Free Cash Flow in Millions $

Year
Revenues
Manufacturing Expenses
Market Expenses
Depreciation
EBIT
Taxes (35%)
Unlevered Net Income
Depreciation
Increases in NWC
Capital Expenditures
Contineuous value
Free Cash Flow

0
(150.00)
-

59.13

(150.00)

1
100.00
(35.00)
(10.00)
(15.00)
40.00
14.00
26.00
15.00
(5.00)
36.00
1.12
32.14

2
3
4
100.00
100.00
100.00
(35.00)
(35.00)
(35.00)
(10.00)
(10.00)
(10.00)
(15.00)
(15.00)
(15.00)
40.00
40.00
40.00
14.00
14.00
14.00
26.00
26.00
26.00
15.00
15.00
15.00
(5.00)
(5.00)
(5.00)
36.00
36.00
36.00
1.2544 1.404928 1.573519
28.70
25.62
22.88

a) The NPV of the estimate free cash flow is

NPV = -150 + 36 * (1/.12) (1 - (1/(1.12^9))) + (48 / (1.12^10)) = $57.3 Million

5
6
7
8
9
10
100.00
100.00
100.00
100.00
100.00
100.00
(35.00)
(35.00)
(35.00)
(35.00)
(35.00)
(35.00)
(10.00)
(10.00)
(10.00)
(10.00)
(10.00)
(10.00)
(15.00)
(15.00)
(15.00)
(15.00)
(15.00)
(15.00)
40.00
40.00
40.00
40.00
40.00
40.00
14.00
14.00
14.00
14.00
14.00
14.00
26.00
26.00
26.00
26.00
26.00
26.00
15.00
15.00
15.00
15.00
15.00
15.00
(5.00)
(5.00)
(5.00)
(5.00)
(5.00)
(5.00)
12.00
36.00
36.00
36.00
36.00
36.00
48.00
1.762342 1.973823 2.210681 2.475963 2.773079 2.773079
20.43
18.24
16.28
14.54
12.98
17.31

Free Cash Flow in Millions $

Year
0
Revenues
Manufacturing Expenses
Market Expenses
Depreciation
EBIT
Taxes (35%)
Unlevered Net Income
Depreciation
Increases in NWC
Capital Expenditures
Contineuous value
(150.00)
Free Cash Flow
-

1
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

2
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

3
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

4
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

NPV = -150 + 42.5 * (1/.12) (1 - (1/(1.12^9))) + (54.5 / (1.12^10)) = $93.99 Million

5
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

6
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

7
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

8
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

9
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
42.50

10
110.00
(35.00)
(10.00)
(15.00)
50.00
17.50
32.50
15.00
(5.00)
12.00
54.50

Free Cash Flow in Millions $

Year
0
Revenues
Manufacturing Expenses
Market Expenses
Depreciation
EBIT
Taxes (35%)
Unlevered Net Income
Depreciation
Increases in NWC
Capital Expenditures
Contineuous value
(150.00)
Free Cash Flow
-

1
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

NPV = -150 + 29.50 * (1/.12) (1 - (1/(1.12^9))) + (41.50 / (1.12^10))

2
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

3
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

4
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

1/(1.12^9))) + (41.50 / (1.12^10)) = $20.54 Million

5
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

6
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

7
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

8
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

9
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
29.50

10
90.00
(35.00)
(10.00)
(15.00)
30.00
10.50
19.50
15.00
(5.00)
12.00
41.50

Free Cash Flow in Millions $

Year
0
Revenues
Manufacturing Expenses
Market Expenses
Depreciation
EBIT
Taxes (35%)
Unlevered Net Income
Depreciation
Increases in NWC
Capital Expenditures
Contineuous value
(150.00)
Free Cash Flow
$ 72.46

(150.00)

1
100.00
(35.00)
(10.00)
(15.00)
40.00
14.00
26.00
15.00
(5.00)
36.00
1.12
32.14

2
3
4
5
6
102.00
104.04
106.12
108.24
110.41
(35.70)
(36.41)
(37.14)
(37.89)
(38.64)
(10.20)
(10.40)
(10.61)
(10.82)
(11.04)
(15.00)
(15.00)
(15.00)
(15.00)
(15.00)
41.10
42.22
43.37
44.53
45.72
14.39
14.78
15.18
15.59
16.00
26.72
27.44
28.19
28.95
29.72
15.00
15.00
15.00
15.00
15.00
(5.00)
(5.00)
(5.00)
(5.00)
(5.00)
36.72
37.44
38.19
38.95
39.72
1.2544 1.404928 1.573519 1.762342 1.973823
29.27
26.65
24.27
22.10
20.12

NPV with 2% increase per year in Revenues, Manufacturing Expenses, and Marketing = $72.46 Million

7
8
9
10
112.62
114.87
117.17
119.51
(39.42)
(40.20)
(41.01)
(41.83)
(11.26)
(11.49)
(11.72)
(11.95)
(15.00)
(15.00)
(15.00)
(15.00)
46.94
48.18
49.44
50.73
16.43
16.86
17.30
17.76
30.51
31.32
32.14
32.97
15.00
15.00
15.00
15.00
(5.00)
(5.00)
(5.00)
(5.00)
12.00
40.51
41.32
42.14
54.97
2.210681 2.475963 2.773079 3.105848
18.32
16.69
15.19
17.70

Free Cash Flow in Millions $

Year
0
Revenues
Manufacturing Expenses
Market Expenses
Depreciation
EBIT
Taxes (35%)
Unlevered Net Income
Depreciation
Increases in NWC
Capital Expenditures
Contineuous value
(150.00)
Free Cash Flow
$ 98.14

(150.00)

1
100.00
(35.00)
(10.00)
(15.00)
40.00
14.00
26.00
15.00
(5.00)
36.00
1.12
32.14

NPV with 5% increase per year in Revenues, Manufacturing Expense

2
3
4
5
6
7
8
9
10
105.00
110.25
115.76
121.55
127.63
134.01
140.71
147.75
155.13
(36.75)
(38.59)
(40.52)
(42.54)
(44.67)
(46.90)
(49.25)
(51.71)
(54.30)
(10.50)
(11.03)
(11.58)
(12.16)
(12.76)
(13.40)
(14.07)
(14.77)
(15.51)
(15.00)
(15.00)
(15.00)
(15.00)
(15.00)
(15.00)
(15.00)
(15.00)
(15.00)
42.75
45.64
48.67
51.85
55.20
58.71
62.39
66.26
70.32
14.96
15.97
17.03
18.15
19.32
20.55
21.84
23.19
24.61
27.79
29.66
31.64
33.70
35.88
38.16
40.55
43.07
45.71
15.00
15.00
15.00
15.00
15.00
15.00
15.00
15.00
15.00
(5.00)
(5.00)
(5.00)
(5.00)
(5.00)
(5.00)
(5.00)
(5.00)
(5.00)
12.00
37.79
39.66
41.64
43.70
45.88
48.16
50.55
53.07
67.71
1.2544 1.404928 1.573519 1.762342 1.973823 2.210681 2.475963 2.773079 3.105848
30.12
28.23
26.46
24.80
23.24
21.78
20.42
19.14
21.80

Revenues, Manufacturing Expenses, and Marketing = $98.14 Million

Free Cash Flow in Millions $

Year
0
Revenues
Manufacturing Expenses
Market Expenses
Depreciation
EBIT
Taxes (35%)
Unlevered Net Income
Depreciation
Increases in NWC
Capital Expenditures
Contineuous value
(150.00)
Free Cash Flow
(37.83)

(150.00)

1
100.00
(35.00)
(10.00)
(15.00)
40.00
14.00
26.00
15.00
(5.00)
36.00
1.3
27.69

2
100.00
(35.00)
(10.00)
(15.00)
40.00
14.00
26.00
15.00
(5.00)
36.00
1.69
21.30

3
100.00
(35.00)
(10.00)
(15.00)
40.00
14.00
26.00
15.00
(5.00)
36.00
2.197
16.39

4
100.00
(35.00)
(10.00)
(15.00)
40.00
14.00
26.00
15.00
(5.00)
36.00
2.8561
12.60

5
6
100.00
100.00
(35.00)
(35.00)
(10.00)
(10.00)
(15.00)
(15.00)
40.00
40.00
14.00
14.00
26.00
26.00
15.00
15.00
(5.00)
(5.00)
36.00
36.00
3.71293 4.826809
9.70
7.46

160
140
120
100
80
60
40
20
0
-20

5%

10%

15%

20%

25%

-40
-60

The NPV is positive for discount rates below the IRR of 20.6%

7
8
100.00
100.00
(35.00)
(35.00)
(10.00)
(10.00)
(15.00)
(15.00)
40.00
40.00
14.00
14.00
26.00
26.00
15.00
15.00
(5.00)
(5.00)
36.00
36.00
6.274852 8.157307
5.74
4.41

25%

the IRR of 20.6%

30%

9
10
100.00
100.00
(35.00)
(35.00)
(10.00)
(10.00)
(15.00)
(15.00)
40.00
40.00
14.00
14.00
26.00
26.00
15.00
15.00
(5.00)
(5.00)
12.00
36.00
48.00
10.6045 13.78585
3.39
3.48

Discount Rate
5%
10%
15%
20%
25%
30%

NPV
135.35
75.83
33.64
2.87
(20.17)
(37.83)