• You have been hired by Wide Bank Group (WBG) in their capital budgeting division. Your first assignment is to determine the free cash flows and NPV of a proposed new system for financial services similar to traditional banking but within fintech context. Development of the new system will initially require an initial capital expenditure equal to 10% of WBG’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 WBG’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 WBG’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 WBG 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 WBG’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).

Income Statement (all numbers in thousands)							Balance Sheet (all numbers in thousands)
Breakdown	TTM	12/31/2020	12/31/2019	12/31/2018	12/31/2017		Breakdown	12/31/2020	12/31/2019	12/31/2018	12/31/2017
Total Revenue	77,131,000	79,590,000	79,139,000	79,920,000	81,742,000		Assets
Cost of Revenue	41,055,000	42,655,000	42,913,000	41,625,000	41,057,000		Current Assets
Gross Profit	36,075,000	36,936,000	36,227,000	38,294,000	40,684,000		Cash
Operating Expenses							Cash And Cash Equivalents	11,379,000	11,972,000	7,826,000	7,686,000
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
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
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
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
Interest Expense	1,183,000	723,000	615,000	630,000	468,000		Other Current Assets	1,000	-1,000	-1,000	0
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
Income Before Tax	10,607,000	11,342,000	11,400,000	12,330,000	15,945,000		Non-current assets
Income Tax Expense	2,888,000	2,619,000	5,642,000	449,000	2,581,000		Property, plant and equipment
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
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
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
Reported EPS							Equity and other investments	226,000	122,000	104,000	475,000
Basic	-	9.57	6.17	12.43	13.48		Goodwill	36,265,000	36,788,000	36,199,000	32,021,000
Diluted	-	9.52	6.14	12.38	13.42		Intangible Assets	3,088,000	3,741,000	4,689,000	3,486,000
Weighted average shares outstanding							Other long-term assets	296,000	572,000	729,000	571,000
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
Diluted	-	916,300	937,400	958,700	982,700		Total Assets	123,382,000	125,356,000	117,470,000	110,495,000
EBITDA	-	16,545,000	16,556,000	17,341,000	20,268,000		Liabilities and stockholders' equity
EBIT		12,065,000	12,015,000	12,960,000	16,413,000		Liabilities
							Current Liabilities
							Total Revenue	10,207,000	6,986,000	7,513,000	6,461,000
							Accounts Payable	6,558,000	6,451,000	6,209,000	6,028,000
							Taxes payable	-	-	-	-
							Accrued liabilities	3,941,000	4,510,000	4,705,000	4,353,000
							Deferred revenues	11,165,000	11,552,000	11,035,000	11,021,000
							Other Current Liabilities	7,251,000	1,000	1,000	-1,000
							Total Current Liabilities	38,227,000	37,363,000	36,275,000	34,269,000
							Non-current liabilities
							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