Proforma Income Statement The

Proforma Income Statement The purpose of this assignment is to
estimate the cash flows from a project. Later in the semester,
we’ll return to this project and use the tools of capital budgeting
to determine if the project is desirable. Here, we simply want to
work through a proforma income statement to determine the cash
flows from the project. Below are some estimates that the marketing
department has determined. Other assumptions necessary for
completing the proforma income statement can be found by looking at
some of the historical averages of values in Cisco’s financial
statements.

Suppose Cisco (ticker symbol – csco) has decided to introduce a
new high speed router, the Cheetah. Before they launch the Cheetah,
they conducted an analysis to see if the Cheetah would be a
desirable investment. The company estimated that it would sell 10
million Cheetah’s per year at a price of $250 for the next six
years. After the first year of sales, the quantity sold will
increase by 3% per year for the remaining life of the project. The
initial capital outlay is determined to be $2.5 billion and a $500
million outlay in net working capital (NWC) would also be required.
Assume that there is a one-time investment in NWC and that this
will be recovered at the end of the project. Assume that the
equipment used will be depreciated using the MACRS 7 year schedule
and that the equipment has a salvage value of zero. At the end of
year 6, the equipment will be sold for 135% of its book value.
Also, assume that that the tax rate is 25%. Using information from
Cisco’s financial statements (you may want to use Morningstar.com
or some other online site) estimate the operating cash flows from
the project. Make any simplifying assumptions that are necessary to
produce the estimate.

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Proforma Income Statement The

Proforma Income Statement

The purpose of this assignment is to estimate the cash flows
from a project. Later in the semester, we’ll return to this project
and use the tools of capital budgeting to determine if the project
is desirable. Here, we simply want to work through a proforma
income statement to determine the cash flows from the project.
Below are some estimates that the marketing department has
determined. Other assumptions necessary for completing the proforma
income statement can be found by looking at some of the historical
averages of values in Cisco’s financial statements.

Suppose Cisco (ticker symbol – csco) has decided to introduce a
new high speed router, the Puma. Before they launch the
Puma, they conducted an analysis to see if the Puma would be a
desirable investment. The company estimated that it would sell 20
million Puma’s per year at a price of $350 for the next six years.
After the first year of sales, the quantity sold will increase by
2% per year for the remaining life of the project.

The initial capital outlay is determined to be $3.5 billion and
a $1 billion outlay in net working capital (NWC) would also be
required. Assume that there is a one-time investment in NWC and
that this will be recovered at the end of the project.

Assume that the equipment used will be depreciated using the
MACRS 7 year schedule and that the equipment has a salvage value of
zero. At the end of year 6, the equipment will be sold for 135% of
its book value. Also, assume that that the tax rate is 25%.

Using information from Cisco’s financial statements (you may
want to use Morningstar.com or some other online site) estimate the
operating cash flows from the project. Make any simplifying
assumptions that are necessary to produce the estimate.

ORDER THIS OR A SIMILAR PAPER AND GET 20% DICOUNT. USE CODE: GET2O