Question
Following is the seven-year forecast for a new venture called Johnson Transformers: (all amounts in $000) 2020 2021 2022 2023 2024 2025 2026 EBIT $(1000)
Following is the seven-year forecast for a new venture called Johnson Transformers:
(all amounts in $000)
2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | |
EBIT | $(1000) | $(900) | $200 | $1,200 | $2,500 | $3000 | $3,050 |
Capital Expenditures | $550 | $350 | $200 | $175 | $175 | $160 | $150 |
Changes in Working Capital | $400 | $300 | $200 | $100 | $100 | ($100) | ($100) |
Depreciation | $40 | $80 | $125 | $150 | $150 | $150 | $150 |
Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over Johnson Transformers remaining life as an enterprise. Beginning in 2026 Johnson's Transformers capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1. Assume a tax rate is 21% and a cost of capital of 7.75%
Determine the NPV of Johnson Transformers Free Cash Flow for the years 2020 -2026. HINT: Remember to account for loss carry-forwards when determining income taxes.
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