StartupCo commenced operations at the beginning of 2020. $125 million of equity was raised to fund the purchase of equipment as well as for general corporate purposes. As part of its business planning process, a 5-year forecast was developed (Base Case) as well as upside and downside scenarios (High and Low Cases, respectively). At the end of 2020, StartupCo issued $150 million of 5-year debt, repayable in equal annual installments at the end of each year, to finance its future capital program.

Question 1. Using the Base Case, calculate net earnings for 2021E.

Question 2. Using the Low Case, calculate the total depreciation expense for the year 2025E.

Possible Answers to Question 1:

A) 7,163

B) 6,600

C) 7,725

D) 5,250

Possible Answers to Question 2:

A) 17,500

B) 11,500

C) 9,775

D) 14,875

Model Inputs and Assumptions General Assumptions Forecast Scenario Days Per Year 365 Capital Expenditure Assumptions Asset Salvage Value (% of Capital Addition) Asset Useful Life 15% 10 Years 2020 2021E 2022E 2023E 2024E 2025E Income Statement Sales Revenue Cost of Sales Gross Profit $50,000 $22 500) $27,500 $0 $0 $0 $0 $0 SGSA Expense Depreciation Expense Interest Expense Income Before Income Taxes Income Taxes Net Income ($5,000) ($8 500) $0 $14,000 ($3,500) $10,500 $0 $0 $0 $0 $0 $0 $0 81 SO $0 Balance Sheet Assets Cash & Cash Equivalents Accourts Receivable Total Current Assets $194,000 $5,000 $199.000 $0 $0 $0 $0 $0 Property Plart & Equipment Total Assets $91,500 $290,500 $0 $0 $0 $0 $0 Liabilities Accounts Payable Total Curiert Liabilities $5,000 $5,000 $0 $0 $0 $0 $0 Long-Term Delt Total Liabilities $150,000 $155,000 $0 $0 $0 $0 $0 Shareholders' Equity Share Capital Retained Eamings Total Shareholders' Equity Total Liabilities and Shareholders' Equity $125,000 $10,500 $135,500 $290,500 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,500 Cash Flow Statement Operating Activities Net Income Adjustments For Depreciation Experse Changes in Non-Cash Working Capital Cash Generated From Operating Actvities Investing Activities Addtors to Propery, Plant & Equipment Cash (Used For Investing Actvities $8.500 $0 $19,000 $ 0 $0 $0 $0 $0 ($100,000) ($100,000) $0 $0 $0 $0 $0 Financing Activities Issuance (Repayment of Debt Issuance (Buy-back) of Equity Cash (Used For Generated From Financing Activities $150,000 $125000 $275,000 $0 $0 SO $0 $0 $0 $0 $0 $0 $0 Cash (Used) Generated in the Period Cash & Cash Equivalents, Beginning of Period Cash & Cash Equivalents, End of Period $194,000 $0 $ 194,000 $0 $0 $0 $0 $0 2021E 2022E 2023E 2024E 2025E Live Case Income Statement Assumptions Annual Sales Grovm Cost Of Sales (% of Sales) SG SA Expense (% of Sales) Interest Rate Effective Tax Rate Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equityissued (Repaid) Scenario Inputs Base Case Income Statement Assumptions Annual Sales Growth (%) Cost of Sales (% of Sales) SG8A Expense (% of Sales) 6.0% 40.0% 6.0% 40.09 10.0% 6.0% 40.0% 6.0% 40.0% 6.09 40.0% 10.0% 10.096 10.0% 10.0% 5.0% Interest Rate Effective Tax Rate 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 25.09 30 30 Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equityissued (Repaid) 30 25 $ 20,000 $0 $20,000 $ 20,000 $0 $20,000 $0 $20,000 $0 Low Case In come statement Assumptions Annual Sales Growth Cost of Sales (% of Sales) SGSA Expense % of Sales) 3.0% 450% 150% 3.0% 45.0% 15.0% 3.0% 45,0% 15.0% 3.0% 45.0% 15.0% 3.0% 45.0% 150%! 5.0% Interest Rate Effective Tax Rate 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 5.09 250% 25.0% 50 Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equityissued (Repaid) 50 20 $15,000 $0 501 20 $15,000 $ 50 20 $15,000 $0 50 20 $15,000 $0 $15,000 $0 High Case Income Statement Assumptions Annual Sales Growth Cost of Sales (% of Sales) SGSA Expense (% of Sales) 8.0% 30.0% 8.0% 8.0% 30.09 8.0% 8.0% 30.0% 8.0% 8.0% 30.0% 8.0% 8.09 30.0% 8.09 5.0% Interest Rate Effective Tax Rate 50 25.0% 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 25.0% 20 20 20: Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equityissued (Repaid) 20 30 $30,000 $0 20 30 $30,000 $0 $30,000 $0 $30,000 $0 $30,000 $0 Model Inputs and Assumptions General Assumptions Forecast Scenario Days Per Year 365 Capital Expenditure Assumptions Asset Salvage Value (% of Capital Addition) Asset Useful Life 15% 10 Years 2020 2021E 2022E 2023E 2024E 2025E Income Statement Sales Revenue Cost of Sales Gross Profit $50,000 $22 500) $27,500 $0 $0 $0 $0 $0 SGSA Expense Depreciation Expense Interest Expense Income Before Income Taxes Income Taxes Net Income ($5,000) ($8 500) $0 $14,000 ($3,500) $10,500 $0 $0 $0 $0 $0 $0 $0 81 SO $0 Balance Sheet Assets Cash & Cash Equivalents Accourts Receivable Total Current Assets $194,000 $5,000 $199.000 $0 $0 $0 $0 $0 Property Plart & Equipment Total Assets $91,500 $290,500 $0 $0 $0 $0 $0 Liabilities Accounts Payable Total Curiert Liabilities $5,000 $5,000 $0 $0 $0 $0 $0 Long-Term Delt Total Liabilities $150,000 $155,000 $0 $0 $0 $0 $0 Shareholders' Equity Share Capital Retained Eamings Total Shareholders' Equity Total Liabilities and Shareholders' Equity $125,000 $10,500 $135,500 $290,500 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,500 Cash Flow Statement Operating Activities Net Income Adjustments For Depreciation Experse Changes in Non-Cash Working Capital Cash Generated From Operating Actvities Investing Activities Addtors to Propery, Plant & Equipment Cash (Used For Investing Actvities $8.500 $0 $19,000 $ 0 $0 $0 $0 $0 ($100,000) ($100,000) $0 $0 $0 $0 $0 Financing Activities Issuance (Repayment of Debt Issuance (Buy-back) of Equity Cash (Used For Generated From Financing Activities $150,000 $125000 $275,000 $0 $0 SO $0 $0 $0 $0 $0 $0 $0 Cash (Used) Generated in the Period Cash & Cash Equivalents, Beginning of Period Cash & Cash Equivalents, End of Period $194,000 $0 $ 194,000 $0 $0 $0 $0 $0 2021E 2022E 2023E 2024E 2025E Live Case Income Statement Assumptions Annual Sales Grovm Cost Of Sales (% of Sales) SG SA Expense (% of Sales) Interest Rate Effective Tax Rate Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equityissued (Repaid) Scenario Inputs Base Case Income Statement Assumptions Annual Sales Growth (%) Cost of Sales (% of Sales) SG8A Expense (% of Sales) 6.0% 40.0% 6.0% 40.09 10.0% 6.0% 40.0% 6.0% 40.0% 6.09 40.0% 10.0% 10.096 10.0% 10.0% 5.0% Interest Rate Effective Tax Rate 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 25.09 30 30 Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equityissued (Repaid) 30 25 $ 20,000 $0 $20,000 $ 20,000 $0 $20,000 $0 $20,000 $0 Low Case In come statement Assumptions Annual Sales Growth Cost of Sales (% of Sales) SGSA Expense % of Sales) 3.0% 450% 150% 3.0% 45.0% 15.0% 3.0% 45,0% 15.0% 3.0% 45.0% 15.0% 3.0% 45.0% 150%! 5.0% Interest Rate Effective Tax Rate 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 5.09 250% 25.0% 50 Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equityissued (Repaid) 50 20 $15,000 $0 501 20 $15,000 $ 50 20 $15,000 $0 50 20 $15,000 $0 $15,000 $0 High Case Income Statement Assumptions Annual Sales Growth Cost of Sales (% of Sales) SGSA Expense (% of Sales) 8.0% 30.0% 8.0% 8.0% 30.09 8.0% 8.0% 30.0% 8.0% 8.0% 30.0% 8.0% 8.09 30.0% 8.09 5.0% Interest Rate Effective Tax Rate 50 25.0% 5.0% 25.0% 5.0% 25.0% 5.0% 25.0% 25.0% 20 20 20: Balance Sheet Assumptions Accounts Receivable (Days) Accounts Payable (Days) Capital Expenditures Equityissued (Repaid) 20 30 $30,000 $0 20 30 $30,000 $0 $30,000 $0 $30,000 $0 $30,000 $0