s0 8000000

s1 9200000
a0 7000000
l0 900000
m 6%
por 40%

7 $ 8,000,000

8 $ 8,000,000

9 $ 8,000,000

10 $ 8,000,000

11 $ 8,000,000
12 $ 8,000,000
FIN 3085

Problem: 13-9

Note: Inputs in Blue

Cost of new machine

BV old machine
Salvage Value (sale) - today
Salvage Value (sale) - end of useful life
Useful life remaining
Sales increase new machine
Reduction in OPEX
Working Capital impact:
Increase in inventories
 Increase in A/P
Tax rate
WACC
Depreciation:
Depn rate new machine
Depn - new machine
Depn - old machine
Change in Depn

Incremental FCF after replacement of old machine:

New Machine Cost

Sale of old Machine
Tax on sale of old machine
Increased Sales Revenues
Decreased OPEX
Change in Depn (new vs. old)
Change in Operating Income
Taxes
Change in After-Tax Operating Income
Add back: Change in Depn
Change in Working Capital
Sale (salvage value) of new machine
Tax on sale of new machine
Opportunity cost of not selling old machine YR 6
Tax effect of opportunity cost of not selling old machine YR 6
Incremental Free Cash Flow

NPV

13 $ 8,000,000

14 $ 8,000,000

15 $ 8,000,000
notes payable 500,000
accrurals Cash
11
 41
91
,,
40
00
00

Receivab
les and 11
Inventor 55
y 62
,,
00
00
00

Property,
Plant 24
and ,7
Equipm 18
8,
Year 00
,0
00
0
0
ent
Investme
nt in 1
Seguros ,
1
9
2
,
0
0
0

Tradema
rk 32
72
 23
,,
00
00
00

after tax profit margin 6%

payout ratio 40%
(spontaneous
liabilites do
not count
notes
payable)
Additional Funds Needed = Increase in Assets - Increase in Spontaneous Liabilities
- Increase in Retained Earnings

-
13 33
50 12
1050000 00 00

58
 38
00

The AFN in problem 2 is higher than the one found in problem 1 for several reasons. First, from a mathmatical presepe
this is the case because the assets portion was increased while the increase in spontaneous liabillites and increase in
retained earnings portions stayed the same. From a logical prespectiv
Plan A Plan B
Year
$ $
0 (50,000,000) (15,000,000)
1 $ 8,000,000 $ 3,400,000
2 $ 8,000,000 $ 3,400,000
3 $ 8,000,000 $ 3,400,000
4 $ 8,000,000 $ 3,400,000
5 $ 8,000,000 $ 3,400,000
6 $ 8,000,000 $ 3,400,000
7 $ 8,000,000 $ 3,400,000
8 $ 8,000,000 $ 3,400,000
9 $ 8,000,000 $ 3,400,000
10 $ 8,000,000 $ 3,400,000
11 $ 8,000,000 $ 3,400,000
12 $ 8,000,000 $ 3,400,000
13 $ 8,000,000 $ 3,400,000
14 $ 8,000,000 $ 3,400,000
15 $ 8,000,000 $ 3,400,000
16 $ 8,000,000 $ 3,400,000
17 $ 8,000,000 $ 3,400,000
18 $ 8,000,000 $ 3,400,000
19 $ 8,000,000 $ 3,400,000
20 $ 8,000,000 $ 3,400,000
e, you are going to need more additonal funds than before becasue the requoired increase in assets that the comapny
needs increased by 2,000,000 dollars. This can only be provided by greater additonal funding. Also, the capital intensity
ratio is differnt than before due to these changes as it incrreases due to the increase in assets (which is the numerator)

sales growth per year

sales 2012
sales 2013
assets (end of 2012)

assert growth per year

current liabilities

accounts payable

notes payable

accrurals

after tax profit margin

payout ratio

Additional Funds Needed = Increase in Assets - Increase in Spontaneous Liabilities - Increase in Retained Earnings

The AFN in problem 2 is higher than the one found in problem 1 for several reasons. First, from a mathmatical presepect
funds than before becasue the requoired increase in assets that the comapny needs increased by 2,000,000 dollars. Thi
 sales in 2012
2012 year end assets

profit margin
payout ratio

self-supporting growth= (profit margin(1- payout ratio))(sales)

4.05%

Sales Increase
The War of 1812 (18 June 1812 – 17 February 1815) was fought by the United States of
America and its indigenous allies against the United Kingdom and its allies in British North America,
with limited participation by Spain in Florida. It began when the US declared war on 18 June 1812
and, although peace terms were agreed upon in the December 1814 Treaty of Ghent, did not
officially end until the peace treaty was ratified by Congress on 17 February 1815.[12][13]
Tensions originated in long-standing differences over territorial expansion in North America and
British support for Native American tribes who opposed US colonial settlement in the Northwest
Territory. These escalated in 1807 after the Royal Navy began enforcing tighter restrictions on
American trade with France, exacerbated by the impressment of men claimed as British subjects,
even those with American citizenship certificates. [14] Opinion was split on how to respond, and
although majorities in both the House and Senate voted for war, they divided along strict party lines,
with the Democratic-Republican Party in favour and the Federalist Partyagainst.[d][15] News of British
concessions made in an attempt to avoid war did not reach the US until late July, by which time the
conflict was already underway.
At sea, the far larger Royal Navy imposed an effective blockade on US maritime trade, while
between 1812 to 1814 British regulars and colonial militia defeated a series of American attacks
on Upper Canada.[16] This was balanced by the US winning control of the Northwest Territory with
victories at Lake Erie and the Thames in 1813. The abdication of Napoleon in early 1814 allowed the
British to send additional troops to North America and the Royal Navy to reinforce their blockade,
crippling the American economy.[17] In August 1814, negotiations began in Ghent, with both sides
wanting peace; the British economy had been severely impacted by the trade embargo, while the
Federalists convened the Hartford Convention in December to formalise their opposition to the war.
In August 1814, British troops burned Washington, before American victories
at Baltimore and Plattsburgh in September ended fighting in the north. It continued in
the Southeastern United States, where in late 1813 a civil war had broken out between
a Creek faction supported by Spanish and British traders and those backed by the US. Supported by
American militia under General Andrew Jackson, they won a series of victories, culminating in the
capture of Pensacola in November 1814.[18] In early 1815, Jackson defeated a British attack on New
Orleans, catapulting him to national celebrity and later victory in the 1828 United States presidential
election.[19] News of this success arrived in Washington at the same time as that of the signing of the
Treaty of Ghent, which essentially restored the position to that prevailing before the war. While
Britain insisted this included lands belonging to their Native American allies prior to 1811, Congress
did not recognize them as independent nations and neither side sought to enforce this requirement.