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.
