Your firm may purchase certain assets from a struggling competitor. The competitor is asking $50,000,000 for...

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Finance

Your firm may purchase certain assets from a strugglingcompetitor. The competitor is asking $50,000,000 for the assets.Last year, the assets produced revenues of $15,000,000. Revenuesearned in the next year (i.e., year 1) and in future years areestimated using the information in the table below.
Your staff expects that the following assumptions will hold overthe operating period:
The assets will be viable for another 10 years but will beworthless at the end of the 10 year period
The assets are qualified by the IRS for depreciation using thestraight-line method
A constant tax rate of 20%
Your staff has also identified three key areas of uncertainty,which include
Worst-Case
Base-Case
Best-Case
Cash Expenses as a % of Revenues
60%
55%
45%
WACC
20%
15%
8%
Revenue Growth Rate
-10%
0%
7%
Probability
10%
80%
10%
Develop the annual pro forma after-tax cash flowstatement for each scenario.
Note: I am pretty sure the other "experts" whoanswered the question previously had major flaws in their math.

Answer & Explanation Solved by verified expert

4.5 Ratings (589 Votes)

a BASE CASE Growth rate 0 0 1 2 3 4 5 6 7 8 9 10 Revenue 15000000 15000000 15000000 15000000 15000000 15000000 15000000 15000000 15000000 15000000 Cash expenses 55 8250000 8250000 8250000 8250000 8250000 8250000 8250000 8250000 8250000 8250000 Depreciation 5000000010 5000000 5000000 5000000 5000000 5000000 5000000 5000000 5000000 5000000 5000000 NOI 1750000 1750000 1750000 1750000 1750000 1750000 1750000 1750000 1750000 1750000 Tax at 20 350000 350000 350000 350000 350000 350000 350000 350000 350000 350000 NOPAT 1400000 1400000 1400000 1400000 See Answer

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	Worst-Case	Base-Case	Best-Case
Cash Expenses as a % of Revenues	60%	55%	45%
WACC	20%	15%	8%
Revenue Growth Rate	-10%	0%	7%
Probability	10%	80%	10%