Share
Explore BrainMass

NPV Analysis- Nagud Company

12. The Nagud Company had the following financial information in the annual audited financial statements.

Balance Sheet
Current Assets Current Liabilities
Cash $ 2,500 Accounts Payable $5,000
Accounts Receivable 5,000 Total Current Liab. 5,000
Inventory 2,500
Total Current Assets 10,000

Fixed Assets 10,000 Long Term Debt (@ 10%) 5,000
Total Liabilities 10,000

Stockholders' Equity 10,000
Total Assets $20,000 Total Liab. and SE $20,000

Income Statement
Sales $ 25,000
Cost of Goods 10,000
Profit Margin (60%) 15,000
Operating Expenses 12,000
Earnings before interest and taxes 3,000
Interest Expense (no taxes this year) 500
Net Income $ 2,500

The following are the assumptions:
Sales growth: year 1-4%, year 2-6%, and year 3-5%
Profit Margin: the ratio will stay the same for all three years
Operating Expenses growth: year 1-5%, year 2-5%, and year 3-5%
Long Term Debt/Interest: Long-term debt will decrease $500 per year
Taxes: No taxes. The company has a large loss carry-forward.

Using the information above, prepare a Net Present Value analysis of the 3-year financial forecast of the Income Statement. The annual discount is assumed to be 6%. I would recommend (not required) setting up an Excel Spreadsheet with supporting work for this problems, noting your answer here and the work in the Excel spreadsheet for my reference. What is the Net Present Value of operations after 3 years?

Please see attached file for complete details.

Attachments

Solution Preview

See attached file for complete details.

12. The Nagud Company had the following financial information in the annual audited financial statements

Balance Sheet
Current Assets Current Liabilities
Cash $ 2,500 Accounts Payable $5,000
Accounts Receivable 5,000 Total Current Liab. 5,000
Inventory 2,500
Total Current Assets 10,000 Long Term Debt (@ 10%) 5,000
Total Liabilities 10,000
Fixed Assets 10,000 Long Term Debt (@ 10%) 5,000
Total Liabilities 10,000

...

Solution Summary

The solution prepares a Net Present Value analysis of the 3-year financial forecast of the Income Statement.

$2.19