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Income Statement (all numbers in thousands)							Balance Sheet (all numbers in thousands)						Cash Flow (all numbers in thousands)
Breakdown	TTM	12/31/2018	12/31/2017	12/31/2016	12/31/2015		Breakdown	12/31/2018	12/31/2017	12/31/2016	12/31/2015		Breakdown	TTM	12/31/2018	12/31/2017	12/31/2016	12/31/2015
Total Revenue	77,131,000	79,590,000	79,139,000	79,920,000	81,742,000		Assets						Cash flows from operating activities
Cost of Revenue	41,055,000	42,655,000	42,913,000	41,625,000	41,057,000		Current Assets						Net Income	7,712,000	8,728,000	5,753,000	11,872,000	13,190,000
Gross Profit	36,075,000	36,936,000	36,227,000	38,294,000	40,684,000		Cash						Depreciation & amortization	5,521,000	4,480,000	4,541,000	4,381,000	3,855,000
Operating Expenses							Cash And Cash Equivalents	11,379,000	11,972,000	7,826,000	7,686,000		Deferred income taxes	-	853,000	-931,000	-1,132,000	1,387,000
Research Development	5,751,000	5,379,000	5,787,000	5,751,000	5,247,000		Short Term Investments	618,000	608,000	701,000	508,000		Stock based compensation	607,000	510,000	534,000	544,000	468,000
Selling General and Administrative	19,754,000	18,863,000	19,555,000	20,479,000	19,894,000		Total Cash	11,997,000	12,580,000	8,527,000	8,194,000		Change in working capital	604,000	554,000	6,813,000	1,231,000	-2,444,000
Total Operating Expenses	24,938,000	23,651,000	24,372,000	25,102,000	24,763,000		Net Receivables	29,820,000	30,649,000	28,188,000	27,353,000		Accounts receivable	-	-345,000	419,000	1,218,000	200,000
Operating Income or Loss	11,137,000	13,285,000	11,855,000	13,192,000	15,921,000		Inventory	1,682,000	1,583,000	1,553,000	1,551,000		Inventory	-	-127,000	18,000	-14,000	133,000
Interest Expense	1,183,000	723,000	615,000	630,000	468,000		Other Current Assets	1,000	-1,000	-1,000	0		Accounts Payable	-	126,000	47,000	197,000	81,000
Total Other Income/Expenses Net	578,000	-1,482,000	17,000	-339,000	421,000		Total Current Assets	49,146,000	49,735,000	43,888,000	42,504,000		Other working capital	12,780,000	11,283,000	12,951,000	12,808,000	12,857,000
Income Before Tax	10,607,000	11,342,000	11,400,000	12,330,000	15,945,000		Non-current assets						Other non-cash items	-	-1,000	1,000	544,000	-200,000
Income Tax Expense	2,888,000	2,619,000	5,642,000	449,000	2,581,000		Property, plant and equipment						Net cash provided by operating activites	15,438,000	15,247,000	16,724,000	16,958,000	17,008,000
Income from Continuing Operations	7,719,000	8,723,000	5,758,000	11,881,000	13,364,000		Gross property, plant and equipment	32,461,000	32,331,000	30,134,000	29,341,000		Investments in property, plant and equipment	-2,658,000	-3,964,000	-3,773,000	-4,150,000	-4,151,000
Net Income	7,712,000	8,728,000	5,753,000	11,872,000	13,190,000		Accumulated Depreciation	-21,668,000	-21,215,000	-19,303,000	-18,616,000		Acquisitions, net	-32,646,000	-139,000	-701,000	-6,133,000	-3,750,000
Net Income available to common shareholders	7,712,000	8,728,000	5,753,000	11,872,000	13,190,000		Net property, plant and equipment	10,793,000	11,116,000	10,831,000	10,725,000		Purchases of investments	-	-7,041,000	-4,964,000	-5,917,000	-3,073,000
Reported EPS							Equity and other investments	226,000	122,000	104,000	475,000		Sales/Maturities of investments	-	6,487,000	3,910,000	5,692,000	2,842,000
Basic	-	9.57	6.17	12.43	13.48		Goodwill	36,265,000	36,788,000	36,199,000	32,021,000		Other investing activites	-882,000	-504,000	-2,028,000	-892,000	-397,000
Diluted	-	9.52	6.14	12.38	13.42		Intangible Assets	3,088,000	3,741,000	4,689,000	3,486,000		Net cash used for investing activites	-26,609,000	-4,913,000	-7,096,000	-10,976,000	-8,159,000
Weighted average shares outstanding							Other long-term assets	296,000	572,000	729,000	571,000		Cash flows from financing activities
Basic	-	912,000	932,800	955,400	978,700		Total non-current assets	74,237,000	75,620,000	73,584,000	67,987,000		Debt repayment	-	-8,533,000	-6,816,000	-6,395,000	-5,622,000
Diluted	-	916,300	937,400	958,700	982,700		Total Assets	123,382,000	125,356,000	117,470,000	110,495,000		Common stock issued	-	-	-	204,000	322,000
EBITDA	-	16,545,000	16,556,000	17,341,000	20,268,000		Liabilities and stockholders' equity						Common stock repurchased	-3,434,000	-4,614,000	-4,533,000	-3,502,000	-4,609,000
EBIT		12,065,000	12,015,000	12,960,000	16,413,000		Liabilities						Dividends Paid	-5,685,000	-5,666,000	-5,506,000	-5,256,000	-4,897,000
							Current Liabilities						Other financing activites	-89,000	112,000	174,000	204,000	321,000
							Total Revenue	10,207,000	6,986,000	7,513,000	6,461,000		Net cash used privided by (used for) financing activities	10,112,000	-10,470,000	-6,417,000	-5,791,000	-9,165,000
							Accounts Payable	6,558,000	6,451,000	6,209,000	6,028,000		Net change in cash	-1,506,000	-630,000	4,146,000	140,000	-790,000
							Taxes payable	-	-	-	-		Cash at beginning of period	11,731,000	12,234,000	7,826,000	7,686,000	8,476,000
							Accrued liabilities	3,941,000	4,510,000	4,705,000	4,353,000		Cash at end of period	-	11,604,000	11,972,000	7,826,000	7,686,000
							Deferred revenues	11,165,000	11,552,000	11,035,000	11,021,000		Free Cash Flow
							Other Current Liabilities	7,251,000	1,000	1,000	-1,000		Operating Cash Flow	15,438,000	15,247,000	16,724,000	16,958,000	17,008,000
							Total Current Liabilities	38,227,000	37,363,000	36,275,000	34,269,000		Capital Expenditure	-2,658,000	-3,964,000	-3,773,000	-4,150,000	-4,151,000
							Non-current liabilities						Free Cash Flow	12,780,000	11,283,000	12,951,000	12,808,000	12,857,000
							Long Term Debt	35,605,000	39,837,000	34,655,000	33,428,000
							Deferred taxes liabilities	3,696,000	545,000	424,000	253,000
							Deferred revenues	3,445,000	3,746,000	3,600,000	3,771,000
							Other long-term liabilities	1,719,000	1,721,000	1,778,000	2,063,000
							Total non-current liabilities	68,226,000	70,268,000	62,803,000	61,802,000
							Total Liabilities	106,453,000	107,631,000	99,078,000	96,071,000
							Stockholders' Equity
							Common Stock	55,151,000	54,566,000	53,935,000	53,262,000
							Retained Earnings	159,206,000	153,126,000	152,759,000	146,124,000
							Accumulated other comprehensive income	-29,490,000	-26,592,000	-29,398,000	-29,607,000
							Total stockholders' equity	16,796,000	17,594,000	18,246,000	14,262,000
							Total liabilities and stockholders' equity	123,382,000	125,356,000	117,470,000	110,495,000

Assumptions								2018 Data
Year 1 Sales	3.0%	of 2018 Sales						Sales
								EBITDA
Revenue Growth	1		15.0%	10.0%	5.0%	5.0%		Calculated EBITDA
Base Case	1		15%	10%	5%	5%		Net PPE
Fixed at 0%	2		0%	0%	0%	0%		AR (net receivables)
Fixed at 10%	3		10%	10%	10%	10%		Inventory
								Payables
EBITDA/Sales	20.8%	from 2018						NWC
Cap Ex	10.0%	5.0%	of 2018 PPE
NWC/Sales	31.3%	from 2018
Tax Rate	21.0%
Cost of Capital (WACC)	12.0%
	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Revenue
yoy growth
EBITDA
Depreciation
EBIT
Taxes
Net Income
Depreciation
Increase in NWC
CapEx
Free Cash Flow
Discount Factor
Present Value
NPV
IRR
Depreciation Schedule	CapEx	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
CapEx Yr 0
CapEx Yr 1
Depreciation
NWC Requirements	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
NWC
Increase in NWC

INSTRUCTIONS 1. Fill in all blanks of the template provided in M3DataCase.xlsx using the information and addressing the questions in the text below 2. Report the results of the NPV and IRR for the base case and alternative assumptions on first year sales, cost of capital, and revenue growth answering the questions below. You have been hired by Internal Business Machines Corporation (IBM) in their capital budgeting division. Your first assignment is to determine the free cash flows and NPV of a proposed new type of tablet computer similar in size to an iPad but with the operating power of a high-end desktop system. Development of the new system will initially require an initial capital expenditure equal to 10% of IBM's Net Property, Plant, and Equipment (PPE) at the end of the latest fiscal year for which data is available (year 0 ). The project will then require an additional investment equal to 50% of the initial capital expenditure in the first year of the project (year 1). The product is expected to have a life of five years. First-year revenues for the new product are expected to be 3\% of IBM's total revenue for the latest fiscal year for which data is available. The new product's revenues are expected to grow at 15% for the second year then 10% for the third and 5% annually for the final two years of the expected life of the project. Your job is to determine the rest of the cash flows associated with this project. Your boss has indicated that the operating costs and net working capital requirements are similar to the rest of the company and that depreciation is straight-line for capital budgeting purposes. Compute the Free Cash Flow for each year. a. Assume that the project's profitability will be similar to IBM's existing projects in the latest fiscal year and estimate (revenues - costs) each year by using the latest EBITDA/Sales profit margin. Calculate EBITDA as EBIT + Depreciation expense from the cash flow statement. b. Determine the annual depreciation by assuming IBM depreciates these assets by the straight-line method over a five-year life. c. Calculate the net working capital required each year by assuming that the level of NWC will be a constant percentage of the project's sales. Use IBM's NWC/Sales for the latest fiscal year to estimate the required percentage. (Use only accounts receivable, accounts payable, and inventory to measure working capital. Other components of current assets and liabilities are harder to interpret and not necessarily reflective of the project's required NWC -for example, IBM's cash holdings.) d. To determine the free cash flow, deduct the additional capital investment and the change in net working capital each year. Determine the NPV and the IRR of the project calculated using Excel's IRR function under different assumptions about first year sales, cost of capital, and revenue growth (sensitivity analysis). Report your results by choosing the option presented in the following multiple choice questions (Base case) First year sales are 3\%, the cost of capital is 12%, and revenue growth is option 1 in the C6 cell, The NPV and IRR are closest to: [A] 51,543;13.2% [B] 30,767;12.5% [C] 41,643;15.2% [D] 63,496;16.8% First year sales are 2%, the cost of capital is 12%, and revenue growth is option 1 in the C6 cell. The NPV and IRR are closest to: [A] 421,080;4.2% [B] 361,280;5.3% [C] 241,286;6.1% [D] 31,423;7.3% First year sales are 4%, the cost of capital is 12%, and revenue growth is option 1 in the C6 cell. The NPV and IRR are closest to: [A] 343,678;16.8% [B] 482,614;18.8% [C] 550,856;20.8% [D] 601,678;22.4% First year sales are 3%, the cost of capital is 10%, and revenue growth is option 1 in the C6 cell. The NPV and IRR are closest to: [A] 201,453;13.6% [B] 165,383;12.5% [C] 101,423;11.6% [D] 95,622;9.8% First year sales are 3%, the cost of capital is 15%, and revenue growth is option 1 in the C6 cell. The NPV and IRR are closest to: [A] -145,516; 12.5\% [B] 103,060;11.1% [C] 99,301;10.0% [D] 81,345;8.7% First year sales are 3%, the cost of capital is 12%, and revenue growth is option 2 in the C7 cell (fixed at 0%). The NPV and IRR are closest to: [A] 200,305;8.3% [B] 136,657;9.6% [C]103,567;7.9% [D] 45,356;5.1% First year sales are 3%, the cost of capital is 12%, and revenue growth is option 3 in the C8 cell (fixed at 10%). The NPV and IRR are closest to: [A] 21,115;12.9% [B] 18,957;12.3% [C] 11,652;10.4% [D] 8,456;7.3% 1. All Assumptions are collected in the panel below 2. The data to retrieve from the Statements worksheet need to be reported in 3. Using the 2018 data and the Assumptions, formulas are inserted to complete the panels that allow to estimate free cash flow, NPV and IRR INSTRUCTIONS 1. Fill in all blanks of the template provided in M3DataCase.xlsx using the information and addressing the questions in the text below 2. Report the results of the NPV and IRR for the base case and alternative assumptions on first year sales, cost of capital, and revenue growth answering the questions below. You have been hired by Internal Business Machines Corporation (IBM) in their capital budgeting division. Your first assignment is to determine the free cash flows and NPV of a proposed new type of tablet computer similar in size to an iPad but with the operating power of a high-end desktop system. Development of the new system will initially require an initial capital expenditure equal to 10% of IBM's Net Property, Plant, and Equipment (PPE) at the end of the latest fiscal year for which data is available (year 0 ). The project will then require an additional investment equal to 50% of the initial capital expenditure in the first year of the project (year 1). The product is expected to have a life of five years. First-year revenues for the new product are expected to be 3\% of IBM's total revenue for the latest fiscal year for which data is available. The new product's revenues are expected to grow at 15% for the second year then 10% for the third and 5% annually for the final two years of the expected life of the project. Your job is to determine the rest of the cash flows associated with this project. Your boss has indicated that the operating costs and net working capital requirements are similar to the rest of the company and that depreciation is straight-line for capital budgeting purposes. Compute the Free Cash Flow for each year. a. Assume that the project's profitability will be similar to IBM's existing projects in the latest fiscal year and estimate (revenues - costs) each year by using the latest EBITDA/Sales profit margin. Calculate EBITDA as EBIT + Depreciation expense from the cash flow statement. b. Determine the annual depreciation by assuming IBM depreciates these assets by the straight-line method over a five-year life. c. Calculate the net working capital required each year by assuming that the level of NWC will be a constant percentage of the project's sales. Use IBM's NWC/Sales for the latest fiscal year to estimate the required percentage. (Use only accounts receivable, accounts payable, and inventory to measure working capital. Other components of current assets and liabilities are harder to interpret and not necessarily reflective of the project's required NWC -for example, IBM's cash holdings.) d. To determine the free cash flow, deduct the additional capital investment and the change in net working capital each year. Determine the NPV and the IRR of the project calculated using Excel's IRR function under different assumptions about first year sales, cost of capital, and revenue growth (sensitivity analysis). Report your results by choosing the option presented in the following multiple choice questions (Base case) First year sales are 3\%, the cost of capital is 12%, and revenue growth is option 1 in the C6 cell, The NPV and IRR are closest to: [A] 51,543;13.2% [B] 30,767;12.5% [C] 41,643;15.2% [D] 63,496;16.8% First year sales are 2%, the cost of capital is 12%, and revenue growth is option 1 in the C6 cell. The NPV and IRR are closest to: [A] 421,080;4.2% [B] 361,280;5.3% [C] 241,286;6.1% [D] 31,423;7.3% First year sales are 4%, the cost of capital is 12%, and revenue growth is option 1 in the C6 cell. The NPV and IRR are closest to: [A] 343,678;16.8% [B] 482,614;18.8% [C] 550,856;20.8% [D] 601,678;22.4% First year sales are 3%, the cost of capital is 10%, and revenue growth is option 1 in the C6 cell. The NPV and IRR are closest to: [A] 201,453;13.6% [B] 165,383;12.5% [C] 101,423;11.6% [D] 95,622;9.8% First year sales are 3%, the cost of capital is 15%, and revenue growth is option 1 in the C6 cell. The NPV and IRR are closest to: [A] -145,516; 12.5\% [B] 103,060;11.1% [C] 99,301;10.0% [D] 81,345;8.7% First year sales are 3%, the cost of capital is 12%, and revenue growth is option 2 in the C7 cell (fixed at 0%). The NPV and IRR are closest to: [A] 200,305;8.3% [B] 136,657;9.6% [C]103,567;7.9% [D] 45,356;5.1% First year sales are 3%, the cost of capital is 12%, and revenue growth is option 3 in the C8 cell (fixed at 10%). The NPV and IRR are closest to: [A] 21,115;12.9% [B] 18,957;12.3% [C] 11,652;10.4% [D] 8,456;7.3% 1. All Assumptions are collected in the panel below 2. The data to retrieve from the Statements worksheet need to be reported in 3. Using the 2018 data and the Assumptions, formulas are inserted to complete the panels that allow to estimate free cash flow, NPV and IRR