Analysis to discount the cash flows

Reference no: EM13816291

The Board liked the analysis you did on valuation and agreed to proceed with the expansion plan. Your CFO, investment bankers, and consultants have all been working on the cost and benefits of various expansion options. They have agreed on an option that will see simultaneous expansion into 5 domestic markets (Chicago, Dallas, Miami, New York, and Charlotte), Germany, and Brazil. The CFO has developed cost and benefits of the scenario in a spreadsheet and has asked you to review it.

Look at the spreadsheet and use present value analysis to discount the cash flows. Include the calculations for net income, operating cash flows, free cash flows and the present value cash flows and NPV in your spreadsheet.

Free Cash Flow = Operating Cash Flows (FV) - Increase in Fixed Assets (You calculate for each year from 2014 to 2019 - I updated this from 2012-2017 to 2014-2019).

PV Cash Flow = Free Cash Flow for each year x PVif (PV interest factor) for each year

(Present) Value of Future Flows = Sum of PV Cash Flow each year (2014-2019).

Initial Expenditure (Initial Capital Investment for a new project is given): $18 million

NPV (net present value) = Present Value of Future Cash Flows - Initial Capital Expenditure

If NPV is positive, the Board of Directors will decide to accept the project of expansion of the markets; If NPV is negative, the Board will decide to reject the project.

Year	2013	2014	2015	2016	2017	2018	2019
T =	0	1	2	3	4	5	6
Cost of Capital		6%	6%	7%	8%	8%	7%
(US$ in millions)
Revenue		30.1	34.2	38.1	40.4	45.6	50
Selling, General &		-16.1	-17.2	-18.9	-19.5	-21.4	-24.3
Admin.		-16.1	-17.2	-18.9	-19.5	-21.4	-24.3
Depreciation		-4.1	-4.4	-4.8	-4.9	-5.3	-5.7
Interest Expense		-0.45	-0.56	-0.69	-0.73	-0.78	-0.81
Taxes		-1.1	-1.3	-1.7	-1.9	-2	-2.1
Increase in fixed assets		-1.3	-2.4	-0.9	0	-4.9	-2.1
Capital Investment	-18
Net Income
Operating Cash Flows		4.25	6.34	7.21	8.47	10.82	11.39
PVif (PV Interest Factor)		0.943	0.89	0.816	0.735	0.681	0.666

Reference no: EM13816291

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