Question
Under the assumption that KMS's market share will increase by 0.25% per year, you determine that the plant will require an expansion in 2021. The
Under the assumption that KMS's market share will increase by
0.25%
per year, you determine that the plant will require an expansion in
2021.
The expansion will cost
$20.0
million. Assume the following: the debt financing of the expansion will be delayed accordingly (end of
2021),
KMS uses a ten-year bond, interest rates remain the same at
6.8%,
and KMS's tax rate is
25%.
KMS projects the following depreciation: (Click on the following icon
in order to copy its contents into a spreadsheet.)
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
| Depreciation (000) | $5,492 | $5,443 | $7,398 | $7,459 | $7,513 | $7,561 |
Using this information and the data given here
Current values (000)
2019
2020
2021
2022
2023
2024
Outstanding Debt
$4,500
$4,500
$4,500
$4,500
$4,500
$4,500
Interest on Debt
$306
$306
$306
$306
$306
$306
Income Statement (000)
2019
2020
2021
2022
2023
2024
Sales
$74,890
$82,344
$90,341
$99,056
$108,555
$118,916
Cost of Goods Sold
58,414
64,228
70,466
77,264
84,673
92,754
EBITDA
Depreciation
EBIT
Interest Expense
Pre-tax Income
Taxes
Net Income
?
?
?
?
?
?
, project net income through
2024.
The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard depreciation practices during your career.
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