FIRST FINANCIAL MODELSales growth 10%Current assets/Sales 15%Current liabilities/Sales 8%Net fixed assets/Sales 77%Costs of goods sold/Sales 50%Depreciation rate 10%Interest rate on debt 10.00%Interest paid on cash and marketable securities 8.00%Tax rate 40%Dividend payout ratio 40%Year 0 1 2 3Income statementSales 1,000 1,100 1,210 1,331Costs of goods sold (500) (550) (605) (666)Interest payments on debt (32) (32) (32) (32)Interest earned on cash and marketable securities 6 9 14 20Depreciation (100) (117) (137) (161)Profit before tax 374 410 450 492Taxes (150) (164) (180) (197)Profit after tax 225 246 270 295Dividends (90) (98) (108) (118)Retained earnings 135 148 162 177Balance sheetCash and marketable securities 80 144 213 289Current assets 150 165 182 200Fixed assetsAt cost 1,070 1,264 1,486 1,740Depreciation (300) (417) (554) (715)Net fixed assets 770 847 932 1,025Total assets 1,000 1,156 1,326 1,513Current liabilities 80 88 97 106Debt 320 320 320 320Stock 450 450 450 450Accumulated retained earnings 150 298 460 637Total liabilities and equity 1,000 1,156 1,326 1,513Year 0 1 2 3Free cash flow calculationProfit after tax 246 270 295Add back depreciation 117 137 161Subtract increase in current assets (15) (17) (18)Add back increase in current liabilities 8 9 10Subtract increase in fixed assets at cost (194) (222) (254)Add back after-tax interest on debt 19 19 19Subtract after-tax interest on cash and+A14 mkt. securities (5) (9) (12)Free cash flow 176 188 201CONSOLIDATED STATEMENT OF CASH FLOWS: RECONCILING THE CASH BALANCESCash flow from operating activitiesProfit after tax 246 270 295Add back depreciation 117 137 161Adjust for changes in net working capital:Subtract increase in current assets (15) (17) (18)Add back increase in current liabilities 8 9 10Net cash from operating activities 356 400 448Cash flow from investing activitiesAquisitions of fixed assets-capital expenditures (194) (222) (254)Purchases of investment securities 0 0 0Proceeds from sales of investment securities 0 0 0Net cash used in investing activities (194) (222) (254)Cash flow from financing activitiesNet proceeds from borrowing activities 0 0 0Net proceeds from stock issues, repurchases 0 0 0Dividends paid (98) (108) (118)Net cash from financing activities -98 -108 -118Net increase in cash and cash equivalents 64 70 76Check: changes in cash and mkt. securities 64 70 76= I F ( B 7 6 maximum sustainable dividend 161 173 186Year 0 1 2 3Free cash flow calculationProfit after tax 245 265 287Add back depreciation 117 137 161Subtract increase in current assets (15) (17) (18)Add back increase in current liabilities 8 9 10Subtract increase in fixed assets at cost (194) (222) (254)Add back after-tax interest on debt 19 19 19Subtract after-tax interest on cash & mkt. securities (4) (4) (4)Free cash flow 176 188 2014 51,464 1,611(732) (805)(32) (32)6 6(189) (220)518 560(207) (224)311 336(199) (213) - Dividends are calculated in row 41 and following112 12380 80220 2422,031 2,364(904) (1,124)1,127 1,2401,427 1,562117 129320 320450 450540 6631,427 1,562311 336112 123199 2134 5311 336189 220(20) (22)11 12(291) (333)19 19(4) (4)214 228SUSTAINABLE DIVIDENDS-SOLUTION