Course Project 2

Course Project2 Due on

To complete Course Project 2, you will need to estimate future cash flows for a firm and then
apply discounted cash flow analysis to estimate the value of a firm. You will then need to
decide if you would sell the firm at a specific price.

This project must be submitted as an Excel file. You have until midnight on the due date to
turn in the project by Blackboard. Any late project will be accepted at my discretion
depending on the degree of lateness. Your work must be submitted as a readable Excel file.

The project is worth a total of 25 points. To receive all 25 points, you should make sure to fully
complete the Excel file while following all directions. You should only hard code (aka type
directly) into the grey cells. All of the other cells (blue, green, orange) should only include
formulas and cell references. Failure to follow this will result in a significant or total loss of
points..

Project Problem

1. Organic Micros was established 8 years ago by Mary Mendoza. The firm reported EBIT
this year of $80,000. Mary typically reports about $2,000 in personal expenses through
the firm each year. She also pays herself a salary of $60,000 despite the market rate for
such a position being closer to $30,000.

2. The firm currently reports $10,000 in depreciation expenses every year.
3. The firm will need $25,000 of inventory replaced in year 1 and will also require the

replacement of equipment during year 4 in an amount totaling $50,000.
4. The firm currently has outstanding debt of $400,000. The firm has been historically

financed in a way that 30% of funds are a result of debt financing. The cost of this debt
financing is estimated to be 12% while the cost of equity financing is estimated at 22%.

5. Mary originally invested $120,000 of her own funds in the firm which establishes a cost
basis for the firm of $120,000. Mary typically falls in a tax bracket that results in a total
tax rate of 40%.

6. Based on the firm’s maturity and the state of the industry, it is estimated the EBIT will
increase by 9% each year for the next 5 years. Beyond this time frame, a reasonable
estimate of growth is neither possible nor relevant.

Point Breakdown Point Deductions

Free Cash Flows 10 pts
NPV 6 pts
Net proceeds 6 pts
Sell decisions 2 pts
Name 1 pt

Missing formula/reference -1 (per)
No formulas/references -25
Wrong calculation -2 (per)
Wrong sell decision -1 (per)
No name -1
No Excel file -25

Late (if accepted) -5