Description of this paper

AQ Petroleum is an integrated oil company. The fol...

Description

Solution


Question

AQ Petroleum is an integrated oil company. The following information is taken from its income statements for 2009 and 2010 (all dollar figures are in millions): 2009 Sales: $12,000; cost of goods sold: 60% of sales, depreciation: $250, CAPEX: $400, additional investment in net working capital: $120 2010 Sales: $13,500, cost of goods sold: 65% of sales, depreciation: $330, CAPEX: $375, additional investment in net working capital: $75 Applicable tax rate for the company is 35%. 1. Calculate company?s free cash flows (FCF) for 2009 and 2010 2. Estimate company?s FCF for 2011-2015 using the following assumptions: 1. Company?s sales will grow at 8% per year over the next five years, 2. 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 3. total CAPEX each year is expected to be equal to 25% of additional sales that year (compared to the previous year), 4. increase in net working capital in a given year will be equal to 5% of additional sales that year (compared to the previous year) 5. 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 2010 was 250 + 20% x 400 = 330). 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 2015.,I've attached the excel template.

 

Paper#7161 | Written in 18-Jul-2015

Price : $25
SiteLock