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Please provide step-by-step solution The Angel Investor, that is investing a million dollars, has asked for some further information. Two scenarios are of interest that
Please provide step-by-step solution
| The Angel Investor, that is investing a million dollars, has asked for some further information. Two scenarios are of interest that concern the revenues effect on the ending cash flow amounts during the five years. The two scenarios , in addition to the "Current" one that is in the statement, are as follows: | ||||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | ||||
| A1 Revenue | $200,000 | $400,000 | $750,000 | $1,000,000 | $2,000,000 | |||||
| A2 Revenue | $500,000 | $750,000 | $1,000,000 | $1,750,000 | $2,500,000 | |||||
| a | Determine the effects of the three scenarios (Current, A1 and A2) on the five years of cash flows. | |||||||||
| b | If the current forecast has a 40% chance of occurring, and the A1 and A2 scenarios each have a 30% chance of occurring, What is the expected value of the year 5 ending cash flow. | |||||||||
| c | Discuss the implications of the results of parts a and b. | |||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | ||||
| Angel Investor | $1,000,000 | 40% | ownership | |||||||
| Production capability Investment | $900,000 | |||||||||
| Revenue | $300,000 | $500,000 | $1,000,000 | $2,000,000 | $3,000,000 | |||||
| COGS | 40% | of Revenue | ||||||||
| SG&A | $180,000 | $300,000 | $450,000 | $600,000 | $750,000 | |||||
| Depreciation (MACRS) | 5 year | 20.00% | 32.00% | 19.20% | 11.52% | 11.52% | ||||
| Depreciation | $180,000 | $288,000 | $172,800 | $103,680 | $103,680 | |||||
| Book Value | $900,000 | $720,000 | $432,000 | $259,200 | $155,520 | $51,840 | ||||
| Accounts Receivable | 15% | of revenue | ||||||||
| Accounts Payable | 20% | of inventory | ||||||||
| Wages Payable | 10% | of revenue | ||||||||
| Inventory | 25% | of revenue | ||||||||
| Tax rates | 20% | |||||||||
| Income Statement | ||||||||||
| 0 | 1 | 2 | 3 | 4 | 5 | |||||
| Revenue | $300,000 | $500,000 | $1,000,000 | $2,000,000 | $3,000,000 | |||||
| COGS | ($120,000) | ($200,000) | ($400,000) | ($800,000) | ($1,200,000) | |||||
| Gross Margin | $180,000 | $300,000 | $600,000 | $1,200,000 | $1,800,000 | |||||
| SG&A | ($180,000) | ($300,000) | ($450,000) | ($600,000) | ($750,000) | |||||
| Depreciation | ($180,000) | ($288,000) | ($172,800) | ($103,680) | ($103,680) | |||||
| EBIT | ($180,000) | ($288,000) | ($22,800) | $496,320 | $946,320 | |||||
| Pre-tax income | ($180,000) | ($288,000) | ($22,800) | $496,320 | $946,320 | |||||
| Taxes | $36,000 | $57,600 | $4,560 | ($99,264) | ($189,264) | |||||
| Net Income | ($144,000) | ($230,400) | ($18,240) | $397,056 | $757,056 | |||||
| Working Capital | 0 | 1 | 2 | 3 | 4 | 5 | ||||
| Accounts Receivable | $0 | $45,000 | $75,000 | $150,000 | $300,000 | $450,000 | ||||
| Inventory | $0 | $75,000 | $125,000 | $250,000 | $500,000 | $750,000 | ||||
| Accounts Payable | ($0) | ($15,000) | ($25,000) | ($50,000) | ($100,000) | ($150,000) | ||||
| Wages Payable | ($0) | ($30,000) | ($50,000) | ($100,000) | ($200,000) | ($300,000) | ||||
| Total Working capital | $0 | $75,000 | $125,000 | $250,000 | $500,000 | $750,000 | ||||
| Change in Working Capital | $0 | $75,000 | $50,000 | $125,000 | $250,000 | $250,000 | ||||
| Cash Flow Statement | ||||||||||
| 0 | 1 | 2 | 3 | 4 | 5 | |||||
| Operations Activities | ||||||||||
| Net Income | ($144,000) | ($230,400) | ($18,240) | $397,056 | $757,056 | |||||
| Depreciation | $180,000 | $288,000 | $172,800 | $103,680 | $103,680 | |||||
| Working Capital change | ($0) | ($75,000) | ($50,000) | ($125,000) | ($250,000) | ($250,000) | ||||
| Total | ($0) | ($39,000) | $7,600 | $29,560 | $250,736 | $610,736 | ||||
| Capital Activities | ||||||||||
| Investment | ($900,000) | |||||||||
| Total | ($900,000) | |||||||||
| Financial Activities | ||||||||||
| Angel Investor | $1,000,000 | |||||||||
| Cash Flow | $100,000 | ($39,000) | $7,600 | $29,560 | $250,736 | $610,736 | ||||
| Beginning Balance | $0 | $100,000 | $61,000 | $68,600 | $98,160 | $348,896 | ||||
| Ending Cash Balance | $100,000 | $61,000 | $68,600 | $98,160 | $348,896 | $959,632 | ||||
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