Question

In: Finance

11) Cellular Access? Inc., is a cellular telephone service provider that reported net operating profit after...

11)

Cellular Access? Inc., is a cellular telephone service provider that reported net operating profit after tax? (NOPAT) of $241 million for the most recent fiscal year. The firm had depreciation expenses of $102 million, capital expenditures of $220 million, and no interest expenses. Working capital increased by $13 million. Calculate the free cash flow for Cellular Access for the most recent fiscal year. The free cash flow is $ --- million. ? (Round to the nearest? integer.)

12)

A bicycle manufacturer currently produces 255,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct? in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $253,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a? ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $27,000 of inventory and other working capital upfront? (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $18,975. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%?, what is the net present value of the decision to produce the chains? in-house instead of purchasing them from the? supplier?

Project the annual free cash flows (FCF?) of buying the chains.

The annual free cash flows for years 1 to 10 of buying the chains is $ ------.

? (Round to the nearest dollar. Enter a free cash outflow as a negative? number.)

Solutions

Expert Solution

11) Free Cash Flow = NOPAT + Depreciation/Amortization - Increase in W.Capital - Capital Expenditures = 241+102-13-220 = $110 million

12)

Incremental Operating Cash flows year 1 to 10 from in-house production
Cost Savings =255000*(2.1-1.5)             153,000.00
Less: Depreciation =253000/10                25,300.00
Incremental savings             127,700.00
Less: Incremental taxes                44,695.00
Incremental net profit                83,005.00
Add: Depreciation                25,300.00
Operating Cash flows             108,305.00


Incremental NOV from In-house = -253,000-27000+(108,305.00*PVAF(15%,10years))+((12,333.75+27000)*PVF(10%,10years)) = -280000+(108,305.00*5.0188)+(39,333.75*0.2472) = $273,284.44Scrap Value net of tax (year 10) = 18975*(1-0.35) = 12,333.75

Projected annual cash flows of buying chains (year 1 to 10) = 255,000*2.10 = $535,500


Related Solutions

Megaphone is a cellular telephone service provider with 40% market share of the telephone service market...
Megaphone is a cellular telephone service provider with 40% market share of the telephone service market in the United States. The CEO, Schubert Purdoch, has achieved that share in large part by acquiring small competitors. Megaphone is seeking to acquire Vinaphone which provides cellular telephone service as well. Vinaphone has become a household name in large part because of their ads making fun of Megaphone as an “out of touch dinosaur” of a company, featuring a dinosaur with the head...
Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA)...
Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 26, 2011, for Best Buy, Inc. Refer to the information in the table to answer the following requirements. Assume Reported Horizon Period (In millions) 2011 2012 2013 2014 2015 Terminal Period Sales $40,023 $44,577 $49,650 $55,300 $61,592 $62,208 NOPAT 1,448 1,637 1,808 2,014 2,224 2,257 NOA 5,287 5,893 6,539 7,282 8,140 8,193 Answer the following requirements assuming a discount rate (WACC)...
Cell Phone Inc. is a private cellular firm that reported net income of $5 million in...
Cell Phone Inc. is a private cellular firm that reported net income of $5 million in the current financial year. The firm has borrowed $10 million at a rate of 15%, on which it reported interest expenses of $1.5 million in the current financial year. Cell Phone’s debt has an estimated current market value of $8.5 million. The firm has depreciation of $0.1 million for the current year, and capital expenditures equal to 200% of depreciation. The firm’s sales and...
A cellular phone service provider is offering a new calling plan that it claims will result...
A cellular phone service provider is offering a new calling plan that it claims will result in an average savings of more than 20% for its customers who switch to the plan. To evaluate this claim, a consumer watchdog organization contacted a random sample of this provider's customers who enrolled in the new plan and computed their individual savings (as a percentage of their original monthly bill). PctSavings(%) 9.84 14.13 15.01 23.47 19.07 21.37 19.64 22.38 26.56 22.52 23.11 18.77...
Write a program for XXX Phones, a provider of cellular phone service. Prompt a user for...
Write a program for XXX Phones, a provider of cellular phone service. Prompt a user for maximum monthly values for talk minutes used, text messages sent, and gigabytes of data used, and then recommend the best plan for the customer’s needs. A customer who needs fewer than 400 minutes of talk and no text or data should accept Plan A at $29 per month. A customer who needs fewer than 400 minutes of talk and any text messages should accept...
Write a program for XXX Phones, a provider of cellular phone service. Prompt a user for...
Write a program for XXX Phones, a provider of cellular phone service. Prompt a user for maximum monthly values for talk minutes used, text messages sent, and gigabytes of data used, and then recommend the best plan for the customer’s needs. A customer who needs fewer than 400 minutes of talk and no text or data should accept Plan A at $29 per month. A customer who needs fewer than 400 minutes of talk and any text messages should accept...
Compute and interpret the net-operating profit after tax (NOPAT) of the company for 2018 and 201
Balance sheet                                                                                           Items    2019     2018 Cash     8,313   11,604 Marketable securities        696        618 Account receivables   23,795   30,563 Inventory     1,619     1,682 Prepaid expenses     3,997     4,678 Net Fixed Assets   96,457   68,764 Investment in AB Co. stocks   17,309     5,473 Account payables   24,600   21,372 Wages and salaries payable   13,101   16,855 Bond payable (10 yrs.)   54,102   35,605 Notes payable (3 yrs.)   39,398   32,621 Total shareholders’ Equity Capital   20,985   16,929   B.   Income statement Items   2019    2018 Revenues   77,147   79,591 Cost of goods sold   40,659   42,655   Salaries...
What are net profit, net profit margin,gross profit margin, and operating profit margin? Why are these...
What are net profit, net profit margin,gross profit margin, and operating profit margin? Why are these indicators important in business? Explain the importance of knowing how much profit is generated for each dollar in sales? Give specific examples how knowing these information will be helpful in your business.
1. You are a manager of a telephone service provider in Sydney. You have two plans...
1. You are a manager of a telephone service provider in Sydney. You have two plans for your customers as follows: Plan 1: Bill = 15 + 0.05 T; and Plan 2: Bill = 25 + 0.03T. Where, ‘Bill’ is your monthly bill in dollars and ‘T’ is your monthly total duration of calls in minutes. (a) Find the break-even level of total duration of monthly telephone calls in minutes. (b) If your customer’s average monthly duration of call is...
TSW Inc. had the following data for last year: Net income = $800; Net operating profit...
TSW Inc. had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000. Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $925; Total assets = $2,600; and Total operating capital = $2,500. How much free cash flow did the firm generate during the just-completed year?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT