Infrastructure Investment Company Recall Information From Part 1 (Part 2) Your company has no debt as...

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Infrastructure Investment Company Recall Information From Part 1 (Part 2) Your company has no debt as of today as it is a newly formed and the company wants to acquire one company out of three target companies. Financial Statements: Assets Target Company 3 Balance Sheet Cash and Cash Equivalents Target Company 3 Income Statement Sales Revenue 7000 Cost of Goods Sold Short-term Marketable Securities 25000 Gross Profit 290000 110000 180000 Accounts Receivable Inventories 3000 5000 Target Company 1 Target Company 1 Long-term Marketable Securities 25000 General Expenses 7000 Balance Sheet Properties, Plant and Equipment 13000 Rent 18000 Income Statement Assets Sales Revenue Bank & ATM Expenses 2000 295000 Cash and Cash Equivalents 50000 Liabilities Cost of Goods Sold Equipment Expenses 30000 115000 Short-term Marketable Securities 30000 Accounts Payable 4000 Gross Profit 180000 Marketing Expenses 5500 Accounts Receivable 15000 Accrued Expenses (Current) 7000 Inventories 15000 Commericial Paper 8000 Long-term Marketable Securities 30000 General Expenses 10000 Operating Earnings 117500 Current Portion of long-term Debt 5500 Properties, Plant and Equipment 20000 Rent 20000 Long-term Debt Interest Expense 5875 15000 Bank & ATM Expenses 1000 Liabilities Equipment Expenses 25000 Shareholder's Equity Accounts Payable 30000 Marketing Expenses 5000 Total Shareholder's Equity 38500 Earnings Before Income Tax Income Tax Expense Net Income 111625 22325 89300 Accrued Expenses (Current) 15000 Commericial Paper 10000 Current Portion of Long-term Debt 10000 Operating Earnings 119000 New Information For Part 2 Long-term Debt 20000 Interest Expense 5000 Earnings Before Income Tax 114000 Shareholder's Equity Income Tax Expense Total Shareholder's Equity 75000 Net Income 20000 94000 Target Company 2 Target Company 2 Balance Sheet Income Statement Assets Sales Revenue 130000 Cash and Cash Equivalents 20000 Cost of Goods Sold 90000 Short-term Marketable Securities 10000 Gross Profit 40000 Accounts Receivable 6000 Inventories 15000 Long-term Marketable Securities 15000 General Expenses 10000 Properties, Plant and Equipment 32000 Rent 15000 Bank & ATM Expenses 500 Liabilities Equipment Expenses 5000 Accounts Payable 35000 Marketing Expenses 3000 Accrued Expenses (Current) 10000 Commericial Paper 2000 Current Portion of long-term Debt Operating Earnings 6500 1000 Long-term Debt Interest Expense 3500 30000 Earnings Before Income Tax 3000 Shareholder's Equity Income Tax Expense 600 Total Shareholder's Equity 20000 Net Income 2400 It turns out that each of these target companies has an investment opportunity that will generate new cash flows. The investment opportunities are listed below for each target company. TARGET COMPANY 1: There is a small operating port located on the coast north of Tel Aviv. The annual net cash generation was USD 15.000.000 as of the previous year end. The owner will sell the port to the investor for USD 120 million. New cranes will be needed in the 7th year. The cranes will be imported from UK and the cost is estimated to be 5 million USD. The volume and the net revenue of the port is projected to grow 5% every year for the first 10 years and then to grow 10%. The assets will be transferred back to the owner free of charge at the end of 20th year. Note: Subtract the cost of cranes from cash flow of 7th year. TARGET COMPANY 2: The same owner above has another port on the southern cost of Israel. The annual net cash generation of the port was USD 22.000.000 as of the previous year end. The volume and the net revenue are expected to grow 7% in first 10 years and 10% afterwards. The owner will sell the port to the investor for USD 310 million. The assets will be transferred back to the owner free of charge at the end of 20th year. TARGET COMPANY 3: A small municipality has announced the tender for the water conveyance, water distribution and waste-water treatment network to be privatized on BOT-Build Operate and Transfer basis for 20 years (which means the assets will be transferred back to the municipality free of charge). The investor should pay USD 560 million to acquire the company. The system is operating in a very inefficient fashion. After the transfer of the operating rights, the cash generation will start. Following the investments, the revenue will surge. The revamping and additional construction is projected in the first year and the cost breakdown is as follows: Pump option - UK made USD 8 million Construction/Local Cost - USD 2 million expenses will be incurred The net cash revenue in the first year will be USD 14.000.000 and after the modernization the revenue is expected to increase by 20% every year. Note: Subtract the costs from cash flow of 1st year. The assets will be transferred back to the municipality free of charge at the end of 20th year. Your task 1. You should calculate NPVs for each of the three possible investments (one for each target company). To calculate NPV, assume an interest rate of 10%. 2. How do the NPVs change your opinion about which company is the best to invest in from Part 1? Infrastructure Investment Company Recall Information From Part 1 (Part 2) Your company has no debt as of today as it is a newly formed and the company wants to acquire one company out of three target companies. Financial Statements: Assets Target Company 3 Balance Sheet Cash and Cash Equivalents Target Company 3 Income Statement Sales Revenue 7000 Cost of Goods Sold Short-term Marketable Securities 25000 Gross Profit 290000 110000 180000 Accounts Receivable Inventories 3000 5000 Target Company 1 Target Company 1 Long-term Marketable Securities 25000 General Expenses 7000 Balance Sheet Properties, Plant and Equipment 13000 Rent 18000 Income Statement Assets Sales Revenue Bank & ATM Expenses 2000 295000 Cash and Cash Equivalents 50000 Liabilities Cost of Goods Sold Equipment Expenses 30000 115000 Short-term Marketable Securities 30000 Accounts Payable 4000 Gross Profit 180000 Marketing Expenses 5500 Accounts Receivable 15000 Accrued Expenses (Current) 7000 Inventories 15000 Commericial Paper 8000 Long-term Marketable Securities 30000 General Expenses 10000 Operating Earnings 117500 Current Portion of long-term Debt 5500 Properties, Plant and Equipment 20000 Rent 20000 Long-term Debt Interest Expense 5875 15000 Bank & ATM Expenses 1000 Liabilities Equipment Expenses 25000 Shareholder's Equity Accounts Payable 30000 Marketing Expenses 5000 Total Shareholder's Equity 38500 Earnings Before Income Tax Income Tax Expense Net Income 111625 22325 89300 Accrued Expenses (Current) 15000 Commericial Paper 10000 Current Portion of Long-term Debt 10000 Operating Earnings 119000 New Information For Part 2 Long-term Debt 20000 Interest Expense 5000 Earnings Before Income Tax 114000 Shareholder's Equity Income Tax Expense Total Shareholder's Equity 75000 Net Income 20000 94000 Target Company 2 Target Company 2 Balance Sheet Income Statement Assets Sales Revenue 130000 Cash and Cash Equivalents 20000 Cost of Goods Sold 90000 Short-term Marketable Securities 10000 Gross Profit 40000 Accounts Receivable 6000 Inventories 15000 Long-term Marketable Securities 15000 General Expenses 10000 Properties, Plant and Equipment 32000 Rent 15000 Bank & ATM Expenses 500 Liabilities Equipment Expenses 5000 Accounts Payable 35000 Marketing Expenses 3000 Accrued Expenses (Current) 10000 Commericial Paper 2000 Current Portion of long-term Debt Operating Earnings 6500 1000 Long-term Debt Interest Expense 3500 30000 Earnings Before Income Tax 3000 Shareholder's Equity Income Tax Expense 600 Total Shareholder's Equity 20000 Net Income 2400 It turns out that each of these target companies has an investment opportunity that will generate new cash flows. The investment opportunities are listed below for each target company. TARGET COMPANY 1: There is a small operating port located on the coast north of Tel Aviv. The annual net cash generation was USD 15.000.000 as of the previous year end. The owner will sell the port to the investor for USD 120 million. New cranes will be needed in the 7th year. The cranes will be imported from UK and the cost is estimated to be 5 million USD. The volume and the net revenue of the port is projected to grow 5% every year for the first 10 years and then to grow 10%. The assets will be transferred back to the owner free of charge at the end of 20th year. Note: Subtract the cost of cranes from cash flow of 7th year. TARGET COMPANY 2: The same owner above has another port on the southern cost of Israel. The annual net cash generation of the port was USD 22.000.000 as of the previous year end. The volume and the net revenue are expected to grow 7% in first 10 years and 10% afterwards. The owner will sell the port to the investor for USD 310 million. The assets will be transferred back to the owner free of charge at the end of 20th year. TARGET COMPANY 3: A small municipality has announced the tender for the water conveyance, water distribution and waste-water treatment network to be privatized on BOT-Build Operate and Transfer basis for 20 years (which means the assets will be transferred back to the municipality free of charge). The investor should pay USD 560 million to acquire the company. The system is operating in a very inefficient fashion. After the transfer of the operating rights, the cash generation will start. Following the investments, the revenue will surge. The revamping and additional construction is projected in the first year and the cost breakdown is as follows: Pump option - UK made USD 8 million Construction/Local Cost - USD 2 million expenses will be incurred The net cash revenue in the first year will be USD 14.000.000 and after the modernization the revenue is expected to increase by 20% every year. Note: Subtract the costs from cash flow of 1st year. The assets will be transferred back to the municipality free of charge at the end of 20th year. Your task 1. You should calculate NPVs for each of the three possible investments (one for each target company). To calculate NPV, assume an interest rate of 10%. 2. How do the NPVs change your opinion about which company is the best to invest in from Part 1?