,250

PBT                                      \$13,750   \$23,750     \$8,750     \$8,750    \$8,750

– Tax (0.34)                           4,675     8,075      2,975      2,975     2,975

PAT                                       \$9,075   \$15,675     \$5,775     \$5,775    \$5,775

+ Depr.                                6,250     6,250      6,250      6,250     6,250

Cash Flow (Opr.)                          \$15,325   \$21,925   \$12,025    \$12,025    \$12,025

– Invest in FA             –50,000

– Invest in NWC             –3,000
+ Proceeds Sale of FA                                                                   1,000

+ Tax Savings from Sale*                                                                6,035

+ Recovery of NWC                                                                       3,000

Project CF                     \$–53,000     \$15,325    \$21,925     \$12,025    \$12,025   \$22,060

NPV of Project CF @ 15 % at end of 2009 = \$2,654

Maximum Price (\$ thousands)
P.V. Total Cash Flow (from part f)     \$142,502

+NPV of Tech. Integ. Project               2,654

Maximum Price                          \$145,156

*
1,000 sale price – 18,750 book value = 17,750 Loss; Tax savings = \$17,750  .34 = \$6,035

```
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