Question

Assume you are planning to start a new business that will sell innovative consumer products via an online store. You will be pitching your idea to potential investors with the goal of securing funding. Your investors are very savvy and want to review a well thought out financial forecast. Using the examples provided in Chapter 6, construct a hypothetical 5 year Cash Flow estimate including depreciation and tax-related amounts. Be sure to show your detailed calculations and document at least five key assumptions. Also, explain why cash flows occurring at different intervals should be adjusted for a common date in order to allow for a proper comparison.

Answer 1

Examples in Chapter 6 is not provided

Projected Balance Sheet						($'000)
Year	0	1	2	3	4	5
Equity	1000	1000	1000	1000	1000	1000
Debt	1000	1050	1100	1150	1200	1250
Total Laibilities	2000	2050	2100	2150	2200	2250
Gross Fixed Assets	1500	1800	2100	2400	2700	3000
Less Accumulated Depreciation	0	300	600	900	1200	1500
Net Fixed Assets	1500	1500	1500	1500	1500	1500
Working Capital	500	550	600	650	700	750
Total Assets	2000	2050	2100	2150	2200	2250
Exhibit 2
Projected Income Statement						($'000)
Year		1	2	3	4	5
Revenue		1100	1250	1400	1550	1700
Expenses		600	650	700	750	800
EBITDA		500	600	700	800	900
Interest Payments		70	73.5	77	80.5	84
Depreciation		300	300	300	300	300
Profit Before Tax		130	226.5	323	419.5	516
Tax		52	90.6	129.2	167.8	206.4
Profit After Tax		78	135.9	193.8	251.7	309.6
Exhibit 3
Free Cash Flow to Firm						($'000)
Year		1	2	3	4	5
EBITDA		500	600	700	800	900
less depreciation		-300	-300	-300	-300	-300
EBIT		200	300	400	500	600
Tax @40%		80	120	160	200	240
PAT (unlevered)		120	180	240	300	360
add Depreciation		300	300	300	300	300
less increase in Working Capital		-50	-50	-50	-50	-50
less Capital Expenditure		-300	-300	-300	-300	-300
FCFF		70	130	190	250	310
Exhibit 4
Free Cash Flow to Equity						($'000)
Year		1	2	3	4	5
Profit After Tax		78	135.9	193.8	251.7	309.6
add Depreciation		300	300	300	300	300
add increase in Debt		50	50	50	50	50
less increase in WC		-50	-50	-50	-50	-50
less increase in Gross Fixed Assets		-300	-300	-300	-300	-300
FCFE		78	135.9	193.8	251.7	309.6
Exhibit 6
Cash Flow to Debt Holders						($'000)
Year		1	2	3	4	5
Interest Payments		70	73.5	77	80.5	84
less increase in Debt		-50	-50	-50	-50	-50
CFD		20	23.5	27	30.5	34
Exhibit 5
Capital Cash Flow						($'000)
Year		1	2	3	4	5
Free Cash Flow to Equity		78	135.9	193.8	251.7	309.6
Cash Flow to Debt Holders		20	23.5	27	30.5	34
CCF		98	159.4	220.8	282.2	343.6