Prepare projected cash flows for the first five years of the project. Blue Mesa

Question

Prepare projected cash flows for the first five years of the project.

Blue Mesa Sales and Cost Projections Close Window The following are the sales and cost projections for the first year of the project. 2003 Sales Cost of Sales$5,025,000 Gross Margin$2,475,000 $7,500,000 Depreciation Interest Expense$25,000 Taxable Income $1,680,263 Taxes Net Income Sales are expected to grow 15 percent in the first year and 10 percent a year for the next four years. Gross margin is expected to stay constant as a percentage of sales, as are SG&A; expenses. PP&E; is expected to increase by $350,000 per year, with depreciation expense remaining at $375,000 per year. Working capital per year is estimated at 35 cents per dollar of sales. The tax rate will remain constant at 34 percent. Interest expense remains constant at $25,000 per year. In 2002 working capital was $2,275,000 $375,000 $571,289 $1,108,974 0 5 Copyright by Capital Education LLC, 2015. All rights reserved

Explanation / Answer

Projected cash flows

(11446600*110%) i.e 12591260

Particulars 2003 2004 2005 2006 2007 2008 Sales 7500000 (7500000*115%) i.e 8625000 (8600000*110%) i.e 9460000 (9460000*110%) i.e 10406000 (10406000*110%) i.e 11446600

(11446600*110%) i.e 12591260

Cost of sales % (5025000/7500000) i.e 67% 5025000 (8625000*67%) i.e 5778750 (9460000*67%) i.e 6338200 (10406000*67%) i.e 6972020 (11446600*67%) i.e 7669222 (12591260*67%) i.e 8436144 Gross Profit 2475000 2846250 3121800 3433980 3777378 4155116 S&GA Expense %(394737/7500000) i.e 5.26% 394737 (8625000*5.26%) i.e 453675 (9460000*5.26%) i.e 497596 (10406000*5.26%) i.e 547356 (11446600*5.26%) i.e 602091 (12591260*5.26%) i.e 662300 Depreciation 375000 375000 375000 375000 375000 375000 Interest Expense 25000 25000 25000 25000 25000 25000 Taxable Income 1680263 1992575 2224204 2486624 2775287 3092816 Taxes @ 34% 571289 677476 756230 845452 943598 1051557 Net Income 1108974 1315099 1467974 1641172 1831689 2041259 Non cash expense depreciation 375000 375000 375000 375000 375000 375000 Less : PP&E addition 350000 350000 350000 350000 350000 350000

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