Income Statement

20X1

20X2

Operating revenues

100000

100000

Operating costs

-50000

-50000

Depreciation

-20000

-20000

EBIT

30000

30000

Interest

-5000

-5000

Pre-tax income

25000

25000

Taxes

-5000

-5000

Net Income

20000

20000

Balance Sheet
ASSETS

Initial

20X1

Cash-in hands
Fixed Assets

80000

Acc. Deprec.

Total

80000

20X2

40000

80000

80000

80000

-20000

-40000

100000

120000

Free Cash Flow Analysis

Cash-Flow from the firm

Initial

20X1

20X2

EBIT

30000

30000

-Taxes

-6000

-6000

+Depreciation

20000

20000

Operating Cash-Flow

44000

44000

-Additional NWC

-40000

-40000

-Additional Capital Investment

FREE CASH FLOW

4000

4000

-Interest expenses

-5000

-5000

+Tax shield

1000

1000

+Change in debt financing

EQUITY FREE CASH FLOW

-Dividends

CHANGE IN EXCESS CASH

Accumulated excess cash

20X3

20X4

100000

100000

-50000

-50000

-20000

-20000

30000

30000

-5000

-5000

25000

25000

-5000

-5000

20000

20000

20X3

20X4

Investment

LIABILITIES

120000

80000

80000

-60000

-80000
Debt

Initial

80000

Rt. Earnings
140000

20X3

0 Total

20X4

30000

30000

-6000

-6000

20000

20000

44000

44000

-40000

120000

4000

164000

-5000

-5000

1000

1000

-80000

80000

-80000

80000

20X1

6.25%
80000

20X2

80000

80000

20000

40000

100000

120000

20X3

20X4

80000

60000

140000

Income Statement
20X1

20X2

Operating revenues

100000

100000

Operating costs

-50000

-50000

Depreciation

-20000

-20000

EBIT

30000

30000

Interest

-5000

-5000

Pre-tax income

25000

25000

Taxes

-5000

-5000

Net Income

20000

20000

Balance Sheet
ASSETS

Initial

20X1

Cash-in hands
Fixed Assets

80000

Acc. Deprec.

Total

80000

20X2

40000

40000

80000

80000

-20000

-40000

100000

80000

Free Cash Flow Analysis

Cash-Flow from the firm

Initial

20X1

20X2

EBIT

30000

30000

-Taxes

-6000

-6000

+Depreciation

20000

20000

Operating Cash-Flow

44000

44000

-Additional NWC

-40000

-Additional Capital Investment

FREE CASH FLOW

4000

44000

-Interest expenses

-5000

-5000

+Tax shield

1000

1000

+Change in debt financing

EQUITY FREE CASH FLOW

40000

-Dividends

CHANGE IN EXCESS CASH

40000

Accumulated excess cash

40000

20X3

20X4

100000

100000

-50000

-50000

-20000

-20000

30000

30000

-5000

-5000

25000

25000

-5000

-5000

20000

20000

20X3

20X4

Investment

LIABILITIES

40000

80000

-60000

-80000
Debt

Initial

80000

Rt. Earnings
60000

20X3

-80000 Total

20X4

30000

30000

-6000

-6000

20000

20000

44000

44000

40000

80000

44000

164000

-5000

-5000

1000

1000

-80000

40000

80000

-80000

40000

80000

80000

80000

20X1

6.25%
80000

20X2

80000

80000

20000

40000

100000

120000

20X3

20X4

80000

60000

140000

Explanations:

Freecashflowsarebasedonthenumbersinboldface.
Workingcapitalisrecoveredint=8.
NoticethataddingtheDepreciationTaxShieldtotheaftertaxEBITDAhasthesameeffectasaddingbackdepre
Taxonsaleint=8:Thebookvalueoftheinvestmentint=8is$1,2million8x$120,000(cumulativedepreciati
Theforgonerentrepresentsthemarketcost(beforetaxes)ofrentingthewarehouse
figures in 000
FREE CASH FLOW ANALYSIS
Sales
-Manuf. Costs
-Depreciation
-Forgone rent
EBIT
-Taxes (35%)
+Depreciation
OPERATING CASH-FLOW
Working Capital (WC)
-Additional NWC
-Additional Capital Investment
+ Salvage Value
-Tax on sale (capital gain)
FREE CASH-FLOW
NPV

Y=0

350000
-350000
-1200000

-1550000.00

Y=1
4,200,000.00
-3,780,000.00
-120000.00
-100,000.00
200,000.00
-70,000.00
120,000.00
250,000.00
420,000.00
-70,000.00

180000.00

85795.62230143

NPV 1,550

180
240.05
250.63
261.76
273.48
28

2
3
4
5
1.12
(1.12)
(1.12)
(1.12)
(1.12)
(1.

ctasaddingbackdepreciationtotheaftertaxEBIT:onlythedepreciationtaxshieldisacash-flow.
(cumulativedepreciation)=$240,000.Thesalespriceis$400,000.Hencethereisataxablecapitalgainof$160,000.Taxesare

Y=2

Y=3

Y=4

Y=5

4,410,000.00
-3,969,000.00
-120000.00
-104,000.00
217,000.00
-75,950.00
120,000.00
261,050.00
441,000.00
-21,000.00

4,630,500.00
-4,167,450.00
-120000.00
-108,160.00
234,890.00
-82,211.50
120,000.00
272,678.50
463,050.00
-22,050.00

4,862,025.00
-4,375,822.50
-120000.00
-112,486.40
253,716.10
-88,800.64
120,000.00
284,915.47
486,202.50
-23,152.50

5,105,126.25
-4,594,613.63
-120000.00
-116,985.86
273,526.77
-95,734.37
120,000.00
297,792.40
510,512.63
-24,310.13

240050.00

250628.50

261762.97

273482.27

273.48
285.82
298.80 1,247.44

85,796.
5
6
(1.12)
(1.12)
(1.12) 7
(1.12) 8

ainof$160,000.Taxesare0.35x$160,000=$56,000.

Y=6

Y=7

Y=8

5,360,382.56
-4,824,344.31
-120000.00
-121,665.29
294,372.97
-103,030.54
120,000.00
311,342.43
536,038.26
-25,525.63

5,628,401.69
-5,065,561.52
-120000.00
-126,531.90
316,308.27
-110,707.89
120,000.00
325,600.37
562,840.17
-26,801.91

5,909,821.78
-5,318,839.60
-120000.00
-131,593.18
339,389.00
-118,786.15
120,000.00
340,602.85
0.00
562,840.17

298798.46

400,000.00
-56,000.00
1247443.02

285816.80

Explanations:

figures in 000
FREE CASH FLOW ANALYSIS
Sales
-Manuf. Costs
-Depreciation
EBIT
-Taxes (35%)
+Depreciation
OPERATING CASH-FLOW
Working Capital (WC)
-Additional NWC
-Additional Capital Investment
Opportunity cost old furnace
+ Salvage Value
-Tax on sale (capital gain)
FREE CASH-FLOW
NPV

Y=0

20000000
-20000000
-1000000000
-30000000

-1030000000.00
2,052,295,977.32

Y=1

Y=2

Y=3

Y=4

150,000,000.00
-10,000,000.00
-125000000.00
15,000,000.00
-5,250,000.00
125,000,000.00
134,750,000.00
20000000
0.00

300,000,000.00
-10,000,000.00
-125000000.00
165,000,000.00
-57,750,000.00
125,000,000.00
232,250,000.00
20000000
0.00

450,000,000.00
-10,000,000.00
-125000000.00
315,000,000.00
-110,250,000.00
125,000,000.00
329,750,000.00
20000000
0.00

600,000,000.00
-10,000,000.00
-125000000.00
465,000,000.00
-162,750,000.00
125,000,000.00
427,250,000.00
20000000
0.00

134750000.00

232250000.00

329750000.00

427250000.00

Y=5

Y=6

Y=7

750,000,000.00
-10,000,000.00
-125000000.00
615,000,000.00
-215,250,000.00
125,000,000.00
524,750,000.00
20000000
0.00

900,000,000.00
-10,000,000.00
-125000000.00
765,000,000.00
-267,750,000.00
125,000,000.00
622,250,000.00
20000000
0.00

1,050,000,000.00
-10,000,000.00
-125000000.00
915,000,000.00
-320,250,000.00
125,000,000.00
719,750,000.00
20000000
0.00

524750000.00

622250000.00

719750000.00

Y=8

Y=9

Y=10

1,200,000,000.00
-10,000,000.00
-125000000.00
1,065,000,000.00
-372,750,000.00
125,000,000.00
817,250,000.00
20000000
0.00

1,350,000,000.00
-10,000,000.00
0.00
1,340,000,000.00
-469,000,000.00
0.00
871,000,000.00
20000000
0.00

1,500,000,000.00
-10,000,000.00
0.00
1,490,000,000.00
-521,500,000.00
0.00
968,500,000.00
0.00
20,000,000.00

871000000.00

200,000,000.00
-70,000,000.00
1118500000.00

817250000.00