Essay About Working Capital And E1

Long-Term Financial Management Decisions
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Working Capital Wont change, at the end of year 8 it will be $200,000
Depreciation = $200,000 for the first 5 years.
Invest in plant and equipment $1,000,000 / 5 = $200,000
The depreciation is $0 for 6-8 years
Years
Three
Seven
Eight
Revenues (RV)
1500
Expenses (E)
602.5
Depreciation (D)
Income Before Tax (IBT)
147.5
( RV – ( E + D )
Taxes (T)
51.625
138.2
138.2
138.2
138.2
238.2
238.3
238.2
Net Income (NT)
256.8
256.8
256.8
256.8
356.8
356.8
356.8
( IBT – T )
Cash Flow (CF)
295.9
456.8
456.8
456.8
456.8
356.8
356.8
356.8
( RV- E – T )
Investment (I)
-1000
Change in WC (WC)
Total Cash Flow
-1200
( I + WC)
Total Cash Flow (TCF)
-1200
295.9
456.8
456.8
456.8
456.8
356.8
356.8
556.8
(CF + TCF)
(I) = $1,000,000
Working Capital (WC) = $200,000
Current WC = 0
CHWC= $200,000
Revenues = $950,000
Between Two Through Eight years = $1,500,000
formula 55% / 100 = 0.55
Expenses 55%
Formula IC + E * R1 = E1
$80,000 + 0.55 * $950,000 = $602,500
Formula E * R2 = E2
$80,000 + 0.55 * $1,500.000 = $905,000
Formula IC + R3 = E3
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R4 = E4
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R5 = E5
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R6 = E6
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R7 = E7
$80,000 + 0.55 * 1,500.00 = $905,000
Formula IC + R8 = E8
$80,000 + 0.55 * 1,500.00 = $905,000
Taxes are 35%
(T) * (RV – E – D ) = Taxes
0.35 * ($950,000 – $602,500 – $200,000) = $51,625
(T) * (RV – E – D ) = Taxes
(T) * (RV – E – D ) = Taxes
(T) * (RV – E – D ) = Taxes
0.35