Free Cash Flow for a Product

You have just been hired by Internal Business Machines Corporation (IBM) in their capital budgeting division. Your first assignment is to determine the free cash flows and NPV of a proposed new type of tablet computer similar in size to an iPad but with the operating power of a high-end desktop system.Development of the new system will initially require an initial capital expenditure equal to 10% of IBM’s Property, Plant, and Equipment (PPE) at the end of fiscal year 2014. The project will require an additional investment equal to 10% of the initial investment after the first year of the project, a 5% increase after the second year, and a 1% increase after the third, fourth, and fifth years. The product is expected to have a life of five years. First-year revenues for the product are expected to be 3% of IBM’s total revenue for the fiscal year 2014. The new product’s revenues are expected to grow at 15% for the second year then 10% for the third and 5% annually for the final two years of the expected life of the project. Your job is to determine the rest of the cash flows associated with this project. Your boss has indicated that the operating costs and net working capital requirements are similar to the rest of the company and that depreciation is straight-line for capital budgeting purposes. Since your boss hasn’t been much help (welcome to the “real world”!), here are some tips to guide your analysis:1. Obtain IBM’s financial statements. (If you really worked for IBM you would already have this data, but at least you won’t get fired if your analysis is off target.) Down load the annual income statements, balance sheets, and cash flow statements for the last fiscal years from Yahoo! Finance (finance.yahoo.com). Enter IBM’s ticker symbol and then go to “financials.”2. You are now ready to estimate the Free Cash Flow for the new product. Compute the Free Cash Flow for each year usingFree Cash Flow=(Revenues-Costs-Depreciation) x(1-T) + Depreciation-Capital Expenditure-Change in Net Working CapitalSet up the timeline and computation of free cash flow in separate, contiguous columns for each year of the project life. Be sure to make outflows negative and inflows positive.a. Assume that the project’s profitability will be similar to IBM’s existing projects in 2014 and estimate (revenues-costs) each year by using the 2014 EBITDA/Sales profit margin. Calculate EBITDA as EBIT +Depreciation expense from the cash flow statement.b. Determine the annual depreciation by assuming IBM depreciates these assets by straight-line method over a 5-year life.c. Determine IBM’s tax rate by using the income tax rate in 2014d. Calculate the net working capital required each year by assuming that the level of Net working capital will be a constant percentage of the project’s sales. Use IBM’s 2014 net working capital/sales to estimate the required percentage. (Use only accounts receivable, accounts payable, and inventory to measure working capital. other components of current assets and liabilities are harder to interpret and not necessarily reflective of the project’s required net working capital- for example, IBM’s cash holdings.)e. To determine the free cash flow, deduct the additional investment and the change in net working capital each year.3. Use Excel to determine the NPV of the project with a 12% cost of capital. Also calculate the IRR of the project using Excel’s IRR function.4.Perform a sensitivity analysis by varying the project forecasts as follows:a. Suppose first year sales will equal 2%-4% of IBM’s revenues.b. Suppose the cost of capital is 10%-15%.c. Suppose revenue growth is constant after the first year at a rate of 0%-10

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with Assignments ABC
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 10k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
English 101
na
Customer 452547, March 22nd, 2022
Mathematics
Job WELL DONE! Thank You very much!!
Customer 452483, July 12th, 2021
Sociology
Thank you so much! Appreciate it!
Customer 452483, November 8th, 2021
Communications
Thank you for your hard work; I enjoyed reading the essay and appreciate your writing.
Customer 452483, July 18th, 2021
English 101
Thank you guys for always being there and helping me always get a 100% on my assignments!
Customer 452483, August 16th, 2021
Mathematics
Thank you so much!
Customer 452483, July 26th, 2021
Microbiology
Perfect! Thank you guys for all of your great help! :)
Customer 452483, August 23rd, 2021
Nursing
Good job!! Thank you!!!
Customer 452487, September 9th, 2021
Nursing
Excellent!!! Thank you.
Customer 452487, September 13th, 2021
English 101
Perfect! Very informative! Appreciate all of your hard work! Thank you very much.
Customer 452483, September 22nd, 2021
English 101
Great work! Thanks!
Customer 452567, August 2nd, 2022
Communications
You're awesome! Thank you so much!
Customer 452483, July 27th, 2021
1159
Customer reviews in total
96%
Current satisfaction rate
2 pages
Average paper length
47%
Customers referred by a friend
OUR GIFT TO YOU
15% OFF your first order
Use a coupon ABC15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat