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Determine the Free Cash Flow (FCF) and the Shareholder Cash Flow(SCF) at the end of each of the next 3 years With the followinginformation
Three (3) investors are associated, each contributing a capitalof $ 40 million in cash, to set up and launch the men's clothingbusiness partnership Confort y Elegancia S.A.
The following information is available:
1. Initial investment of $ 60 million in Computer Equipment (5years depreciation) and $ 140 million in Furniture and Fixtures (10years depreciation). They depreciate in a straight line accordingto their useful life and have a salvage value equivalent to 20% ofthe purchase value of the asset.
2. Simultaneous operations are started in 3 leased premises.
3. The merchandise to be sold corresponds to trousers for $100,000each, shirts for $50,000 each. Each month, it is planned to sell500 pants and 1,000 shirts in each store. Annual sales in quantityof product will grow 10% on a constant basis.
4. The gross margin will be 30%. The Final Inventory corresponds to20% of the Cost of Merchandise Sold and is the same value to bepaid to Suppliers.
5. The administration and sales expenses of the first year, inmillions of pesos, are:
Leases $120
Other Admin Expenses $100
Publicity and marketing $90
Depreciation in straight line
All costs increase annually at a constant rate of 6%
6. Payroll expenses for the first year are:
One manager with monthly wage of $2,5 million
three administrators with monthly wage $750,000
six sellers with monthly wage of $600,000
Benefits of the sellers and the administrators are 50% of themonthly wage
All labor costs increae yearly at a rate of 5.5%
7. A bank loan of $ 210 million has been agreed for the purchase offixed assets and working capital with a term of 3 years, payable at18%, with payment to capital in equal installments. The installmentincludes interest payments and repayment of the loan.
8. The partners agree not to distribute dividends during the first5 years.
9. Rent tax rate 34%
