Sheet1 Car cost (investment at 0) 30,000 Taxi Project Useful life (years) 2 Tax rate 0 Required equity return 10% Annual Depreciation 15,000 Each year, for two years $ yr 1 yr 2 Revenue 128,000...

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Sheet1 Car cost (investment at 0)30,000Taxi Project Useful life (years)2 Tax rate0 Required equity return10%Annual Depreciation15,000 Each year, for two years $ yr 1 yr 2 Revenue128,000 OCF = EBIT (1-t) + Dep Opexp OCF =13,000+15,000=28,00028,000 Dep15,000 SG&A0"Invest $30,000, OCF=$28,000 each year, for two years" Driver + gas100,000 Total115,000 yr 1 yr 2 EBIT13,000 EVA = EBIT(1-t) -capital charge Interest0 EVA=13,000-3,000=10,00011,500 EBT13,000 Tax0"Invest $30,000. Year 2 Assets = 15,000 after depreciation" NI13,000 Total012 EVA analysisEVA = 10,00011,500 PV of EVAs18,5959,0919,504 OCF analysis OCF =28,00028,000 PV of OCFs48,59525,45523,140 Investment at 030,000 PV less investment18,595 Project #2 Crane Rental Analysis R (Taxi spreadsheet might be helpful, as a starting place, to develop this analysis—but it will require significant work to accommodate the following project.) The firm founder purchases a construction crane to rent out. Only equity capital is used, no debt. The terms of the rental are such that the services of a crane operator are included in the lease of the equipment, in a manner similar to the Taxi analysis, wherein the taxi provides the vehicle, and driver. The firm is contemplating the following: Crane acquisition cost $ 1,000,000 Years of useful life (economic life)5 Tax rate0% Required rate of return on equity10% Annual revenues$ 2,000,000 Operating expenses include only: “Other expenses” of $1,500,000, plus depreciation. Tips: 1.Depreciate straight-line over the years of useful life down to $0. The Crane will be disposed of at end of the fifth year at no cost. 2. The maximum dividend is paid annually. 3. Ignore any working capital effects. 4. Capital charge will be based on the assets at the beginning of each year. 5. If the taxi spreadsheet is used as a starting point to develop a spreadsheet for the analysis, there will still be significant additional work to be done to complete this project. Please include in the analysis: 1. FINANCIALS: Annual P&Ls a. Note annual operating margin. b. What is year 1: Return on Asset? Return on Equity? EBITDA? 2. CASHFLOW ANALYSIS: a. OCF analysis b. Economic Profit analysis 3. PROJECT SELECTION: Does this project deserve consideration? 4. WEALTH CREATION: How much wealth, if any, will the investment in the project create? 5. VALUATION: assume the market is efficient, and the market agrees with your analysis of the project. Immediately after making the investment: what is: the Enterprise Value? Enterprise value as a multiple of EBITDA? 6. MERGER & ACQUISITION: Five minutes after the founder invests in the project the founder receives an offer to purchase the project for 5X EBITDA. Answer these: a. All-else-equal briefly address the merit, if any, of the founder accepting the offer. b. If the project is acquired, will the Acquirer realize the same/higher/lower rate of return on their investment that the Seller would have earned on their investment? No need to calculate a rate of return, just answer the question conceptually.
Answered Same DaySep 07, 2021

Answer To: Sheet1 Car cost (investment at 0) 30,000 Taxi Project Useful life (years) 2 Tax rate 0 Required...

Sumit answered on Sep 08 2021
148 Votes
1.
(a). Based on the calculations the Annual Operating Margin of the project is $300,000.
(b). The
formula to calculate the Year 1 Return on Assets is as under:
Net Income / Total Assets
= 300,000 / 1,000,000
= 30.00%
The formula to calculate the Year 1 Return on Equity is as under:
Net Income / Equity
= 300,000 / 1,000,000
= 30.00%
The formula to calculate the EBITDA is as under:
EBIT + Depreciation
= 300,000 + 200,000
= $500,000.
2.
(a). The detailed OCF Analysis is...
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