After-Tax Cash Flow Essay: Base

Base Case

After Tax Cash Flows

Base case
	Year
	1	2	3	4	5	6	7	8
A. Revenues	1,445,000.00	1,589,500.00	1,748,450.00	1,923,295.00	2,115,624.50	2,327,186.95	2,559,905.65	2,815,896.21
Costs (other than depreciation)
Material costs	210,000.00	222,600.00	235,956.00	250,113.36	265,120.16	281,027.37	297,889.01	315,762.35
Marketing costs	46,000.00	48,760.00	51,685.60	54,786.74	58,073.94	61,558.38	65,251.88	69,166.99
Other costs	25,000.00	26,500.00	28,090.00	29,775.40	31,561.92	33,455.64	35,462.98	37,590.76
Additional staff cost	900,000.00	954,000.00	1,011,240.00	1,071,914.40	1,136,229.26	1,204,403.02	1,276,667.20	1,353,267.23
Depreciation (1650000-100000)/8	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00
B. Total cost	1,374,750.00	1,445,610.00	1,520,721.60	1,600,339.90	1,684,735.29	1,774,194.41	1,869,021.07	1,969,537.34
Profit before tax (A-B)	70,250.00	143,890.00	227,728.40	322,955.10	430,889.21	552,992.54	690,884.57	846,358.87
Less: Tax @30%	21,075.00	43,167.00	68,318.52	96,886.53	129,266.76	165,897.76	207,265.37	253,907.66
Profit after tax	49,175.00	100,723.00	159,409.88	226,068.57	301,622.45	387,094.78	483,619.20	592,451.21
Add back depreciation	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00
Add: Salvage value								100,000.00
After tax cash flows	242,925.00	294,473.00	353,159.88	419,818.57	495,372.45	580,844.78	677,369.20	886,201.21

Worst case
	Year
	1	2	3	4	5	6	7	8
A. Revenues	1,445,000.00	1,531,700.00	1,623,602.00	1,721,018.12	1,824,279.21	1,933,735.96	2,049,760.12	2,172,745.72
Costs (other than depreciation)
Material costs	210,000.00	231,000.00	254,100.00	279,510.00	307,461.00	338,207.10	372,027.81	409,230.59
Marketing costs	46,000.00	50,600.00	55,660.00	61,226.00	67,348.60	74,083.46	81,491.81	89,640.99
Other costs	25,000.00	27,500.00	30,250.00	33,275.00	36,602.50	40,262.75	44,289.03	48,717.93
Additional staff cost	900,000.00	990,000.00	1,089,000.00	1,197,900.00	1,317,690.00	1,449,459.00	1,594,404.90	1,753,845.39
Depreciation (1650000-100000)/8	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00
B. Total cost	1,374,750.00	1,492,850.00	1,622,760.00	1,765,661.00	1,922,852.10	2,095,762.31	2,285,963.54	2,495,184.90
Profit before tax (A-B)	70,250.00	38,850.00	842.00	(44,642.88)	(98,572.89)	(162,026.35)	(236,203.42)	(322,439.17)
Less: Tax @30%	21,075.00	11,655.00	252.60	(13,392.86)	(29,571.87)	(48,607.91)	(70,861.03)	(96,731.75)
Profit after tax	49,175.00	27,195.00	589.40	(31,250.02)	(69,001.02)	(113,418.45)	(165,342.40)	(225,707.42)
Add back depreciation	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00
Add: Salvage value								100,000.00
After tax cash flows	242,925.00	220,945.00	194,339.40	162,499.98	124,748.98	80,331.55	28,407.60	68,042.58

Best case
	Year
	1	2	3	4	5	6	7	8
A. Revenues	1,445,000.00	1,661,750.00	1,911,012.50	2,197,664.38	2,527,314.03	2,906,411.14	3,342,372.81	3,843,728.73
Costs (other than depreciation)
Material costs	210,000.00	216,300.00	222,789.00	229,472.67	236,356.85	243,447.56	250,750.98	258,273.51
Marketing costs	46,000.00	47,380.00	48,801.40	50,265.44	51,773.41	53,326.61	54,926.41	56,574.20
Other costs	25,000.00	25,750.00	26,522.50	27,318.18	28,137.72	28,981.85	29,851.31	30,746.85
Additional staff cost	900,000.00	927,000.00	954,810.00	983,454.30	1,012,957.93	1,043,346.67	1,074,647.07	1,106,886.48
Depreciation (1650000-100000)/8	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00
B. Total cost	1,374,750.00	1,410,180.00	1,446,672.90	1,484,260.59	1,522,975.90	1,562,852.68	1,603,925.76	1,646,231.04
Profit before tax (A-B)	70,250.00	251,570.00	464,339.60	713,403.79	1,004,338.13	1,343,558.45	1,738,447.04	2,197,497.69
Less: Tax @30%	21,075.00	75,471.00	139,301.88	214,021.14	301,301.44	403,067.54	521,534.11	659,249.31
Profit after tax	49,175.00	176,099.00	325,037.72	499,382.65	703,036.69	940,490.92	1,216,912.93	1,538,248.38
Add back depreciation	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00	193,750.00
Add: Salvage value								100,000.00
After tax cash flows	242,925.00	369,849.00	518,787.72	693,132.65	896,786.69	1,134,240.92	1,410,662.93	1,831,998.38

Base case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	-1650000	242,925.00	294,473.00	353,159.88	419,818.57	495,372.45	580,844.78	677,369.20	886,201.21
Cumulative cash flows		(1,407,075.00)	(1,112,602.00)	(759,442.12)	(339,623.55)	155,748.90
Payback Period (years)					3.81	Years

Worst case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	-1650000	242,925.00	220,945.00	194,339.40	162,499.98	124,748.98	80,331.55	28,407.60	68,042.58
Cumulative cash flows		(1,407,075.00)	(1,186,130.00)	(991,790.60)	(829,290.62)	(704,541.64)	(624,210.09)	(595,802.48)	(527,759.90)
Payback Period (years)	More than 8 years

Best case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	-1650000	242,925.00	369,849.00	518,787.72	693,132.65	896,786.69	1,134,240.92	1,410,662.93	1,831,998.38
Cumulative cash flows		(1,407,075.00)	(1,037,226.00)	(518,438.28)	174,694.37	1,071,481.06	2,205,721.98	3,616,384.91	5,448,383.29
Payback Period (years)				3.00	Years

Base case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	(1,650,000.00)	209,418.10	218,841.41	226,254.59	231,862.06	235,853.27	238,403.24	239,673.23	270,313.93
Cumulative cash flows		(1,440,581.90)	(1,221,740.49)	(995,485.90)	(763,623.84)	(527,770.57)	(289,367.33)	(49,694.10)	220,619.83
Payback Period (years)								6.21	Years

Worst case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	(1,650,000.00)	209,418.10	164,198.13	124,505.03	89,747.29	59,394.61	32,971.46	10,051.45	20,754.72
Cumulative cash flows		(1,440,581.90)	(1,276,383.77)	(1,151,878.74)	(1,062,131.45)	(1,002,736.84)	(969,765.37)	(959,713.92)	(938,959.20)
Payback Period (years)	More than 8 years

Best case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	(1,650,000.00)	209,418.10	274,858.06	332,365.33	382,810.99	426,971.81	465,540.40	499,134.20	558,806.14
Cumulative cash flows		(1,440,581.90)	(1,165,723.84)	(833,358.51)	(450,547.51)	(23,575.70)	441,964.70	941,098.90	1,499,905.05
Payback Period (years)						4.06	Years

Base case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	(1,650,000.00)	242,925.00	294,473.00	353,159.88	419,818.57	495,372.45	580,844.78	677,369.20	886,201.21
PVF @16%	1.00	0.86	0.74	0.64	0.55	0.48	0.41	0.35	0.31
Present value	(1,650,000.00)	209,418.10	218,841.41	226,254.59	231,862.06	235,853.27	238,403.24	239,673.23	270,313.93
NPV	220,619.83

Worst case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	(1,650,000.00)	242,925.00	220,945.00	194,339.40	162,499.98	124,748.98	80,331.55	28,407.60	68,042.58
PVF @16%	1.00	0.86	0.74	0.64	0.55	0.48	0.41	0.35	0.31
Present value	(1,650,000.00)	209,418.10	164,198.13	124,505.03	89,747.29	59,394.61	32,971.46	10,051.45	20,754.72
NPV	(938,959.20)

Best case
	Year
	0	1	2	3	4	5	6	7	8
Cash flows	(1,650,000.00)	242,925.00	369,849.00	518,787.72	693,132.65	896,786.69	1,134,240.92	1,410,662.93	1,831,998.38
PVF @16%	1.00	0.86	0.74	0.64	0.55	0.48	0.41	0.35	0.31
Present value	(1,650,000.00)	209,418.10	274,858.06	332,365.33	382,810.99	426,971.81	465,540.40	499,134.20	558,806.14
NPV	1,499,905.05

	Base case	Worst case	Best case
PV of inflows	1,870,619.83	711,040.80	3,149,905.05
Initial investment	1,650,000.00	1,650,000.00	1,650,000.00
Profitability Index	1.13	0.43	1.91

The risk of the project could be determined as BETA of the company. However, NPV, IRR and scenario analysis could be used by company to evaluate the risk associated with the project. The sensitivity analysis is implemented to identify the possible flactuation in NPV, IRR and profitability index of project (Bierman & Smidt, 2014).

It is evaluated that net present value of the project is $220,619.83. Company has positive cash flow with this project and the discounted payback period given in this project is 6.21 which is very 1.80 years lower as compared to other project. Therefore, first project should be accepted.

This reflects the key understanding on the financial performance and capital structure of APN Outdoor Company. It is an Australian listed company which has been providing media services in Australia. It is listed company and increased its overall earning since last three years. The main core competency of company is related to providing promotional and advertisement services in Australia.

Capital structure of company is determined by the company the way it raises funds in market. It is accompanied with debt, equity and reserve of company. Ideally optimum capital structure of company should be 30 % debt and 70% equity (Finance. Yahoo, 2017). The WACC of company has been computed as below (Gitman, Juchau, & Flanagan, 2015).

Cost of Equity
CAPM Model
Risk free rate of return	2.40%
Beta	1.3
Market Rate of Return	7%
Cost of Equity	8.38%
Cost of debt
Interest after tax	2956100
Debt	103000000
Cost of debt	2.87%
Weights
Debts (Loan)	103000000
Equity	222334000
Total	325334000
Weighted Average Cost of Capital (WACC)
		Cost (%)	Weighted Cost
Debt		2.87%	0.91%
Equity		8.38%	5.73%
Cost of Capital (WACC)			6.64%

It is considered that APN Outdoor Company has cost of capital of 6.64%. The debt funding of company is 32% and 68% equity funding. Company has high financial risk and low cost of capital due to tax advantage. QMS Media Company is competitors company which has hold its debt to equity ratio to 22:78. Company has maintained 22% debt funding and rest capital is raised through issue of capital. However, the overall cost of capital is 7.87% which is comparatively high. APN Outdoor Company has maintained low cost of captail and low level of financial leverage (Finance. Yahoo, 2017).

This APN Outdoor Company has increased its overall earning with drastic amount since last three years. The current ratio of company was 2.14 which has gone down by .65 in 2017. Quick ratio of company has also gone down.55 in 2017 comparatively. The gross profit margin has increased by 2% in 2016 as compared to data shown in 2014. The net profit was 6.04% in 2015 which resulted to 20% earning in 2016. ROI of Company was negative -7.4% in 2015 which increased to earnings of 26% in 2016. Interest leverage is reduced to zero in 2016. Efficiency ratio of company depicts the stable inventory turnover and increment in overall creditors turnover by 40% to reduce the overall blockage of funds in business (Brigham & Gerhardt, 2013).

APN Outdoor company has maintained its capital $58.15, $63.74, and $59.64 million in all 2014, 2015 and 2016. In addition to this, debt of company is also increased by 5% since last three years (Finance. 2017).

Particulars	2014	2015	2016
Fiscal year ends in June	AUD$ '000	AUD$ '000	AUD$ '000
AUD in Million except per share data

Long term loans

125

133

THE stock price of AMC Outdoor Company has increased by 200% as compared to last three years. This level of increment in stock price reflects the increment in value of the shareholders’ investment throughout the time.

If AMC Outdoor Company wants to reduce its overall cost of capital then it needs to increase its debt portion. However, increment in debt portion in company will simultaneously increase the financial risk of company at large. (Finance. Yahoo. 2017)

AMC Outdoor Company has increased its overall earning and business efficiency. Nonetheless, the debt to equity ratio needs to be decreased by company throughout the time. Company needs to have optimum capital structure to increase the overall capital structure.

Conclusion

This report reflects that company has increased its overall earning and total turnover since last th/ree years. However, company has high financial leverage which could increase the financial risk of company. Now in the end, it could be inferred that if company wants to increase the sustainability of its business then it should restructure its capital structure. In addition to this, company also needs to increase the overall return on captail employed to create value on its investment.

References

Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.

Finance. Yahoo. (2017). APN Outdoor Group Limited (APO.AX). Retrieved September 16, 2017 from, https://finance.yahoo.com/quote/APO.AX/financials?p=APO.AX

Finance. Yahoo. (2017). QMS Media Limited (QMS.AX). Retrieved September 16, 2017 from, https://finance.yahoo.com/quote/QMS.AX/balance-sheet?p=QMS.AX

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