GetMyFood, Inc. has developed an application for cell phones aimed toward consumers who live in more...

GetMyFood, Inc. has developed an application for cell phones aimed toward consumers who live in more rural areas where there are few delivery options for take-out food. The app connects local taxi drivers with the larger restaurant food delivery services in nearby areas to extend the range of home meal delivery service.

The company expects to generate revenues of $2000 (figures in thousands) in the first year (2020) with a general costs of services sold of $1200 (figures in thousands.) The company expects to see a sharp increase in the revenues earned after the first year as the new service gains recognition but believes that the life-cycle of the product will be relatively short as market research has shown that the business model will be most successful in areas that are more rural but still relatively close to larger population centers. Given the general demographic trend in population growth, the company believes that their target market will diminish over time as more standard delivery services become available.

The company estimates the following growth rate for revenue, costs, and SG&A over the next five years:

Growth Rate for Selected Items
	2019	2020	2021	2022	2023	2024
Revenue Growth			5%	15%	10%	3%
CGS			3%	4%	2%	2%
SG&A (% of Revenue)		28%	27%	26%	24%	20%

The have also forecasted the following items for working capital:

Selected Projections (Figures in thousands)
	2019	2020	2021	2022	2023	2024
A/R		300	325	310	295	250
A/P		200	230	240	220	210
Inventory		50	65	40	30	20
Depreciation		100	113	117	104	115

Taxes are assumed to be 34% per year. The initial outlay for software development is estimated to be $1000.

You have been hired as a financial consultant to determine the estimated free cash flows to the firm for GetMyFood, Inc.

Expert Solution

Calculation of cash flows from the project
Particulars	years
2019	2020	2021	2022	2023	2024
A. Revenue	0	2000	2100	2415	2656.5	2736.195
B. Initial Outlay	-1000	0	0	0	0	0
C. General cost	0	1200	1236	1285.44	1311.15	1337.37
D. Selling, General & Admn. Expnses	0	560	567	627.9	637.56	547.239
E. Depriciation	0	100	113	117	104	115
F. Net Revenue(A-B-C-D-E)	-1000	140	184	384.66	603.79	736.58
G. Taxes		47.6	62.56	130.78	205.29	250.44
H. Revenue after Tax	-1000	92.4	121.44	253.88	398.50	486.15
I. Change in A/R	0	-300	-25	15	15	45
J. Change in A/P	0	200	30	10	-20	-10
K. Change in Inventory	0	-50	-15	25	10	10
L. Cash Flow(H+E+I+J+K)	-1000	42.4	224.44	420.88	507.50	646.15

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Thanks.

jeff jeffy answered 1 year ago

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