3. (Evaluation of dividend policy) Your task is to assess the dividend policy of Company Inc. The company started its operations on 1st of January, 2017 with no cash and no debt. You have the following information about the company finances.

	2017	2018	2019
Revenues	1 000	1 100	1 200
Net Income	100	110	120
Depreciation	40	45	50
Capital expenditures	50	60	70
Non-cash working capital (end of year)	10	30	60
Total Debt (end of year)	10	15	90
Dividend payout ratio	0%	40%	50%

Evaluate the amount of cash, the company had at the end of each year from 2017 till 2019?

Assume now that the company plans to double its investments in non-cash working capital in early 2020 as share of the sales revenue, compared to 2019 (e.g. in 2020 there will be a jump from 5% to 10% and in the following years the level of non-cash working capital stays at 10% of sales revenue). The company hopes that these investments will enable the company to increase sales revenue by 20% per year (e.g. for years 2020, 2021 and 2022). When preparing the forecasts, it can be assumed that the company's net profit margin and dividend payout ratio will remain the same as in 2019. The company's investments and depreciation are forecasted to grow by 10% per year. In addition, we expect the company to repay all loans taken by the end of 2019 (e.g. 90 million) in three equal annual instalments.

(Hint: if for some reason there is not enough cash to pay out dividends and service the debt, adjust dividend payout accordingly)

Now forecast the cash balance for the end of next three years (e.g. for 2020, 2021 and 2022)

Assume that the optimal cash balance for the company is 100 starting from 2020, estimate the amount of cash that can be used to repurchase the stock each year?

Hint: For computing the cash balance, you may rely on FCFE by using the following from for all the years: Revenues Net Income + Depreciation - Capital Expenditures - Change in Working capital -/+ Debt decrease/increase = FCFE - Dividends paid = Change in cash balance Cash balance