Delizzia, a family owned business, produces and delivers potato chips to supermarkets and mom & pop...

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Delizzia, a family owned business, produces and delivers potatochips to supermarkets and mom & pop stores. Located in BuenosAires, Argentina, Delizzia is planning to expand its operations tocover other major Argentinian cities such as Cordoba and Rosario.This expansion will require Delizzia to set up a new distributioncenter and acquire new vehicles for last-mile distribution. Due tobudget constraints, the company will only be able to expand to onecity at a time. Therefore, Delizzia needs to decide if investing inCordoba or Rosario makes more economic sense. The company isconsidering a time horizon of five years to make the decision.Assume the tax rate is 40% and the discount rate for Delizzia is15%. Ignore inflation.
The table below shows the projections (incremental sales, COGS,operating expenses and depreciation) anticipated for expandingDelizzia's operations to Cordoba in millions of Argentinepesos.
Cordoba's Incremental Income Statement (in millions ofArgentine pesos)
Year 1 Year 2 Year 3 Year 4 Year 5
Sales 56 80 140 156 130
COGS 30 34 64 67 52
Gross Income 26 46 76 89 78
Operating Expenses 11 22 40 46 39
Operating Income (EBITDA) 15 24 36 43 39
Depreciation 6 6 6 6 6
Operating Income (EBIT) 9 18 30 37 33
Income Tax 3.6 7.2 12.0 14.8 13.2
Net Operating Profit After Taxes (NOPAT) 5.4 10.8 18 22.2 19.8
Expanding to Cordoba will require an investment of 30,000,000Argentine pesos (to be paid in Year 0) to remodel the rented spacefor the distribution center and purchase the vehicles. Similarly,additional working capital will be required, but it comes in thesecond half of Year 1 after the remodeling is finished. That is whythere is no working capital in Year 0. See table below:
Cordoba's Incremental Adjustments (in millions ofArgentine pesos)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Depreciation - 6 6 6 6 6
Net Capital Expenditures -30 - - - - -
Net Working Capital Investment - -19 -29 -16 -7 47
Free Cash Flows -30 -7.6 -12.2 8 21.2
Note.- A negative number for the capital expenditure and workingcapital represents a cash outflow. The positive working capitalcash flow in the final period may not equal the sum of the previousinvestments due to accounting assumptions, such as not collectingall receivables.
The company uses straight-line depreciation over 5 years. Theterminal value is zero.
What are the projected Free Cash Flows for year 5 associatedwith expanding to Cordoba?
Part 1
The table below shows the projections (incremental sales, COGS,operating expenses and depreciation) anticipated for expandingDelizzia's operations to Rosario in millions of Argentinepesos.
Rosario's Incremental Income Statement (in millions ofArgentine pesos)
Year 1 Year 2 Year 3 Year 4 Year 5
Sales 58 80 148 150 128
COGS 22 32 60 68 53
Gross Income
Operating Expenses 5 11 37 36 23
Operating Income (EBITDA)
Depreciation 10 10 10 10 10
Operating Income (EBIT)
Income Tax
Net Operating Profit After Taxes (NOPAT)
They company uses straight-line depreciation over 5 years.Assume terminal value of zero.
Calculate the projected NOPAT (Net Operating Profit After Tax)for years 1-5.
What would be the projected NOPAT for year 1 associated withexpanding to Rosario?
What would be the projected NOPAT for year 2 associated withexpanding to Rosario?
What would be the projected NOPAT for year 3 associated withexpanding to Rosario?
What would be the projected NOPAT for year 4 associated withexpanding to Rosario?
What would be the projected NOPAT for year 5 associated withexpanding to Rosario?
Part 2
Expanding to Rosario will require an investment of 50,000,000Argentine pesos (to be paid in Year 0) to remodel the rented spacefor the distribution center and purchase the vehicles. Similarly,additional working capital will be required, but it comes in thesecond half of Year 1 after the remodeling is finished. That is whythere is no working capital in Year 0. See table below:
Rosario's Incremental Adjustments (in millions ofArgentine pesos)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Depreciation - 10 10 10 10 10
Net Capital Expenditures -50 - - - - -
Net Working Capital Investment - -18 -30 -11 -3 41
Note.- A negative number for the capital expenditure and workingcapital represents a cash outflow. The positive working capitalcash flow in the final period may not equal the sum of the previousinvestments due to accounting assumptions, such as not collectingall receivables.
Calculate the projected Free Cash Flows immediately and foryears 1-5.
What are the projected Free Cash Flows immediately associatedwith expanding to Rosario?
What are the projected Free Cash Flows for year 1 associatedwith expanding to Rosario?
What are the projected Free Cash Flows for year 2 associatedwith expanding to Rosario?
What are the projected Free Cash Flows for year 3 associatedwith expanding to Rosario?
What are the projected Free Cash Flows for year 4 associatedwith expanding to Rosario?
What are the projected Free Cash Flows for year 5 associatedwith expanding to Rosario?

Cordoba's Incremental Income Statement (in millions ofArgentine pesos)
	Year 1	Year 2	Year 3	Year 4	Year 5
Sales	56	80	140	156	130
COGS	30	34	64	67	52
Gross Income	26	46	76	89	78
Operating Expenses	11	22	40	46	39
Operating Income (EBITDA)	15	24	36	43	39
Depreciation	6	6	6	6	6
Operating Income (EBIT)	9	18	30	37	33
Income Tax	3.6	7.2	12.0	14.8	13.2
Net Operating Profit After Taxes (NOPAT)	5.4	10.8	18	22.2	19.8

Cordoba's Incremental Adjustments (in millions ofArgentine pesos)
	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Depreciation	-	6	6	6	6	6
Net Capital Expenditures	-30	-	-	-	-	-
Net Working Capital Investment	-	-19	-29	-16	-7	47
Free Cash Flows	-30	-7.6	-12.2	8	21.2

Rosario's Incremental Income Statement (in millions ofArgentine pesos)
	Year 1	Year 2	Year 3	Year 4	Year 5
Sales	58	80	148	150	128
COGS	22	32	60	68	53
Gross Income
Operating Expenses	5	11	37	36	23
Operating Income (EBITDA)
Depreciation	10	10	10	10	10
Operating Income (EBIT)
Income Tax
Net Operating Profit After Taxes (NOPAT)

Rosario's Incremental Adjustments (in millions ofArgentine pesos)
	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Depreciation	-	10	10	10	10	10
Net Capital Expenditures	-50	-	-	-	-	-
Net Working Capital Investment	-	-18	-30	-11	-3	41

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Projected free cash flows of year 5 with expansion into See Answer

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Delizzia, a family owned business, produces and delivers potatochips to supermarkets and mom & pop stores. Located in BuenosAires, Argentina, Delizzia is planning to expand its operations tocover other major Argentinian cities such as Cordoba and Rosario.This expansion will require Delizzia to set up a new distributioncenter and acquire new vehicles for last-mile distribution. Due tobudget constraints, the company will only be able to expand to onecity at a time. Therefore, Delizzia needs to decide if investing inCordoba or Rosario makes more economic sense. The company isconsidering a time horizon of five years to make the decision.Assume the tax rate is 40% and the discount rate for Delizzia is15%. Ignore inflation.The table below shows the projections (incremental sales, COGS,operating expenses and depreciation) anticipated for expandingDelizzia's operations to Cordoba in millions of Argentinepesos.Cordoba's Incremental Income Statement (in millions ofArgentine pesos)Year 1Year 2Year 3Year 4Year 5Sales5680140156130COGS3034646752Gross Income2646768978Operating Expenses1122404639Operating Income (EBITDA)1524364339Depreciation66666Operating Income (EBIT)918303733Income Tax3.67.212.014.813.2Net Operating Profit After Taxes (NOPAT)5.410.81822.219.8Expanding to Cordoba will require an investment of 30,000,000Argentine pesos (to be paid in Year 0) to remodel the rented spacefor the distribution center and purchase the vehicles. Similarly,additional working capital will be required, but it comes in thesecond half of Year 1 after the remodeling is finished. That is whythere is no working capital in Year 0. See table below:Cordoba's Incremental Adjustments (in millions ofArgentine pesos)Year 0Year 1Year 2Year 3Year 4Year 5Depreciation-66666Net Capital Expenditures-30-----Net Working Capital Investment--19-29-16-747Free Cash Flows-30-7.6-12.2821.2Note.- A negative number for the capital expenditure and workingcapital represents a cash outflow. The positive working capitalcash flow in the final period may not equal the sum of the previousinvestments due to accounting assumptions, such as not collectingall receivables.The company uses straight-line depreciation over 5 years. Theterminal value is zero.What are the projected Free Cash Flows for year 5 associatedwith expanding to Cordoba?Part 1The table below shows the projections (incremental sales, COGS,operating expenses and depreciation) anticipated for expandingDelizzia's operations to Rosario in millions of Argentinepesos.Rosario's Incremental Income Statement (in millions ofArgentine pesos)Year 1Year 2Year 3Year 4Year 5Sales5880148150128COGS2232606853Gross IncomeOperating Expenses511373623Operating Income (EBITDA)Depreciation1010101010Operating Income (EBIT)Income TaxNet Operating Profit After Taxes (NOPAT)They company uses straight-line depreciation over 5 years.Assume terminal value of zero.Calculate the projected NOPAT (Net Operating Profit After Tax)for years 1-5.What would be the projected NOPAT for year 1 associated withexpanding to Rosario?What would be the projected NOPAT for year 2 associated withexpanding to Rosario?What would be the projected NOPAT for year 3 associated withexpanding to Rosario?What would be the projected NOPAT for year 4 associated withexpanding to Rosario?What would be the projected NOPAT for year 5 associated withexpanding to Rosario?Part 2Expanding to Rosario will require an investment of 50,000,000Argentine pesos (to be paid in Year 0) to remodel the rented spacefor the distribution center and purchase the vehicles. Similarly,additional working capital will be required, but it comes in thesecond half of Year 1 after the remodeling is finished. That is whythere is no working capital in Year 0. See table below:Rosario's Incremental Adjustments (in millions ofArgentine pesos)Year 0Year 1Year 2Year 3Year 4Year 5Depreciation-1010101010Net Capital Expenditures-50-----Net Working Capital Investment--18-30-11-341Note.- A negative number for the capital expenditure and workingcapital represents a cash outflow. The positive working capitalcash flow in the final period may not equal the sum of the previousinvestments due to accounting assumptions, such as not collectingall receivables.Calculate the projected Free Cash Flows immediately and foryears 1-5.What are the projected Free Cash Flows immediately associatedwith expanding to Rosario?What are the projected Free Cash Flows for year 1 associatedwith expanding to Rosario?What are the projected Free Cash Flows for year 2 associatedwith expanding to Rosario?What are the projected Free Cash Flows for year 3 associatedwith expanding to Rosario?What are the projected Free Cash Flows for year 4 associatedwith expanding to Rosario?What are the projected Free Cash Flows for year 5 associatedwith expanding to Rosario?