CASH FLOW

Alan evaluated the sales figures prepared by Marcia and the marketing staff. He then used the sales price of the PowrFlo 500 to develop a statement of Pro Forma cash flows. Many folks would get very excited by the large gross margin that was apparent in the figures. However, being the CFO, Alan knew he had to calculate a present value (PV) of these future cash flows in order to get a number that could be used by Doug and the rest of senior management to make such a large capital budgeting decision. Specifically Alan would have to discount the monthly cash flows shown in Figure 3.

	Old Sales Estimate	Cash Flow with average	New Sales Estimate	Cash Flow with average
Date	for PowrFlo 500 (units)	sales price of $499.00	for PowrFlo 500 (units)	sales price of $499.00
Oct-05	350	$174,650.00	2700	$1,347,300.00
Nov-05	354	$176,396.50	2754	$1,374,246.00
Dec-05	357	$178,160.47	2809	$1,401,730.92
Jan-06	361	$179,942.07	2865	$1,429,765.54
Feb-06	364	$181,741.49	2923	$1,458,360.85
Mar-06	368	$183,558.91	2981	$1,487,528.07
Apr-06	372	$185,394.49	3041	$1,517,278.63
May-06	375	$187,248.44	3101	$1,547,624.20
Jun-06	379	$189,120.92	3163	$1,578,576.68
Jul-06	383	$191,012.13	3227	$1,610,148.22
Aug-06	387	$192,922.25	3291	$1,642,351.18
Sep-06	390	$194,851.48	3357	$1,675,198.21
Oct-06	394	$196,799.99	3424	$1,708,702.17
Nov-06	398	$198,767.99	3493	$1,742,876.21
Dec-06	402	$200,755.67	3563	$1,777,733.74
Jan-07	406	$202,763.23	3634	$1,813,288.41
Feb-07	410	$204,790.86	3707	$1,849,554.18
Mar-07	415	$206,838.77	3781	$1,886,545.26
Apr-07	419	$208,907.16	3856	$1,924,276.17
May-07	423	$210,996.23	3933	$1,962,761.69
Jun-07	427	$213,106.19	4012	$2,002,016.93
Jul-07	431	$215,237.25	4092	$2,042,057.27
Aug-07	436	$217,389.62	4174	$2,082,898.41
Sep-07	440	$219,563.52	4258	$2,124,556.38
Oct-07	444	$221,759.16	4343	$2,167,047.51
Nov-07	449	$223,976.75	4430	$2,210,388.46
Dec-07	453	$226,216.52	4518	$2,254,596.23
Jan-08	458	$228,478.68	4609	$2,299,688.15
Feb-08	462	$230,763.47	4701	$2,345,681.91
Mar-08	467	$233,071.10	4795	$2,392,595.55
Apr-08	472	$235,401.81	4891	$2,440,447.46
May-08	476	$237,755.83	4988	$2,489,256.41
Jun-08	481	$240,133.39	5088	$2,539,041.54
Jul-08	486	$242,534.72	5190	$2,589,822.37
Aug-08	491	$244,960.07	5294	$2,641,618.82
Sep-08	496	$247,409.67	5400	$2,694,451.19
Oct-08	501	$249,883.77	5508	$2,748,340.22
Nov-08	506	$252,382.61	5618	$2,803,307.02
Dec-08	511	$254,906.43	5730	$2,859,373.16

Figure 3. Pro Forma analysis of cash flows based on estimated sales figures before and after Katrina

Net Present Value

As a group: Review Figure 3 that shows the cash flows estimated before and after Katrina. Calculate the NPV of cash flows for each stream of cash before and after Katrina using a discount rate of 9%. Remember that Figure 3 uses monthly cash flows and the discount rate is an annual rate. Use the following format (only part of Figure 3 is shown below).

	Old Sales Estimate	Old NPV of cash flow	New Sales Estimate	New NPV of cash flow
Date	for PowrFlo 500 (units)	sales price of $499.00	for PowrFlo 500 (units)	sales price of $499.00
Oct-05	350	Calculate this	2700	Calculate this

As a group: Review Figure 3 that shows the cash flows estimated before and after Katrina. Calculate the NPV of cash flows for each stream of cash before and after Katrina using a discount rate of 9%. Remember that Figure 3 uses monthly cash flows and the discount rate is an annual rate. Use the following format (only part of Figure 3 is shown below).