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Key Input Information FNCE 390 Project Information - Phase 2A - Growth Investments IGrowth Plans GREENGO Ltd. is for now real - a combination of growth potential businesses with access to financial capital. The founders and yourself have undertaken a thorough review of next steps for growth keeping in mind that as they grow the focus of competitors on the Company will intensify. As well, overall economic conditions are expected to weaken over the next 18 - 24 months. After a series of meetings, discussing strategic strengths, weaknesses, opportunities and threats - externally and internally, the Board and Management agreed to pursue a growth plan for existing business as well as from external acquisitions. A long-term target WACC was determined using a 5 year plan and a five year goal for Debt as a % of total assets to be no more than 50% of total assets. An additional outcome of these meetings was five options for consideration - three to enable growth by increasing existing production capacity and two through the purchase of an operating division of a competitor. You have been tasked with the financial evaluation of each option to determine which productive option and business acquisition option should be chosen. Only one of each can be managed at this time. As noted above, your task is to assess the alternatives and determine which two should be pursued. The required information for analysis is found below and on the tabs marked the color You will input the key information in the relevant tabs marked You are to only enter figures or comments in the areas marked It is highly recommended that you save the original information as a separate file in the event you have to start over. REQUIREMENT: You must complete this analysis - 2 A in order to move on to Phase 2 B - Refinancing as accepted projects are used to determine what the refinancing steps are required. Frequent communication with your senior manager is recommended. Other key assumptions arising from the meetings are listed below. You must calculate the Target WACC to determine the acceptable range for project evaluation and future financing goals. See below for the pro-forma long-term funding objectives. FNCE 390 Project Information - Phase 2 - Growth Investments Other Strategic Decision Matters A)Debt 1)Venture demand loan can be used as a demand loan provided it does not exceed 70% of accounts receivable. Interest rate = Prime + 2.0% = 7.5% 2)Term loan repayable will now be repayable over 5 years in equal installments. Interest rate adjusted to 8.25% over five year term. Maximum borrowing is 35% of Equipment 3)Amended Mortgage to be repayable over 25 years - 7.5% per annum - no change Maximum borrowing is 70% of Land and Buildings 4) Refinance term loan - to be completed when transactions completed - Interest rate proposed9.50% - Maximum borrowing capacity$10,000,000 - Repayment10 years equal principal payments B)Equity Shares issued and outstanding2,100,000Pre-split - consider when refinancing Share price - based on Year 1 EBITDA X Multiplier EBITDA - Board approved financials2,713,857Determine from Board approved financials Multiplier3.00 Current market value$ 8,141,570 Share price$ 3.88Pre-split - consider when refinancing Dividends $ - 0 Cost of Equity Long Range Target18.50% Assumed to remain constant for transactions planned Minimum ownership position - founders52% Venture capital share price "discount"28.00% Private placement market price$ 6.00Pre-split - consider when refinancing C)Other information Tax Rate - Pro-forma Years (future)28%Use for target WACC Risk premiums - Equipment3.00% - Business acquisitions5.50% D)WACC Target WACC0.00%from Target WACC tab Range of Tolerance for Next Year+ / - .75%Range for 2B Low -0.75% High 0.75% Target WACC GREENGO Ltd. Growth Plan - Target Financing and WACC Target Weighted Average Cost of Capital As Is Capital Item$ ValueWeightedPre-TaxAfter-TaxWeighted TargetsAverageReturnReturnComponent End of five years forecastPre-tax X (1-tax rate)Weighted Average X After Tax Return Tax Rate28% Venture demand loan9,500,0000.00%0.00% Term loan payable13,000,0000.00%0.00% Refinance term loan18,000,0000.00%0.00% Mortgage payable13,500,0000.00%0.00% Share capital27,000,000 0.00% Retained earnings27,000,000 0.00% Total Net Assets108,000,0000%0.00% Round Up Cell G17 to nearest .5% - eg .11.34 = 11.5 Debt as % of Total Net Assets Equity as % of Total Net Assets 0.00% Note: The Capital Base outlined above includes the working capital balance of the business - which is the net balance of current assets minus current liabilities Project - Equipment A FNCE 390 GREENGO Ltd. Project Information AEquipment AcquisitionRevenue (Cost) - $Capital Budgeting Evaluation of Option costs(500,000) Selected Option - Equipment Investment Summary Purchase Cost$ (3,150,000) Delivery Cost(630,000) Install and Commissioning(370,000) Total Cost of Asset$ (4,150,000) Working Capital Investment - Year 1 Accounts Receivable(560,000)Additional Permanent "Investment" Inventory(510,000) (1,070,000) Equipment Life15 Years Salvage / Disposal Value50,000 Amortizationstraight line Annual Amortization273,333 Incremental Benefits of InvestmentPer annum Revenues Years 1 -2- 3 and 8 -9 -10$ 2,400,000 Product costs 1- 2 - 3 and 8 -9- 10(1,632,000) Revenues Years 4- 5- 6- 7$ 4,200,000 Product costs 4 -5 -6 -7(2,856,000) Operating savings - all years275,000reduce General and Admin Tax benefit Tax depreciation methodCapital cost - straight line 10 years Net Capital Cost4,150,000 Tax depreciation term10 Annual tax benefit415,000 Tax Rate Year 1 - 327%Per current Government budgets Year 4 - 1028%Per current Government budgets Hurdle Rate WACC - Target0.00% Risk Premium3.00% 3.00% Cap Bud - Equipment A Capital Budgeting / Business Valuation Solution Template - Discounted Cash Flow YearYearYearYearYearYearYearYearYearYearYear 012345678910 Critical InputsProject time frame Weighted Average Cost of Capital (WACC) + Project Risk Premium = Required Project Return (Hurdle Rate) = Income tax rate by year Input items Cash Outflows - Investment Initial Investment - Year 0 Subsequent Investments- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Project Net Cash Flows - Project Operations Revenues - Inflows Operating Costs - Outflows Other Cost Savings - Inflows Other - Tax Depreciation Total Undiscounted Pre-Tax Net Cash Flows- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Tax Rate Less: Taxes- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Add: Tax Depreciation - 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total Undiscounted After-Tax Net Cash Flows- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Terminal Value - 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total Undiscounted Cash flow- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Discount Rate = 11.00001.00001.00001.00001.00001.00001.00001.00001.00001.0000 Discounted Net Cash Flows- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total NPV- 0 Conclusion: Payback = IRR = Project - Equipment B FNCE 390 GREENGO Ltd. Project Information AEquipment AcquisitionRevenue (Cost) - $Capital Budgeting Evaluation of Option costs(492,000) Selected Option - Investment Purchase Cost(2,750,000) Delivery Cost(275,000) Install and Commissioning(600,000) Total Cost of Asset(3,625,000) Working Capital Investment - Year 1 Accounts Receivable(205,000) Inventory(215,000) (420,000) Equipment Life15 Years Salvage Value250,000 Amortizationstraight line Annual Amortization225,000 Incremental Benefits of InvestmentPer annum Revenues Years 1 -2- 3 - 8 -9 -10$ 2,000,000 Product costs 1- 2- -3 - 8 -9- 10(1,360,000) Revenues Years 4- 5- 6- 7$ 4,450,000 Product costs 4 -5 -6 -7(3,026,000) Operating savings - all years60,000reduce General and Admin Tax benefit Tax depreciation methodCapital cost - straight line 10 years Net Capital Cost3,625,000 Tax depreciation term10 Annual tax benefit362,500 Tax Rate Year 1 - 327% Year 4 - 1030% Hurdle Rate WACC - Target0.00% Risk Premium3.00% 3.00% Cap Bud - Equipment B Capital Budgeting / Business Valuation Solution Template - Discounted Cash Flow YearYearYearYearYearYearYearYearYearYearYear 012345678910 Critical InputsProject time frame Weighted Average Cost of Capital (WACC) + Project Risk Premium = Required Project Return (Hurdle Rate) = Input items Cash Outflows - Investment Initial Investment - Year 0 Subsequent Investments Total- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Project Net Cash Flows - Project Operations Revenues - Inflows Operating Costs - Outflows Other Cost Savings - Inflows Other - Tax Depreciation Total Undiscounted Pre-Tax Net Cash Flows- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Tax Rate Less: Taxes- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Add: Tax Depreciation - 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total Undiscounted After-Tax Net Cash Flows- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Terminal Value - 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total Undiscounted Cash flow- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Discount Rate = 11.00001.00001.00001.00001.00001.00001.00001.00001.00001.0000 Discounted Net Cash Flows- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total NPV- 0 Conclusion: Payback = IRR = Project - Equipment C FNCE 390 GREENGO Ltd. Project Information AEquipment AcquisitionRevenue (Cost) - $Capital Budgeting Evaluation of Option costs(400,000) Selected Option - Investment Purchase Cost(4,500,000) Delivery Cost(230,000) Install and Commissioning(390,000) Total Cost of Asset(5,120,000) Working Capital Investment - Year 1 Accounts Receivable(390,000) Inventory(370,000) (760,000) Equipment Life15 Years Salvage Value30,000 Amortizationstraight line Annual Amortization339,333 Incremental Benefits of InvestmentPer annum Revenues Years 1 -2- 3 and 8 -9 -10$ 2,600,000 Product costs 1- 2- -3 and 8 -9- 10(1,768,000) Revenues Years 4- 5- 6- 7$ 6,500,000 Product costs 4 -5 -6 -7(4,420,000) Operating savings - all years98,000reduce General and Admin Tax benefit Tax depreciation methodCapital cost - straight line 10 years Net Capital Cost5,120,000 Tax depreciation term10 Annual tax benefit512,000 Tax Rate Year 1 - 326%Per current Government budgets Year 4 - 1025%Per current Government budgets Hurdle Rate WACC - Target0.00% Risk Premium3.00% 3.00% Cap Bud - Equipment C Capital Budgeting / Business Valuation Solution Template - Discounted Cash Flow YearYearYearYearYearYearYearYearYearYearYear 012345678910 Critical InputsProject time frame Weighted Average Cost of Capital (WACC) + Project Risk Premium = Required Project Return (Hurdle Rate) = Income tax rate by year Input items Cash Outflows - Investment Initial Investment - Year 0 Subsequent Investments Total- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Project Net Cash Flows - Project Operations Revenues - Inflows Operating Costs - Outflows Other Cost Savings - Inflows Other - Tax Depreciation Total Undiscounted Pre-Tax Net Cash Flows- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Tax Rate Less: Taxes- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Add: Tax Depreciation - 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total Undiscounted After-Tax Net Cash Flows- 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Terminal Value - 0- 0- 0- 0- 0- 0- 0- 0- 0- 0 Total Undiscounted Cash flow- 0- 0- 0- 0-