You have just been hired by IBM in their capital budgeting division. Your first assignment is to determine the free cash flows and NPV of a proposed new type of tablet.
The project has an expected life of 5 years
Development of the new system will initially require an initial capital expenditure equal to 10% of IBM’s gross property, plant, and equipment in 2018 (balance sheet). The project will then require an additional capital expenditure investment equal to 10% of the initial investment in the first year of project, a 5% increase after the second year, and a 1% increase after the third, fourth, and fifth years.
First-year revenues for the new product are expected to be 3% of IBM’s total revenue for 2018 (income statement). The new product’s revenues are expected to grow at 15% for the second year, 10% for the third, and 5% annually for the final two years of the expected life of the project.
Assume that initial capital expenditure incurred in year 0 will be depreciated using a straight line method over a five-year life.
Calculate average gross profit margin for 2015-2018 and use it to calculate project’s costs.
Calculate IBM’s average NWC/Sales for 2015-2018 and use it to calculate net working capital required in years 1 through 5 of the project.
Calculate average tax expense for 2015-2018 (tax expense/pretax income) and apply it to calculate free cash flows.
Balance sheet:
| 12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | |
| Cash | ||||
| Cash And Cash Equivalents | 11,379,000,000 | 11,972,000,000 | 7,826,000,000 | 7,686,000,000 |
| Short Term Investments | 618,000,000 | 608,000,000 | 701,000,000 | 508,000,000 |
| Net Receivables | 29,820,000,000 | 30,649,000,000 | 28,188,000,000 | 27,353,000,000 |
| Inventory | 1,682,000,000 | 1,583,000,000 | 1,553,000,000 | 1,551,000,000 |
| Other Current Assets | 1,000,000 | -1,000,000 | -1,000,000 | 0 |
| Total Current Assets | 49,146,000,000 | 49,735,000,000 | 43,888,000,000 | 42,504,000,000 |
| Gross property, plant and equipment | 32,461,000,000 | 32,331,000,000 | 30,134,000,000 | 29,341,000,000 |
| Accumulated Depreciation | -21,668,000,000 | -21,215,000,000 | -19,303,000,000 | -18,616,000,000 |
| Net property, plant and equipment | 10,793,000,000 | 11,116,000,000 | 10,831,000,000 | 10,725,000,000 |
| Equity and other investments | 226,000,000 | 122,000,000 | 104,000,000 | 475,000,000 |
| Goodwill | 36,265,000,000 | 36,788,000,000 | 36,199,000,000 | 32,021,000,000 |
| Intangible Assets | 3,088,000,000 | 3,741,000,000 | 4,689,000,000 | 3,486,000,000 |
| Other long-term assets | 296,000,000 | 572,000,000 | 729,000,000 | 571,000,000 |
| Total non-current assets | 74,237,000,000 | 75,620,000,000 | 73,584,000,000 | 67,987,000,000 |
| Total Assets | 123,382,000,000 | 125,356,000,000 | 117,470,000,000 | 110,495,000,000 |
| Total Revenue | 10,207,000,000 | 6,986,000,000 | 7,513,000,000 | 6,461,000,000 |
| Accounts Payable | 6,558,000,000 | 6,451,000,000 | 6,209,000,000 | 6,028,000,000 |
| Taxes payable | ||||
| Accrued liabilities | 3,941,000,000 | 4,510,000,000 | 4,705,000,000 | 4,353,000,000 |
| Deferred revenues | 11,165,000,000 | 11,552,000,000 | 11,035,000,000 | 11,021,000,000 |
| Other Current Liabilities | 7,251,000,000 | 1,000,000 | 1,000,000 | -1,000,000 |
| Total Current Liabilities | 38,227,000,000 | 37,363,000,000 | 36,275,000,000 | 34,269,000,000 |
| Long Term Debt | 35,605,000,000 | 39,837,000,000 | 34,655,000,000 | 33,428,000,000 |
| Deferred taxes liabilities | 3,696,000,000 | 545,000,000 | 424,000,000 | 253,000,000 |
| Deferred revenues | 3,445,000,000 | 3,746,000,000 | 3,600,000,000 | 3,771,000,000 |
| Other long-term liabilities | 1,719,000,000 | 1,721,000,000 | 1,778,000,000 | 2,063,000,000 |
| Total non-current liabilities | 68,226,000,000 | 70,268,000,000 | 62,803,000,000 | 61,802,000,000 |
| Total Liabilities | 106,453,000,000 | 107,631,000,000 | 99,078,000,000 | 96,071,000,000 |
| Common Stock | 55,151,000,000 | 54,566,000,000 | 53,935,000,000 | 53,262,000,000 |
| Retained Earnings | 159,206,000,000 | 153,126,000,000 | 152,759,000,000 | 146,124,000,000 |
| Accumulated other comprehensive income | -29,490,000,000 | -26,592,000,000 | -29,398,000,000 | -29,607,000,000 |
| Total stockholders' equity | 16,796,000,000 | 17,594,000,000 | 18,246,000,000 | 14,262,000,000 |
| Total liabilities and stockholders' equity | 123,382,000,000 | 125,356,000,000 | 117,470,000,000 | 110,495,000,000 |
Income Statements:
| 12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | |
| Total Revenue | 79,590,000,000 | 79,139,000,000 | 79,920,000,000 | 81,742,000,000 |
| Cost of Goods Sold | 42,655,000,000 | 42,913,000,000 | 41,625,000,000 | 41,057,000,000 |
| Gross Profit | 36,935,000,000 | 36,226,000,000 | 38,295,000,000 | 40,685,000,000 |
| Research Development | 5,379,000,000 | 5,787,000,000 | 5,751,000,000 | 5,247,000,000 |
| Selling General and Administrative | 18,863,000,000 | 19,555,000,000 | 20,479,000,000 | 19,894,000,000 |
| Operating Income or Loss/EBITDA/EBIT | 12,693,000,000 | 10,884,000,000 | 12,065,000,000 | 15,544,000,000 |
| Interest Expense | 723,000,000 | 615,000,000 | 630,000,000 | 468,000,000 |
| Total Other Income/Expenses Net | -1,482,000,000 | 17,000,000 | -339,000,000 | 421,000,000 |
| Income Before Tax | 10,488,000,000 | 10,286,000,000 | 11,096,000,000 | 15,497,000,000 |
| Income Tax Expense | 2,619,000,000 | 5,642,000,000 | 449,000,000 | 2,581,000,000 |
| Net Income | 7,869,000,000 | 4,644,000,000 | 10,647,000,000 | 12,916,000,000 |
In: Finance
Using financial function to answer the following problems
1) Calculate the present value of an annuity that pays $2,000 each two months for 4 years. The interest is 10% per year and each payment is made at the start of the period.
2) Calculate the interest rate required to save $20,000, over 2 years, with a starting value of $1000, and monthly savings of $800. The payments are to be made at the start of each month.
3) Calculate the number of months required to pay off in full, a loan of $50,000 at a rate of $1,000 per month. Interest is charged at a rate of 4% per year, and the payment to the loan is to be
made at the end of each month.
4) Calculate the monthly payments required to increase an investment from $2000 to $5,000 over
a period of 2 years. Interest is paid at a rate of 3.5% per year and the payment into the
investment is to be made at the beginning of each quarter.
5) A loan of $50,000 which is to be paid off in full after 5
years. Interest is charged at a rate of 5% per year and the monthly
payment to the loan is to be made at the end of each month.
- What is the monthly payment.
- What is the amount paid in the sixth month only from the
loan.
- What is the interest paid in the sixth month only from the loan. 2
-What is the amount paid during the first six months from the loan. -What is the interest paid during the first six months from the loan.
6) We bought a machine factory at a cost of NIS 20,000 at the end of the second quarter of 2019 and the life span of 6 years and have a scrap value at the end of life NIS 3,500. Calculate the depreciation of this machine within one year after purchase.
7) A machine price of NIS 500,000 and its value in the last useful life (12 years) is estimated at 150,000 NIS. This machine was purchased in the fifth month of 2018. Calculate the depreciation of this machine at the end of its first year (ie the end of 2018 year).
8) The price of a machine is $14000 and the default life is 7
years and the scrap value( salvage) is $2300. Calculate the
depreciation of this machine after three years by using sum of
years digits depreciation.
I need the answer in excel file :)
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Which of the following statement is NOT correct?
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During IPOs, underwriters purchase shares from issuing firms and resell them |
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Both open-end and close-end fund shares can be traded |
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None of the above |
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There is a decrease in number of IPOs after 2000 |
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Purchases of new issues of stock take place in the primary market |
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Which of the following statement is NOT correct?
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12b-1 Fee is not a trading cost for investors when trading common stocks |
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Mutual funds investors pay taxes on capital gain and dividends |
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None of the above |
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Price Impact is not a trading cost for investors when trading common stocks |
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There is a decrease in number of IPOs after 2000 |
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The carrying capacity for a country is 800 million. The population grew from 282 million in the year 2000 to 309 million in the year 2010.
1) Make a logistical model for determining the country's population
2) Use this model to predict the country's population in 2100
3) Predict the year in which the population will exceed 500 million
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Suppose the price of the firm's output (sold in integer units) is $700 per unit.
Using tables (but not calculus) to find a solution, what is the total profit at the optimal output level? Please specify your answer as an integer.
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A 210 g , 24-cm-diameter plastic disk is spun on an axle through its center by an electric motor. |
Part A What torque must the motor supply to take the disk from 0 to 2000 rpm in 4.8 s ? Express your answer in newton-meters.
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