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Chapter 7 Student File After 1st Class

This document contains tables and examples from Chapter 7 of the Berk/DeMarzo Corporate Finance textbook. It includes key assumptions, forecasts, and calculations for a project called the BlackBerry Presenter over 4 years. The tables show projections for sales, costs, earnings, cash flows, capital expenditures, depreciation, working capital needs, and NPV calculations for the project.

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186 views10 pages

Chapter 7 Student File After 1st Class

This document contains tables and examples from Chapter 7 of the Berk/DeMarzo Corporate Finance textbook. It includes key assumptions, forecasts, and calculations for a project called the BlackBerry Presenter over 4 years. The tables show projections for sales, costs, earnings, cash flows, capital expenditures, depreciation, working capital needs, and NPV calculations for the project.

Uploaded by

asflkhaf2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Berk/DeMarzo, Corporate Finance

Chapter 7 Tables and Examples

INSTRUCTIONS

This workbook contains tables and examples from Chapter 7. Data and
assumptions are shown as bold blue numbers. Change these numbers to
consider alternative scenarios.

The BlackBerry Presenter


KEY ASSUMPTIONS
Year
Key Assumptions
The BlackBerry Presenter
Units Sold (000s)
Sale Price ($/unit)
Cost of Goods ($/unit)
Existing Router
Units Sold (000s)
25%
Sale Price ($/unit)
Cost of Goods ($/unit)
Operating Expenses ($000s)
Hardware and Software
Development
Marketing and Support
Lost Rent
Capital Expenditures
Lab Equipment
Capital Cost Allowance: Class 45
Marginal Corporate Tax Rate
Working Capital
Receivables (% of Sales)
Payables (% of COGS)
TABLE 7.1
SPREADSHEET

100
260
110

100
260
110

100
260
110

100
260
110

(25)
100
60

(25)
100
60

(25)
100
60

(25)
100
60

(2,800)
(200)

(2,800)
(200)

(2,800)
(200)

(2,800)
(200)

45%
40%

45%
40%

45%
40%

45%
40%

15%
15%

15%
15%

15%
15%

15%
15%

(15,000)

(7,500)
45%
40%

The BlackBerry Presenter's Incremental Earnings Forecast

Year
Incremental Earnings Forecast ($000s)
1 Sales
2 Cost of Goods Sold
3 Gross Profit
4 Selling, General, and Administrative
5 Research and Development
6 Capital Cost Allowance
7 EBIT
8 Income Tax at 40%
9 Unlevered Net Income
TABLE 7.2
SPREADSHEET

26,000
(11,000)
15,000
(2,800)

26,000
(11,000)
15,000
(2,800)

26,000
(11,000)
15,000
(2,800)

26,000
(11,000)
15,000
(2,800)

(1,688)
10,513
(4,205)
6,308

(2,616)
9,584
(3,834)
5,751

(1,439)
10,761
(4,305)
6,457

(791)
11,409
(4,564)
6,845

(15,000)
(15,000)
6,000
(9,000)

The BlackBerry Presenter's Schedule of CCA and UCC for the First Five
Years

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples
Year
0
Capital Expenditure, CCA and UCC Forecasts ($000s)
CapEx (half added into UCC1,
1 half added into UCC2)
2 UCCt Beginning
3 CCAt = UCCt d
UCCt

Ending

4 CCA rate, d
NotesUCC1 = 0.5 CapEx

(3,750)

(5,813)

(3,197)

(1,758)

(1,688)

(2,616)

(1,439)

(791)

(2,063)

(3,197)

(1,758)

(967)

(7,500)

45%

UCC2 = UCC1 - CCA1 + (0.5 CapEx)


For the yellow cells, UCCt = UCCt-1 - CCAt-1
Since CCA5 < UCC5, there will be a positive balance remaining for UCC 6
TABLE 7.3
SPREADSHEET

The BlackBerry Presenter's Incremental Earnings Forecast Including


Cannibalization and Lost Rent

Year
Incremental Earnings Forecast ($000s)
1 Sales
2 Cost of Goods Sold
3 Gross Profit
4 Selling, General, and Administrative
5 Research and Development
6 Capital Cost Allowance
7 EBIT
8 Income Tax at 40%
9 Unlevered Net Income

23,500
(9,500)
14,000
(3,000)

23,500
(9,500)
14,000
(3,000)

23,500
(9,500)
14,000
(3,000)

23,500
(9,500)
14,000
(3,000)

(1,688)
9,313
(3,725)
5,588

(2,616)
8,384
(3,354)
5,031

(1,439)
9,561
(3,825)
5,737

(791)
10,209
(4,084)
6,125

(15,000)
(15,000)
6,000
(9,000)

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples
TABLE 7.4
SPREADSHEET

Calculation of the BlackBerry Presenter's Free Cash Flow (Including


Cannibalization and Lost Rent)

Year
Incremental Earnings Forecast ($000s)
1 Sales
2 Cost of Goods Sold
3 Gross Profit
4 Selling, General, and Administrative
5 Research and Development
6 Capital Cost Allowance
7 EBIT
8 Income Tax at 40%
9 Unlevered Net Income

(15,000)
(15,000)
6,000
(9,000)

23,500
(9,500)
14,000
(3,000)
(1,688)
9,313
(3,725)
5,588

23,500
(9,500)
14,000
(3,000)
(2,616)
8,384
(3,354)
5,031

23,500
(9,500)
14,000
(3,000)
(1,439)
9,561
(3,825)
5,737

23,500
(9,500)
14,000
(3,000)
(791)
10,209
(4,084)
6,125

Free Cash Flow ($000s)


10 Plus:CCA
11 Less: Capital Expenditures
12 Less: Increases in NWC
13 Free Cash Flow
TABLE 7.5
SPREADSHEET

The BlackBerry Presenter's Net Working Capital Requirements

Year
Net Working Capital Forecast ($000s)
1 Cash Requirements
2 Inventory
3 Receivables (15% of Sales)
4 Payables (15% of COGS)
5 Net Working Capital
TABLE 7.6
SPREADSHEET

TABLE 7.7
SPREADSHEET

3,525
(1,425)
2,100

3,525
(1,425)
2,100

3,525
(1,425)
2,100

3,525
(1,425)
2,100

Computing the BlackBerry Presenter's NPV


Year

Net Present Value ($000s)


1 Free Cash Flow
2 Project Cost of Capital
3 Discount Factor
4 PV of Free Cash Flow
5 NPV

12%

NPV Cost of Outsourced Versus In-House Assembly of the BlackBerry Pr


Year

Outsourced Assembly ($000s)


1 EBIT
2 Income Tax at 40%
3 Unlevered Net Income

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples
4
5
6

Less: Increases in NWC


Free Cash Flow
NPV at 12%
Year

In-House Assembly ($000s)


1 EBIT
2 Income Tax at 40%
3 Unlevered Net Income
4 Less: Increases in NWC
5 Free Cash Flow
6 NPV at 12%
Equation 7.10

PVCCA tax shields

C apEx d c
2
PVCCAtax shields

rd
1 r
1

TABLE 7.10 SPREADSHEET

2,242

The BlackBerry Presenter's FCF and NPV with CCA Tax Shields Treated
Separately

Year
Incremental Earnings Forecast ($000s)
1 Sales
2 Cost of Goods Sold
3 Gross Profit
4 Selling, General, and Administrative
5 Research and Development
6 CCA
7 EBIT
8 Income Tax at 40%
9 Unlevered Net Income
Free Cash Flow ($000s)
10 Plus: CCA
11 Less: Capital Expenditures
12 Less: Increases in NWC
13 Free Cash Flow excluding CCA tax shields
Net Present Value ($000s)
14 Project Cost of Capital
12%
15 Discount Factor
16 PV of Free Cash Flow excluding CCA tax shields
17 PV of CCA Tax Shields (Eq. 7.10)
18 NPV

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples
EXAMPLE 7.5

Adding Salvage Value and CCA Effects to the Analysis

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples

pter 7. Data and


ge these numbers to

45%
40%

orecast
5
(435)
(435)
174
(261)

CC for the First Five

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples
5

(967)
(435)
(532)

orecast Including

5
-

(435)
(435)
174
(261)

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples
Flow (Including

5
(435)
(435)
174
(261)

quirements
5

NPV without rounding


of the BlackBerry Pr
5

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples

Tax Shields Treated

Berk/DeMarzo, Corporate Finance


Chapter 7 Tables and Examples

sis

10

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