Question

Pro Forma Income Statement (Version 1) Ranger Company Assumptions: Revenues for the first year of operation are projected to be $2,500,000. These revenues are expected to increase by 7% each year thereafter. The Cost of Goods sold is estimated to be 54% of the revenue figure per year. Operating Expenses for the first year include the following: Administrative Costs: $50,000 Rent: $150,000 Repairs/Maintenance: $75,000 Utility Expenses: $24,000 Wage Expense: $468,000 After the first year, all of the operating expenses are expected to increase by 4% annually Depreciation expense is fixed for the entire five-year projected operating period at $100,000 per year. Other income includes Interest Income totaling $5,000 per year for all five years. Other expenses include inventory loss estimated at 1% of revenues. The company will have a $2,000,000 loan to help finance its operations. This loan is an interest-only loan (no principal will be paid for the entire five-year operating projection period). The loan carries an annual interest rate of 8.00%. This loan will represent the only source of interest expense for the company. Tax expense is estimated at 28% of taxable income. Year 1 Year 2 Year 3 Year 4 Year 5

Total Revenues $2,500,000.00

COGS 1,350,000.00

Gross Profit

Operating Expenses

Administrative Costs $50,000.00

Rent 150,000.00

Repairs/Maintenance 75,000.00

Utility Expenses 24,000.00

Wage Expense 468,000.00

Total Operating Expenses $767,000.00

EBITDA

Depreciation Expense 100,000.00

NOI

Interest Income

Inventory Loss

Total Other Income/Loss

EBIT

Interest Expense

EBT Tax Expense

Net Income

Free Cash Flow (prepare for year 3)

Answer 1

	1	2	3	4	5
Sales revenue	$         2,500,000	$      2,675,000	$        2,862,250	$         3,062,608	$        3,276,990
COGS [54%]	$         1,350,000	$      1,444,500	$        1,545,615	$         1,653,808	$        1,769,575
Depreciation	$             100,000	$          100,000	$           100,000	$            100,000	$           100,000
Operating expenses [50000+150000+75000+24000+468000]	$             767,000	$          797,680	$           829,587	$            862,771	$           897,282
NOI	$             283,000	$          332,820	$           387,048	$            446,029	$           510,134
Other income/(expenses):
Interest income	$                 5,000	$              5,000	$                5,000	$                 5,000	$                5,000
Inventory loss	$               25,000	$            26,750	$              28,623	$               30,626	$              32,770
Interest expense [2000000*8%]	$             160,000	$          160,000	$           160,000	$            160,000	$           160,000
Other income/(expenses) [net]	$          (180,000)	$       (181,750)	$         (183,623)	$          (185,626)	$         (187,770)
EBT	$             103,000	$          151,070	$           203,425	$            260,403	$           322,364
Tax at 28%	$               28,840	$            42,300	$              56,959	$               72,913	$              90,262
NI	$               74,160	$          108,770	$           146,466	$            187,490	$           232,102
CALCULATION OF FCF:
NOI	$             283,000	$          332,820	$           387,048	$            446,029	$           510,134
Tax at 28%	$               79,240	$            93,190	$           108,373	$            124,888	$           142,837
NOPAT	$             203,760	$          239,630	$           278,674	$            321,141	$           367,296
Add: Depreciation	$             100,000	$          100,000	$           100,000	$            100,000	$           100,000
OCF	$             303,760	$          339,630	$           378,674	$            421,141	$           467,296
Less: Capital expenditure	$                        -	$                     -	$                       -	$                        -	$                       -
Less: Change in NWC	$                        -	$                     -	$                       -	$                        -	$                       -
Free Cash flow	$             303,760	$          339,630	$           378,674	$            421,141	$           467,296
			Answer