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Compute FCF for year 0 and year 1. The market cap of the firm is $1.5m. Before the loan, there was no debt and cash is $50K. What is the year 0 EV/Revenue multiple?

Compute FCF for year 0 and year 1. The market cap of the firm is $1.5m. Before the loan, there was no debt and cash is $50K. What is the year 0 EV/Revenue multiple?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A firm has annual revenues of $500K, cost of revenue of $200K, and general costs of $100K. During the current year (year 0), an old, fully depreciated piece of machinery broke and needed to be replaced immediately at a cost of $500K. The new one will be depreciated linearly over the next 10 years. To finance the purchase, a loan for the full purchase amount was also taken out immediately at 5% annual interest. The corporate tax rate is 30%. You are given the following head start: Year 0 Year 1 Revenue 500,000 500,000 COGS 200,000 200,000 = Gross profit 300,000 300,000 - SG&A 100,000 100,000 - Depr & Amort = Operating profit - Tax @ 30% = Net Op. Profit After Tax + Depr & Amort - Capex = FCF 1. Compute FCF for year 0 and year 1. 2. The market cap of the firm is $1.5m. Before the loan, there was no debt and cash is $50K. What is the year 0 EV/Revenue multiple?
Transcribed Image Text:A firm has annual revenues of $500K, cost of revenue of $200K, and general costs of $100K. During the current year (year 0), an old, fully depreciated piece of machinery broke and needed to be replaced immediately at a cost of $500K. The new one will be depreciated linearly over the next 10 years. To finance the purchase, a loan for the full purchase amount was also taken out immediately at 5% annual interest. The corporate tax rate is 30%. You are given the following head start: Year 0 Year 1 Revenue 500,000 500,000 COGS 200,000 200,000 = Gross profit 300,000 300,000 - SG&A 100,000 100,000 - Depr & Amort = Operating profit - Tax @ 30% = Net Op. Profit After Tax + Depr & Amort - Capex = FCF 1. Compute FCF for year 0 and year 1. 2. The market cap of the firm is $1.5m. Before the loan, there was no debt and cash is $50K. What is the year 0 EV/Revenue multiple?
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