Description
Using the income statement from the previous exercise, forecast a ten year cash flow using the following assumptions:
- Capital Expenditures of $50,000 per year.
- Leasehold Improvements of $10,000 per year.
- DSO of 75 Days.
- Inventory Turnover of 12 times.
- Accounts Payable of 30 days.
- Depreciation is constant.
- The combined Federal and State Tax Rate is 40%.
- There are no additional financing expenses associated with the transaction.
After you have completed your cash flow forecast, calculate a Net Present Value assuming a discount rate of 15%.
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Explanation & Answer

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Running Head: FORECAST 10-YEAR CASH FLOWS WITH GIVEN DATA AND
ASSUMPTIONS
Forecast 10-year cash flows with given data and assumptions
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FORECAST 10-YEAR CASH FLOWS WITH GIVEN DATA AND ASSUMPTIONS
Calculating growth rates using Units
2008 = (540000- 500000)/500000 = 8%
2009 = (577800-540000)/540000 = 7%
From the above calculations it is clear that the growth rate falls every year by 1%. Future
predictions may thus be made using rates that reduce with 1%. Below are the future predictions
for ten years.
2010 = 6%
2011 = 5%
2012 = 4%
2013 = 3%
2014 = 2%
2015 = 1%
2016 onwards = 0%
Calculating growth rate using the set pr...
