ASSIGNMENT#5:

Copper Corporation has projected that their performance for the next five years will
result in the following:

Year Revenue Cash Operating

(in millions) Expenses
(in millions)
1 50.00 30.00
2 55.00 33.00
3 60.50 36.30
4 66.55 39.93
5 73.21 43.92

The company owns a property originally acquired at P50 million with a useful life of
10 years.  The terminal value was assumed based on the growth rate of cash flows. 
The annual capital investment requirement is P2 million.  The outstanding loan is
P16.62 million.  The income tax rate is at 30%.  The required rate of return for this
business is 14%.
Requirements: (Show computations)
1. How much is the terminal value?

TV= CFn + 1 g=([ NCF 0 ) n −1 ]

NCFn 1
-1 x 100%

TV=20.50 + (20.50 x 10%) g= ([ 20.50

14.00 5 − 1 ]
) 1
−1 x 100 %

14%-10%

TV= 22.55 g=(1.10-1) x 100%

4%

TV=P563.75 g= 10%
2. How much is the Discounted Net Cash Flows to the Firm?
YEAR YEAR YEAR YEAR YEAR
1 2 3 4 5
Revenue 50.00 55.00 60.50 66.55 73.21

Less: Cash Operating Expenses 30.00 33.00 36.30 39.93 43.92

Less: Depreciation 5.00 5.00 5.00 5.00 5.00

Less: Tax Payments 4.50 5.10 5.76 6.49 7.29
Net Income After Tax 10.50 11.90 13.44 15.13 17.00

Add: Depreciation 5.00 5.00 5.00 5.00 5.00

Add: Terminal Value 563.75

Net Cash Flows to the Firm 15.50 16.90 18.44 20.13 585.75

Discount Factor 0.8771 0.7694 0.6749 0.5920 0.5193

Discounted Net Cash Flows to the

Firm 13.60 13.00 12.45 11.92 304.22

TOTAL DISCOUNTED CASH FLOW TO THE FIRM 355.19

3. How much is the Discounted Net Cash Flows to the Equity?

YEAR YEAR YEAR YEAR YEAR
1 2 3 4 5
Revenue 50.00 55.00 60.50 66.55 73.21
Less: Cash Operating Expenses 30.00 33.00 36.30 39.93 43.92
Less: Depreciation 5.00 5.00 5.00 5.00 5.00
Less: Tax Payments 4.50 5.10 5.76 6.49 7.29
Net Income After Tax 10.50 11.90 13.44 15.13 17.00
Add: Depreciation 5.00 5.00 5.00 5.00 5.00
Add: Terminal Value 563.75
Net Cash Flows to the Firm 15.50 16.90 18.44 20.13 585.75
Discount Factor 0.8771 0.7694 0.6749 0.5920 0.5193
Discounted Net Cash Flows to Equity 13.60 13.00 12.45 11.92 304.22
Total Discounted Cash Flows 355.19
Less: Outstanding Loans 16.20
Total Discounted Cash Flows to Equity 338.99
4. Assuming there are no outstanding loans, how much is the Discounted Net
Cash Flows to the Equity?
YEAR YEAR YEAR YEAR YEAR
1 2 3 4 5
Revenue 50.00 55.00 60.50 66.55 73.21
Less: Cash Operating Expenses 30.00 33.00 36.30 39.93 43.92
Less: Depreciation 5.00 5.00 5.00 5.00 5.00
Less: Tax Payments 4.50 5.10 5.76 6.49 7.29
Net Income After Tax 10.50 11.90 13.44 15.13 17.00
Add: Depreciation 5.00 5.00 5.00 5.00 5.00
Less: Terminal Value 563.75
Net Cash Flows to the Firm 15.50 16.90 18.44 20.13 585.75
Discount Factor 0.8771 0.7694 0.6749 0.5920 0.5193
Discounted Net Cash Flows to Equity 13.60 13.00 12.45 11.92 304.22

Total Discounted Net Cash Flows to Equity 355.19

5. Assuming that the required rate of return is 12%, how much is the Discounted
Net Cash flows to the Equity?
YEAR YEAR YEAR YEAR YEAR
1 2 3 4 5
Revenue 50.00 55.00 60.50 66.55 73.21
Less: Cash Operating Expenses 30.00 33.00 36.30 39.93 43.92
Less: Depreciation 5.00 5.00 5.00 5.00 5.00
Less: Tax Payments 4.50 5.10 5.76 6.49 7.29
Net Income After Tax 10.50 11.90 13.44 15.13 17.00
Add: Depreciation 5.00 5.00 5.00 5.00 5.00
Less: Terminal Value 563.75
Net Cash Flows to the Firm 15.50 16.90 18.44 20.13 585.75
Discount Factor 0.8929 0.7972 0.7118 0.6355 0.5674
Discounted Net Cash Flows 13.84 13.47 13.13 12.80 332.37
Total Discounted Cash Flows 385.61
Less: Outstanding Loan 16.20
Total Discounted Cash Flows to Equity 369.41