Assume that Premier paper expects the sales to increase by 20% every year over the next 5 years. Net working capital i.e. current assets less current liabilities is estimated as 20% of revenues and investment in net fixed assets will be 25% of revenues. Dividend payout ratio is 60%. The costs will be 90% of revenues and depreciation will be 10% of fixed assets at the start of the year. Interest will be 10% of long-term debt at start of the year. Tax rate is 40%.
Analyse the external financing needed for the next 5 years. Assume that any external financing needed will be met through long term borrowing.
1. Calculate the depreciation amount and gross fixed asset for the years 2017, 2018, 2019, 2020, 2021
2. Calculate investment in net working capital for the years 2017, 2018, 2019, 2020, 2021
3. Compute the total investment needs for the years 2017, 2018, 2019, 2020, 2021.