2. Assuming a 408 tax rate, what is Threshold worth? Assume that threshold will not need any additional net working capital (NWC) in Year 2001, but will need an additional $95,000 NWC each year from 2002 to 2005. (Note: The "Profit (loss) from racing events" line in Exhibit 3 comes from Exhibit 2. Also, Exhibit 3 has some issues with terminology. The "Net profit" line is not really net profit. Moreover, it would be better to use "revenue" in place of "income". Also, there is a major error in the choice of items to list under "Expenses". See if you can spot the error and correct for it in your analysis. Your analysis will require use of the growing perpetuity/constant growth model in order to estimate a terminal value for your cash flows. Show your work for this question in an Excel attachment.) Exhibit 2 THRESHOLD SPORTS, LLC Estimated Event Income and Loss, 2001-05 (in thousands) 2004 S2,125 25 $2,575 2001 $1,700 1,200 1,300 15 500 1,700 2003 S1,910 1,525 1,540 2002 $1,800 1,350 1,425 25 575 2,300 2390 35 Projected Event Income First Union Series US PRO Tour BMC Grand Prix Pre-Event Consulting New Event New Event 2 New Event 3 New Event 4 New Event 5 New Event 6 Total Event Income 300 350 500 250 660 410 580 325 500 250 $7.735 1,725 50 750 490 675 475 565 325 $8.880 904 625 850 550) 725 475 $10.17 S5,015 S6,275 Operations Cost First Union Series US PRO Tour BMC Grand Prix Octagon Lease New Event New Event 2 New Event 3 New Event 4 New Event 5 New Event 6 Profit Share Total Operations Cost $1,650 1,100 1,200 200 450 275 $1,700 1,200 1,250 225 475 300 475 225 $1,785 1,260 1,315 236 500 330 500 245 475 225 $113 $1,925 1,325 1,385 248 550 365 525 255 510 250 $220 $7.558 $1,985 1,350 1,400 260 555 380 555 265 535 $4.925 888 $5,938 260 S610 $8,155 Net Event Income (Loss) $6.984 $90 $338 $752 $1,322 $2.015 Note: Pre-event consulting income refers to fees generated from consulting work performed to research a new event for a municipality. Operations Cost for each contracted project includes a management fee to Threshold Sports. TOSHOLDSSA -12- 99 Estimated Fee Income and Loss, 2001-05 (in thousands) Exhibit 3 THRESHOLD SPORTS, LLC UVAF-4341 2001 2002 2003 2004 Income 2005 2.240 Management-fce income Special-projects income Profit (loss) from racing events Misc. income Total income $1,150 80 90 2 $1,322 $1,525 80 337 3 $1,945 1,750 90 752 3 $2,595 2,100 105 1,322 4 $3,531 110 2,015 3 $4,368 Expenses Salaries and overhead Special projects Depreciation Capital expenditures Expansion expense New business $1,104 35 11 50 40 24 $1,296 55 16 50 55 2 $1,495 $1,719 60 72 22 28 60 60 100 200 60 100 $1,977 85 34 60 225 200 30 Total expenses $1,264 $1,502 $1,797 $2.179 $2.581 Net profit (loss) $58 $443 $798 $1,351 $1,787 2. Assuming a 408 tax rate, what is Threshold worth? Assume that threshold will not need any additional net working capital (NWC) in Year 2001, but will need an additional $95,000 NWC each year from 2002 to 2005. (Note: The "Profit (loss) from racing events" line in Exhibit 3 comes from Exhibit 2. Also, Exhibit 3 has some issues with terminology. The "Net profit" line is not really net profit. Moreover, it would be better to use "revenue" in place of "income". Also, there is a major error in the choice of items to list under "Expenses". See if you can spot the error and correct for it in your analysis. Your analysis will require use of the growing perpetuity/constant growth model in order to estimate a terminal value for your cash flows. Show your work for this question in an Excel attachment.) Exhibit 2 THRESHOLD SPORTS, LLC Estimated Event Income and Loss, 2001-05 (in thousands) 2004 S2,125 25 $2,575 2001 $1,700 1,200 1,300 15 500 1,700 2003 S1,910 1,525 1,540 2002 $1,800 1,350 1,425 25 575 2,300 2390 35 Projected Event Income First Union Series US PRO Tour BMC Grand Prix Pre-Event Consulting New Event New Event 2 New Event 3 New Event 4 New Event 5 New Event 6 Total Event Income 300 350 500 250 660 410 580 325 500 250 $7.735 1,725 50 750 490 675 475 565 325 $8.880 904 625 850 550) 725 475 $10.17 S5,015 S6,275 Operations Cost First Union Series US PRO Tour BMC Grand Prix Octagon Lease New Event New Event 2 New Event 3 New Event 4 New Event 5 New Event 6 Profit Share Total Operations Cost $1,650 1,100 1,200 200 450 275 $1,700 1,200 1,250 225 475 300 475 225 $1,785 1,260 1,315 236 500 330 500 245 475 225 $113 $1,925 1,325 1,385 248 550 365 525 255 510 250 $220 $7.558 $1,985 1,350 1,400 260 555 380 555 265 535 $4.925 888 $5,938 260 S610 $8,155 Net Event Income (Loss) $6.984 $90 $338 $752 $1,322 $2.015 Note: Pre-event consulting income refers to fees generated from consulting work performed to research a new event for a municipality. Operations Cost for each contracted project includes a management fee to Threshold Sports. TOSHOLDSSA -12- 99 Estimated Fee Income and Loss, 2001-05 (in thousands) Exhibit 3 THRESHOLD SPORTS, LLC UVAF-4341 2001 2002 2003 2004 Income 2005 2.240 Management-fce income Special-projects income Profit (loss) from racing events Misc. income Total income $1,150 80 90 2 $1,322 $1,525 80 337 3 $1,945 1,750 90 752 3 $2,595 2,100 105 1,322 4 $3,531 110 2,015 3 $4,368 Expenses Salaries and overhead Special projects Depreciation Capital expenditures Expansion expense New business $1,104 35 11 50 40 24 $1,296 55 16 50 55 2 $1,495 $1,719 60 72 22 28 60 60 100 200 60 100 $1,977 85 34 60 225 200 30 Total expenses $1,264 $1,502 $1,797 $2.179 $2.581 Net profit (loss) $58 $443 $798 $1,351 $1,787
