Homework Help is Here – Start Your Trial Now!
Business
Accounting
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 Cost of Sales 3,100 5,500 13,900 18,000 20,000 24,000 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 6,500 7,000 EBIT 700 1,190 11,000 17,200 18,200 21,100 Taxes (35%) 245 417 3,850 6,020 6,370 7,385 Net Income 455 774 7,150 11,180 11,830 13,715 Depreciation 100 100 100 100 100 100 Operating Cash Flows 555 874 7,250 11,280 11,930 13,815 CAPEX (906) (1,394) (900) (800) (300) (200) Net Working Capital (2,030) (780) (2,457) (1,267) (738) (912) Terminal Value             Free Cash Flows                                                                                                                                                         Calculate the free cash flows for 1998 – 2003                                                                                                                                                    Calculate the terminal value of the Canopy project in 2003 and the adjusted free cash flow value for 2003. (HINT: Use the Gordon or Growing Perpetuity Model to calculate the terminal value).           Calculate the NPV,

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 Cost of Sales 3,100 5,500 13,900 18,000 20,000 24,000 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 6,500 7,000 EBIT 700 1,190 11,000 17,200 18,200 21,100 Taxes (35%) 245 417 3,850 6,020 6,370 7,385 Net Income 455 774 7,150 11,180 11,830 13,715 Depreciation 100 100 100 100 100 100 Operating Cash Flows 555 874 7,250 11,280 11,930 13,815 CAPEX (906) (1,394) (900) (800) (300) (200) Net Working Capital (2,030) (780) (2,457) (1,267) (738) (912) Terminal Value             Free Cash Flows                                                                                                                                                         Calculate the free cash flows for 1998 – 2003                                                                                                                                                    Calculate the terminal value of the Canopy project in 2003 and the adjusted free cash flow value for 2003. (HINT: Use the Gordon or Growing Perpetuity Model to calculate the terminal value).           Calculate the NPV,

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
  1. 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

Cost of Sales

3,100

5,500

13,900

18,000

20,000

24,000

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

6,500

7,000

EBIT

700

1,190

11,000

17,200

18,200

21,100

Taxes (35%)

245

417

3,850

6,020

6,370

7,385

Net Income

455

774

7,150

11,180

11,830

13,715

Depreciation

100

100

100

100

100

100

Operating Cash Flows

555

874

7,250

11,280

11,930

13,815

CAPEX

(906)

(1,394)

(900)

(800)

(300)

(200)

Net Working Capital

(2,030)

(780)

(2,457)

(1,267)

(738)

(912)

Terminal Value

 

 

 

 

 

 

Free Cash Flows

 

 

 

 

 

 

                                                                                                                                           

  1. Calculate the free cash flows for 1998 – 2003

 

 

 

 

 

 

 

                                                                                                                                  

 

  1. Calculate the terminal value of the Canopy project in 2003 and the adjusted free cash flow value for 2003. (HINT: Use the Gordon or Growing Perpetuity Model to calculate the terminal value).

 

 

 

 

 

  1. Calculate the NPV, the IRR and the payback period for the Canopy project and recommend whether Canopy should go forward with the expansion project or not.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS