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Company XXX is an integrated company. The followin...

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Company XXX is an integrated company. The following information is taken from its income statements for 2010 and 2011 (all dollar figures are in millions): 2010 Sales: $240,000; cost of goods sold: 54% of sales, depreciation: $16,000, CAPEX: $6,000, additional investment in net working capital: $1,200 2011 Sales: $267,000, cost of goods sold: 55% of sales, depreciation: $17,200, CAPEX: $6,750, additional investment in net working capital: $1,350 Applicable tax rate for the company is 40%. Calculate company?s free cash flows (FCF) for 2010 and 2011 Estimate company?s FCF for 2012-2016 using the following assumptions: Company?s sales will grow at 5% per year over the next five years; Cost of goods sold as a percentage of sales is expected to increase by 1% each year, i.e., the gross margin ratio will be decreasing by 1% every year; Total CAPEX each year is expected to be equal to 25% of additional sales that year (compared to the previous year); Increase in net working capital in a given year will be equal to 5% of additional sales that year (compared to the previous year); Total depreciation each year will be equal to the total depreciation in a prior year plus 20 % of CAPEX incurred in a prior year (for example, depreciation in 2011 was 16,000 + 20% x 6,000 = 17,200). Since the company is a going concern we need not be concerned about the liquidation value of the firm?s assets at the end of 2016

 

Paper#5538 | Written in 18-Jul-2015

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