Question

2. Haliburton, Inc. reported the following financial information for 2013: Revenues $100 million Costs & Expenses (excl Depreciation) $ 80 million Depreciation $ 5 million Taxes $ 6 million Net Income $ 9 million Fixed Assets (gross) $100 million Working Capital $ 40 million The firm expects revenues, costs, expenses (excluding depreciation), and working capital to grow at 10% per year for the next three years. It also expects to invest $20 million per year in fixed assets, which includes replacing worn out equipment and purchasing enough new equipment to support the projected growth and maintain a competitive position. Assume depreciation is 5% of the gross fixed asset account, the tax rate is 40%, and that Slattery has no debt and therefore pays no interest. a. Make a rough projection of cash flows for 2014, 2015 and 2016 assuming no new debt or equity is raised. Simply compute an income statement in each year, add depreciation and subtract increases in working capital and fixed asset purchases. Don’t assume any new debt or equity.  

Answer 1

Answer.

Statement of Computation of Cash Flow for the following years

Particulars	2014	2015	2016
Revenue (Refer Working)	110.00	121.00	133.10
Less:- Cost & Expenses (Refer Working)	88.00	96.80	106.48
Less:- Depreciation (Refer Working)	6.00	7.00	8.00
EBIT	16.00	17.20	18.62
Less:- Tax @40%	6.40	6.88	7.45
Net Income	9.60	10.32	11.17
Add:- Depreciation	6.00	7.00	8.00
Operating Cash Flows	15.60	17.32	19.17
Less:- Increase in Working Capital (Ref.Working)	4.00	4.40	4.84
Less:- Investment in Fixed Asset	20.00	20.00	20.00
Net Cash Flow (Answer)	-8.40	-7.08	-5.67

All data are in multiple of million $ including working

Working.(1) Revenue

Revenue for year 2013= $100

Yearly Increment= 10%

Revenue for 2014= 100*1.1=$110

Revenue for 2015= 110*1.1=$121

Revenue for 2016= 121*1.1=$133.10

Working.(2)Cost & Expenses

Cost & Expenses for the year 2013=$80

Yearly Increment= 10%

Cost & Expenses for 2014= 80*1.1=88

Cost & Expenses for 2015=88*1.1=96.80

Cost & Expenses for 2016=96.80*1.1=106.48

Working.(3)Depreciation

Fixed Assets at the end of 2013= $100

Rate of Depreciation= 5%

Yearly Increment in Fixed Assets= $20

Depreciation at the end of year 2014= (100+20)*5%=6

Depreciation at the end of year 2015= (120+20)*5%=7

Depreciation at the end of year 2016= (140+20)*5%=8

Working.(4)Working Capital

Working Capital for 2013= 40

Yearly Increment=10%

Increment in Working capital for 2014= (40*1.1-40)= 4

Increment in Working capital for 2015=(44*1.1-44)=4.4

Increment in Working capital for 2016=(48.4*1.1-48.40)=4.84