6. You are considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 % and an expected growth rate of 5% after 2003. 1998 1999 2000 2001 2002 2003 Net Sales 8,500 15,000 35,500 46,000 52,000 60,000 24,400 Cost of Sales 3,100 5,500 13,900 18,000 20,000 Depreciation 100 100 100 100 100 100 SG&A 3,500 5,410 6,400 5,300 7,200 7,800 7,000 R&D 1,100 2,800 4,100 5,400 6,500 1,190 417 EBIT 700 11,000 17,200 18,200 20,700 Income Tax (35%) 6,370 245 455 3.850 6,020 7,245 Net Earnings Depreciation Operating Cash Flows 774 7,150 11,180 11,830 13,455 Net PPE (906) (2,030) (1394) (900) (800) (300) (200) Working Capital (780) (2457) (1267) (738) (912) Terminal Value Free Cash Flows
6. You are considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 % and an expected growth rate of 5% after 2003. 1998 1999 2000 2001 2002 2003 Net Sales 8,500 15,000 35,500 46,000 52,000 60,000 24,400 Cost of Sales 3,100 5,500 13,900 18,000 20,000 Depreciation 100 100 100 100 100 100 SG&A 3,500 5,410 6,400 5,300 7,200 7,800 7,000 R&D 1,100 2,800 4,100 5,400 6,500 1,190 417 EBIT 700 11,000 17,200 18,200 20,700 Income Tax (35%) 6,370 245 455 3.850 6,020 7,245 Net Earnings Depreciation Operating Cash Flows 774 7,150 11,180 11,830 13,455 Net PPE (906) (2,030) (1394) (900) (800) (300) (200) Working Capital (780) (2457) (1267) (738) (912) Terminal Value Free Cash Flows
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Estimate the free cash flows ('98-'03), the terminal value of the Canopy project in 2003 & the
Transcribed Image Text:**Educational Text on Incremental Cash Flows for Canopy Pharmaceuticals' Expansion**
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In this exercise, you are analyzing the proposed geographic expansion into the European market for Canopy Pharmaceuticals. The table below details the incremental cash flows related to this project, which are crucial for your financial analysis. Important assumptions include Canopy’s marginal tax rate of 35%, a cost of capital of 15.7%, and an anticipated growth rate of 5% after 2003.
### Incremental Cash Flows (in thousands)
| | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 |
|------------|------|-------|-------|-------|-------|-------|
| **Net Sales** | 8,500 | 15,000| 35,500| 46,000| 52,000| 60,000|
| **Cost of Sales** | 3,100 | 5,500 | 13,900| 18,000| 20,000| 24,400|
| **Depreciation** | 100 | 100 | 100 | 100 | 100 | 100 |
| **SG&A** | 3,500 | 5,410 | 6,400 | 5,300 | 7,200 | 7,800 |
| **R&D** | 1,100 | 2,800 | 4,100 | 5,400 | 5,600 | 7,000 |
| **EBIT** | 700 | 1,190 | 11,000| 17,200| 18,200| 20,700|
| **Income Tax (35%)** | 245 | 417 | 3,850 | 6,020 | 6,370 | 7,245 |
| **Net Earnings** | 455 | 774 | 7,150 | 11,180| 11,830| 13,455|
| **Depreciation** | 100 | 100 | 100 | 100 | 100 | 100 |
| **Operating Cash Flows** | | | | | | |
#### Additional Cash Flow Considerations
- **Net PPE (Property
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