Dynatronics

MM 5009 Financial Management INDIVIDUAL FINAL EXAM

Dynatronics, Inc

29111311

Haidir Afesina

MBA Executive 46

MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2012

Executive Summary Three electrical engineers in Burlington, Massachusetts in 1979, founded Dynatronics, a company that produce digital systems with several lines of proprietary items sold as components. It had enjoyed considerable success and expanded its business to variety of special-purpose system that applied digital techniques to computing, information handling, control tasks and data processing as the increasing of customer demand. Nevertheless, the company faced financial problems during the reviewing before the introduction of new product line. The company`s financing opportunities were severely restricted by its current financial position and the external financing possibilities was continued reliance on the reinvestment of earnings with no payment of dividends. It had reached the limit of the credit line that the bank was willing to extend in the absence of some improvement in the company`s capital structure. In addition the retention of company`s earning from the products failed to alter the bank`s stand on additional financing. Therefore Ms. Liz Kraft, CFO at Dynatronics believed that any major investment would create further financing pressure. Thus she has to decide its future investment and financing programs to be recommend to the shareholders. The case highlights issues on inventory system, policy, introduction of new products and external financing needed posed by growth. It also illustrated how varying assumptions can affect the perceived value of a project itself. The analysis will cover the existing financial performance, proforma and capital structure. It conclude that the best possible way for Dynatronics are invest on new product line with E investment policy, also getting its external financing with the maximum composition 58% debt (bank loan) and 42% IPO (equity). However, the company has to change its no dividends policy in order to apply the IPO.

1

Current Situation Due to its expansion, proprietary production had been shifted to Puerto Rico because of low wage labor force in that area. Then the sales outlets had been established in Silicon Valley along with small plant for the design and production of aerospace industry. Short-term loans, secured by the pledge of receivables were obtained from the local bank to support this growing requirement. Regardless extremely competition that made the product lifecycles had been cut short to 6-7 year cycle, the product almost trebled the sales so that the company`s investment in current asset expanded accordingly. The forecast for year-end 1989 current asset has been prepared to help in assessing the company`s immediate financing problem. a) The growth prospects assumed; • Sales: $34 million • Cost of good sold: $20,74 million • Receivables: 22% (sales of raw material and work in process a four week`s rate of usage) The bank would lend up 90% of the account receivables balances outstanding. The interest rate charged rises to be 15.5% b) The introduction of new product line assumed contribute to sales: • $5 million in 1990 and $6.5 million in 1991 • $250.000 million (specialize equipment) • $90,000 (budget allocation) c) External financing: • Bank loan • Issue up to 400,000 shares new common stock ($5 per share from $6.5 after costs and expenses) d) Inventory investment • Frequent delivery delays with five possibility inventories policies Objectives 1. To determine the financing requirements posed by growth, change of inventory policy, and introduction of new product 2. To choose the best method of financing the production Problems The company`s financing opportunities were severely restricted by its current financial position and the external financing possibilities was continued reliance on the reinvestment of earnings with no payment of dividends.

2

Analysis The steps to be taken in order to solve the problems are: 1. Current financial performance analysis 2. Proforma analysis 3. Capital structure analysis 1. Current performance analyses According to Gitman and Zutter (2012), it is to identify financial strengths and weaknesses and evaluate financial performance in relation to the industry performance as a whole, and acquire useful information concerning competitors. The analyses are using CAGR (Compound Annual Growth Rates) and ROE (Return on Equity). a. CAGR (Compound Annual Growth Rates) Gitman and Zutter (2012) defined CAGR as average growth rate over a period of several years. The sales data from 1986 to 1988 is being using to get the growth percentage.

Year Net Sales

1986 $9,040

1987 $13,860

1988 $26,598

The CAGR sales growth is 43%. It is considered good prospects for Dynatronics. The data showed the shareholder that the demands for a company’s products were increasing in the last three years. Means there is a promising growth in the future. b. ROE (Return on Equity) Gitman and Zutter (2012) stated that ROE as an important variable that determine earning growth and dividend growth that reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. Below is the calculation of ROE component calculation using dupont analysis.

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Table 1.1 Dupont`s ROE calculation Formula

1986

1987

1988

Earning available for common stockholders/sales

0.17%

2.25%

2.88%

TATO

Sales/Total Assets

2.38%

2.28%

2.55%

ROA

Net Profit Margin x TATO

0.39%

5.12%

7.33%

FLM

Total Assets/Common Stock Equity; Total Asset = Total Current Liabilities + Total Stockholders Equity

4.79%

7.41

11.60%

ROE

ROA x FLM

Net Profit Margin

Having ROA 7.33% and always increases in the past 3 years means high return to total of investment. Figure 1.1 ROE

The chart shown that Dynatronics as the highest return on equity among the competitor in 1988. It increased annually. Ross, Westerfield, Jaffe and Jordan (2008) stated that the company more likely to be one that is capable of generating cash internally and high return for the shareholders. For the most part, the higher a company's return on equity compared to its industry, the better the company is.

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2. Proforma analysis According to Gitman and Zutter (2012), proforma analysis help the company to know how much financing might be needed, and when it might be needed with an estimate of future income statement and balance sheet accounts, which are projected or forecast. Two inputs that required for preparing pro forma statement are financial statement for the previous year and the sales forecast for the coming year. Both of proforma income statement and balance sheet usually used to plan the future financial performance of a company. The forecasting process was mainly based on the company’s sales growth using the sales growth assumption and then the Dynatronics`s proforma income statement and balance sheet are generated (Ross, Westerfield, Jaffe and Jordan, 2008) a) Proforma Balance Sheet From the proforma balance sheet accounts, the data is being used to forecast the amount of the external financing required. It reflects the goals and objectives of Dynatronics for the planning period. The details of the data can be found on the appendix 2.1.

Table 2.1 External Financing Required NO

Alternative

1 2 3 4 5 6 7 8 9 10 11 12

NN NA NB NC ND NE YN YA YB YC YD YE

Description No Invest New Product Line & Inventory Policy 1989 No Invest New Product Line & Inventory Policy A No Invest New Product Line & Inventory Policy B No Invest New Product Line & Inventory Policy C No Invest New Product Line & Inventory Policy D No Invest New Product Line & Inventory Policy E Invest New Product Line & Apply Inventory Policy 1989 Invest New Product Line & Apply Inventory Policy A Invest New Product Line & Apply Inventory Policy B Invest New Product Line & Apply Inventory Policy C Invest New Product Line & Apply Inventory Policy D Invest New Product Line & Apply Inventory Policy E

External Financing Required (1989) $2,093 $2,285 $2,626 $3,081 $3,649 $4,161 $2,293 $2,485 $2,826 $3,281 $3,849 $4,361

The table showed that YE (invest new product line and apply inventory policy E) as the alternative that need the most of external financing.

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b) Proforma Income Statement The method for developing a pro forma income statement is the percent of sales method in 3 years i.e. 1989-1991. It forecast sales and then expenses the various income statement items as percentages of projected sales. The details of the calculation is on appendix 2.2. Table 2.2 Key points on alternatives Altern ative

Sales/Revenue ($000)

Total Expenses ($000)

Earning Per Share

1989

1990

1991

1989

1990

1991

1989

1990

1991

NN

34,000

40,000

40,000

32,303

37,977

37,977

0.57

0.68

0.68

NA

34,400

40,400

40,400

32,444

38,087

38,087

0.66

0.78

0.78

NB

34,896

40,896

40,896

32,617

38,222

38,222

0.77

0.90

0.90

NC

35,283

41,283

41,283

32,757

38,338

38,338

0.85

0.99

0.99

ND

35,524

41,524

41,524

32,849

38,421

38,421

0.90

1.05

1.05

NE

35,623

41,623

41,623

32,886

38,454

38,454

0.92

1.07

1.07

YN

34,000

45,000

46,500

32,393

42,732

44,141

0.54

0.76

0.80

YA

34,400

45,400

46,900

32,534

42,795

44,193

0.63

0.88

0.91

YB

34,896

45,896

47,396

32,707

42,873

44,258

0.74

1.02

1.06

YC

35,283

46,283

47,783

32,847

42,941

44,316

0.82

1.13

1.17

YD

35,524

46,524

48,024

32,939

42,989

44,358

0.87

1.19

1.24

YE

35,623

46,623

48,123

32,976

43,008

44,375

0.89

1.22

1.26

YE has the highest earning share ($1.26), thus it is a good investment for the investors c) Proforma Cash Flow Gitman and Zutter (2012) stated that proforma cash flow helps to predict the best possible investment on the project using the highest NPV that gives explicit consideration to the time value of money. The steps are using total fix assets (proforma balance sheet), operating cash flow, and 15.5% (prime 11.5% + 4%) for the interest rates annually.

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Table 1.3 NPV NO

Alternative

Description

NPV

1 2 3 4 5 6 7 8 9 10 11 12

NN NA NB NC ND NE YN YA YB YC YD YE

No Invest New Product Line & Inventory Policy 1989 No Invest New Product Line & Inventory Policy A No Invest New Product Line & Inventory Policy B No Invest New Product Line & Inventory Policy C No Invest New Product Line & Inventory Policy D No Invest New Product Line & Inventory Policy E Invest New Product Line & Apply Inventory Policy 1989 Invest New Product Line & Apply Inventory Policy A Invest New Product Line & Apply Inventory Policy B Invest New Product Line & Apply Inventory Policy C Invest New Product Line & Apply Inventory Policy D Invest New Product Line & Apply Inventory Policy E

$1,374.4 $2,037.5 $2,445.2 $2,753.6 $2,935.4 $3,010.8 $1,701.5 $2,066.8 $2,519.5 $2,866.1 $3,075.5 $3,161.9

The table showed the amount of NPV with acceptable projects, and thereby increasing the value of the firm. Alternative YE (invest new product line and apply inventory policy E) has the highest resulting NPV. Means YE is the most profitable one. 3. Capital Structure The capital structure is how a firm finances its overall operations and growth by using different sources of funds (Gitman and Zutter, 2012). Dynatronics financial source are coming from bank loan and IPO. The maximum external financing fund: 1. Debt (from bank up to 90% account receivables, 15.5% interest rate annually): $6732 (77%) 2. IPO 400,000 share ($6.5 price per common stock)

: $2000 (23%)

The total maximum possible external financing are $8732. It means that any chosen investment assumption cannot be more that $8732. The next step is the optimization of debt and equity composition using WACC. Gitman and Zutter (2012) stated that WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation.

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Table 3.1 Capital Structure Analysis using YE ($000, except number of outstanding shares) 1

Debt in capital structure *

0%

10%

2

Earnings before interest and taxes(EBIT)

$3,162

$3,162

3

Interest

0

4

Profit Before Taxes (PBT)

5

50%

58%

60%

95%

$3,162

$3,162

$3,162

$3,162

$3,162

$66

$347

$467

$574

$602

$1,177

$3,162

$3,095

$2,815

$2,694

$2,588

$2,560

$1,984

Taxes(40%)

$1,265

$1,238

$1,126

$1,078

$1,035

$1,024

$794

6

Profit after taxes (PAT)

$1,897

$1,857

$1,689

$1,616

$1,553

$1,536

$1,191

7

Dividends(DIV)***

$190

$186

$169

$162

$155

$154

$119

8

Payment to security holder (3)+(7)

190

252

516

629

729

755

1296

9

Cost of debt: Kd**

13.69%

15.24%

19.89%

21.44%

22.68%

22.99%

28.42%

10

Required return on equity: Ke****

53%

53.78%

55.28%

55.78%

56.18%

56.28%

58.03%

11

Market value of debt Vd. (3)/(9)

0

$436

$1,744

$2,181

$2,529

$2,617

$4,143

12

Market value of equity Ve. (7)/(10)

356

345

305

290

276

273

205

13

Market value of the firm Vf.(11)+(12)

356

$781

$2,050

$2,470

$2,806

$2,890

$4,348

14

Book value of debt, BVd

0

436

1744

2181

2529

2617

4143

15

Book value of equity, BVe

$4,361

$3,925

$2,617

$2,181

$1,832

$1,744

$218

16

Book value of the firm, BVf

$4,361

$4,361

$4,361

$4,361

$4,361

$4,361

$4,361

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Return on Total Capital ROTC(ROA) = EBIT(1–T)/(16)

43.50%

43.50%

43.50%

43.50%

43.50%

43.50%

43.50%

18

Return on equity = (6)/(15)

43.50%

47.32%

64.54%

74.13%

84.77%

88.05%

546.03%

19

Number of outstanding shares, N *****

1,780,465

1,602,419

1,068,279

890,233

747,795

712,186

89,023

20

Price per share, P (12)/(19)

0.20

0.22

0.29

0.33

0.37

0.38

2.30

21

Earnings per share, EPS. (6)/(19)

1.07

1.16

1.58

1.82

2.08

2.16

13.37

22

Price-earnings ratio, PER (20)/(21)

0.19

0.19

0.18

0.18

0.18

0.18

0.17

23

Book value debt ratio (14)/(16)

0

10%

40%

50%

58%

60%

95%

24

Market value debt ratio (11)/(13)

0

55.81%

85.10%

88.27%

90.15%

90.56%

95.28%

25

Weighted average cost of capital (WACC)

53.28%

28.87%

18.39%

17.90%

17.80%

17.80%

18.98%

26

Free cash flow, FCF = EBIT (1-T)

$1,897

$1,897

$1,897

$1,897

$1,897

$1,897

$1,897

27

Market value of the firm (26)/(25)

$3,560

$6,571

$10,313

$10,598

$10,656

$10,653

$9,993

40%

8

*Calculated using book value weights for debt & equity ** Using 10-year BB corporate bonds in Table.B form 0% debt, use assumption in next % (percentage * 15.5% bank interest rate) because in 1989, Dynatronics is high-risk customer from bank perspective. *** Dividends estimate for 10% from PAT **** Using growth-rate, with g=CAGR from 1986-1988, D payed 10% from common stock price $6.5 ***** (1-% of Debt)* N with 100% equity without debt in Table Proforma Balance Sheet with New Line Product + Inventory Policy E

YE (invest new product with inventory policy E) has the most external financing required ($4,361) and the highest NPV ($3,161,9), thus YE is being used for the capital structure analysis. From the WACC calculation (0-100% debt), the lowest WACC is 17.80% with highest market value of $10,656.

From the chart above, it is showed that the optimum external financing required at Debt (58%) and Equity (42%). The detail of the WACC calculation is on appendix 5

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Conclusion From the all the analysis above and summarized on the table below, it concludes; 1. YE is the only one investment that has the best assumption that resulting highest NPV`s 2. YE is the highest external financing required compare to others. 3. The minimum WACC is 17.80% with market value $10,656. 4. The composition of debt is 58% and equity is 42%

NO

Altern atives

1 2 3 4 5 6

NN NA NB NC ND NE

7 8 9 10 11 12

YN YA YB YC YD YE

Description

$1,710.3 $2,037.5 $2,445.2 $2,753.6 $2,935.4 $3,010.8

External Financing Required ('89) $2,093.0 $2,285.0 $2,626.0 $3,081.0 $3,649.0 $4,161.0

$1,701.5 $2,066.8 $2,519.5 $2,866.1 $3,075.5 $3,161.9

$2,293.0 $2,485.0 $2,826.0 $3,281.0 $3,849.0 $4,361.0

NPV

No Invest New Product Line & Inventory Policy 1989 No Invest New Product Line & Inventory Policy A No Invest New Product Line & Inventory Policy B No Invest New Product Line & Inventory Policy C No Invest New Product Line & Inventory Policy D No Invest New Product Line & Inventory Policy E Invest New Product Line & Apply Inventory Policy 1989 Invest New Product Line & Apply Inventory Policy A Invest New Product Line & Apply Inventory Policy B Invest New Product Line & Apply Inventory Policy C Invest New Product Line & Apply Inventory Policy D Invest New Product Line & Apply Inventory Policy E

Recommendation The recommendations that Ms. Kraft should be given to the shareholders are: 1. Investment to the new product line for year 1989 – 1991 2. Choose the E inventory policy It has the highest NPV with the highest external financing required 3. Apply both of external financing required with the lowest WACC and the highest market value. The composition of debt from the bank loan is 58%, and equity through IPO is 42%. In order to fit with the external finance required allocation ($4361), the composition of the maximum exactly amount are: Equity (42%) : $1,832,000 (with 5$ price per common stock) Debt (58%)

: $2,529,000

4. To apply the IPO, the company has to change the no dividend policy. Otherwise it will not get the highest market value.

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References

Gitman, Lawrence J and Zutter, Chad J (2012) Principal of Managerial Finance (13th Ed) Boston: Prentice Hall Ross, Stephen A, Westerfield, Randolp W, Jaffe, Jeffrey and Jordan, Bradford D (2008) Modern Financial Management Chicago: McGraw Hill Higher Education http://www.investopedia.com/terms/c/capitalstructure.asp#axzz2DE5fA6Ni (last accessed: 25/11/2012 at 9pm) http://www.investopedia.com/terms/w/wacc.asp#axzz2DE5fA6Ni (last accessed: 25/11/2012 at 9pm) http://www.investopedia.com/terms/c/cashflow.asp#axzz2DE5fA6Ni (last accessed: 25/11/2012 at 9pm)

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Appendix 1. Existing Financial Performance Exhibit 1 Income Statement 1986 1987 1988 Net sales $ 9.040 $ 13.860 $ 26.593 Cost of goods sold 5.920 8.870 16.221 Gross profit 3.120 4.990 10.372 Research and Development 1.055 1.455 2.743 Selling, general and administrative 1.955 2.911 5.940 Income from operations 110 624 1.689 Interest expense 75 100 393 Other expenses** 13 5 20 Pretax income 23 519 1.276 Income taxes* 8 208 510 Profit after tax 15 311 766 Earnings/share 0,01 0,19 0,43 *After 1986, Dynatronics' effective income tax rate at the federal and state level was 40% ** Include Annual Combined Setup, Warehouse, Handling, and Insurance Costs (Exhibit 3)

Period 1986-1988

Exhibit 2 Balance Sheet

Cash Accounts receivable Inventories Raw materials Work in process Finished goods Prepaid expenses Total current assets Gross fixed assets Less: accumulated depreciation Net fixed assets Total assets Notes Payable** Accounts payable Accrued expenses Provision for taxes Other Total current liabilities Common stock ($.50 par value) Paid-in surplus Retained earnings Total stockholders' equity Total liabilities and net worth

December 31 1986 1987 1988 $ 305 $ 400 $ 502 1.733 3.150 5.638

$ $

320 468 610 20 3.456 $ 530 180 350 $ 3.806 $

497 930 816 1.343 736 1.018 33 60 5.632 $ 9.491 745 1.343 300 388 445 $ 955 6.077 $ 10.446

$

960 398 323 23 50 1.754 $

2.161 621 444 200 255 3.681 $

$ $

795 1.215 43 2.053 $ 3.807 $

820 900 1.223 1.164 354 1.119 2.397 $ 3.183 6.078 $ 10.444

$

Number of shares outstanding 1.590.215 **Secured by accounts receivable.

1.637.805

4.537 1.210 811 303 400 7.261

1.799.365

12

Period 1986-1988 CAGR ROE 1986 1987 1988 Net Profit Margin 1986 1987 1988

Value 43,28%

Note

0,007 Positive behaviour where 1986-1988 increase. in 1988, the highest 0,13 compare to other competitor. But, ROE high come from high FLM which 0,24 more contribute from high long-term debt

AMP Inc Analog Devices IncDynatech Corporation

0,145 0,185 0,195

0,087 0,065 0,111

0,188 0,161 0,15

0,17% 2,25% 2,88%

TATO 1986 1987 1988

2,38 2,28 2,55

1986 1987 1988

0,39% 5,12% 7,33%

ROA / ROI

FLM 1986 1987 1988

Net Profit Margin= TATO= ROA = FLM = ROE =

4,79 7,41 11,60 Total Current Liabities($7,261) > Total Stockholders Equity($3,183)

Earning available for common stockholders/sales sales/Total Assets Net Profit Margin x TATO Total Assets/Common Stock Equity; Total Asset = Total Current Liabilities + Total Stockholders Equity ROA x FLM

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2. Proforma Balance Sheet 2.1 No New Product Line NN

Proforma Balance Sheet 1989 without new product line

Cash Accounts receivable Inventories Raw materials Work in process Finished goods Prepaid expenses Total current assets Gross fixed assets Less: accumulated depreciation Net fixed assets Total assets Notes Payable** Accounts payable* Accrued expenses* Provision for taxes* Other* Total current liabilities Common stock ($.50 par value)* Paid-in surplus* Retained earnings* Total stockholders' equity* External Financing Required Total liabilities and net worth

($000s) December 31 1986 1987 1988 1989 $ 305 $ 400 $ 502 $ 680 1.733 3.150 5.638 7.480

$ $

320 468 610 20 3.456 $ 530 180 350 $ 3.806 $

497 816 736 33 5.632 $ 745 300 445 $ 6.077 $

930 1.343 1.018 60 9.491 $ 1.343 388 955 $ 10.446 $

1.182 1.721 830 77 11.970 955 388 567 12.537

$

960 398 323 23 50 1.754 $

2.161 621 444 200 255 3.681 $

4.537 1.210 811 303 400 7.261 $

4.537 1.210 811 303 400 7.261

$

795 1.215 43 2.053 $

820 1.223 354 2.397 $

$

3.807 $

6.078 $

900 1.164 1.119 3.183 $ $ 10.444 $

900 1.164 1.119 3.183 2.093 12.537

$

Number of shares outstanding*** 1.590.215 1.637.805 1.799.365 **Secured by accounts receivable & assumption same with 1988 * Assumption same with 1988 (same condition with other scenario) *** Profit After Tax/ Earning per Share(same condition with other scenario)

1.780.465

14

NA

Proforma Balance Sheet 1989 Inventory policy A (only)


($000s) December 31 1986 1987 1988 1989 $ 305 $ 400 $ 502 $ 680 1.733 3.150 5.638 7.480

$ $

320 468 610 20 3.456 $ 530 180 350 $ 3.806 $

497 930 816 1.343 736 1.018 33 60 5.632 $ 9.491 $ 745 1.343 300 388 445 $ 955 $ 6.077 $ 10.446 $

$

960 398 323 23 50 1.754 $

2.161 621 444 200 255 3.681 $

$

795 1.215 43 2.053 $

820 1.223 354 2.397 $

$

3.807 $

$

1.182 1.721 1.022 77 12.162 955 388 567 12.729

4.537 1.210 811 303 400 7.261 $

4.537 1.210 811 303 400 7.261

900 1.164 1.119 3.183 $ $ 6.078 $ 10.444 $

900 1.164 1.119 3.183 2.285 12.729

Number of shares outstanding*** 1.590.215 1.637.805 1.799.365 1.780.465 **Secured by accounts receivable & assumption same with 1988 * Assumption same with 1988 (same condition with other scenario) *** Profit After Tax/ Earning per Share(same condition with other scenario)

15

NE

Proforma Balance Sheet 1989 Inventory Policy E


($000s) December 31 1986 1987 1988 1989 $ 305 $ 400 $ 502 $ 680 1.733 3.150 5.638 7.480

$ $

320 468 610 20 3.456 $ 530 180 350 $ 3.806 $

497 816 736 33 5.632 $ 745 300 445 $ 6.077 $

930 1.343 1.018 60 9.491 $ 1.343 388 955 $ 10.446 $

1.182 1.721 2.898 77 14.038 955 388 567 14.605

$

960 398 323 23 50 1.754 $

2.161 621 444 200 255 3.681 $

4.537 1.210 811 303 400 7.261 $

4.537 1.210 811 303 400 7.261

$

795 1.215 43 2.053 $

820 1.223 354 2.397 $

$

3.807 $

6.078 $

900 1.164 1.119 3.183 $ $ 10.444 $

900 1.164 1.119 3.183 4.161 14.605

$

Number of shares outstanding*** 1.590.215 1.637.805 1.799.365 1.780.465 **Secured by accounts receivable & assumption same with 1988 * Assumption same with 1988 (same condition with other scenario) *** Profit After Tax/ Earning per Share(same condition with other scenario)

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2.2 With New Product Line YN

Proforma Balance Sheet 1989 Invest New Product Line ($000s) December 31 1986 1987 1988 1989 $ 305 $ 400 $ 502 $ 680 1.733 3.150 5.638 7.480

Cash Accounts receivable Inventories Raw materials Work in process Finished goods Prepaid expenses Total current assets $ Gross fixed assets* Less: accumulated depreciation*** Net fixed assets $ Total assets $

320 468 610 20 3.456 $ 530 180 350 $ 3.806 $

497 816 736 33 5.632 $ 745 300 445 $ 6.077 $

930 1.343 1.018 60 9.491 $ 1.343 388 955 $ 10.446 $

1.182 1.721 830 77 11.970 1.205 438 767 12.737

Notes Payable** Accounts payable Accrued expenses Provision for taxes Other Total current liabilities

$

960 398 323 23 50 1.754 $

2.161 621 444 200 255 3.681 $

4.537 1.210 811 303 400 7.261 $

4.537 1.210 811 303 400 7.261

$

795 1.215 43 2.053 $

820 1.223 354 2.397 $

$

3.807 $

6.078 $

900 1.164 1.119 3.183 $ $ 10.444 $

900 1.164 1.119 3.183 2.293 12.737

Common stock ($.50 par value) Paid-in surplus Retained earnings Total stockholders' equity External Financing Required Total liabilities and net worth

Number of shares outstanding 1.590.215 1.637.805 1.799.365 **Secured by accounts receivable & assumption same with 1988 * Additional Specialized equipment cost $250,000 *** Accumulated Depreciation for specialized Equipment (Table C) Max Note Payable from Factoring Division of Bank(000 thousands) $ 6.732 Max new equity from IPO(000 thousands) $ 2.000 Total External Financing $ 8.732

1.780.465

17

3. Proforma Income Statement 3.1 No new product line NN

Pro Forma - Income Statement '89-'91 - Without New Product Line

NA

Pro Forma Income Statement 89-91 Inventory Policies A (only)

(thousands dollars) 1986 Net sales

$

1988

4/29/89

1990

(thousands dollars)

1991

1986

1987

1988

4/29/89

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 24.400 $ 24.400

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 24.357 $ 24.357

Gross profit

3.120

4.990

10.372 $ 13.260 $ 15.600 $ 15.600

Gross profit

3.120

4.990

10.372 $ 13.660 $ 16.043 $ 16.043

Research and Development

1.055

1.455

2.743 $

3.507 $

4.126 $

4.126


1.055

1.455

2.743 $ 3.548 $ 4.167 $ 4.167

Selling, general and administrative

1.955

2.911

5.940 $

7.594 $

8.935 $

8.935


1.955

2.911

5.940 $ 7.684 $ 9.024 $ 9.024

110 75

624 100

1.689 $ 393 $

2.159 $ 393 $

2.539 $ 393 $

2.539 393

Income from operations Interest expense***

110 75

624 100

1.689 $ 2.428 $ 2.851 $ 2.851 393 $ 393 $ 393 $ 393

$ 9.040 $ 13.860 $ 26.593 $ 34.400 $ 40.400 $ 40.400

Other expenses**

13

5

20 $

69 $

124 $

124

Other expenses**

13

5

Pretax income

23

519

1.276 $

1.697 $

2.023 $

2.023

Pretax income

23

519

Income taxes*

8

208

510 $

679 $

809 $

809

Income taxes*

8

208

510 $

Profit after tax

15

311

766 $

1.018 $

1.214 $

1.214

Profit after tax

15

311

766 $ 1.174 $ 1.388 $ 1.388

Earnings/share

20 $

79 $

0,01

0,19

0,43 $

0,57 $

0,68 $

0,68

Earnings/share

0,01

0,19

0,43 $

782 $ 0,66 $

*After 1986, Dynatronics' effective income tax rate at the federal and state level w as 40%

** Include Annual Combined Setup, Warehouse, Handling, and Insurance Costs (Exhibit 3)


*** Assumption same w ith 1988


NC

Net sales

1987

1988

4/29/89

1990

146

925 $

925

0,78 $

0,78

Pro Forma Income Statement 89-91 Inventory Policies C (only)

(thousands dollars) 1986

146 $

1.276 $ 1.956 $ 2.313 $ 2.313


Pro Forma Income Statement 89-91 Inventory Policies B (only)

(thousands dollars)

1991

1986

$ 9.040 $ 13.860 $ 26.593 $ 34.896 $ 40.896 $ 40.896

Net sales

1987

1988

4/29/89

1990

1991

$ 9.040 $ 13.860 $ 26.593 $ 35.283 $ 41.283 $ 41.283

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 24.306 $ 24.306

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 24.267 $ 24.267

Gross profit

3.120

4.990

10.372 $ 14.156 $ 16.590 $ 16.590

Gross profit

3.120

4.990

10.372 $ 14.543 $ 17.016 $ 17.016


1.055

1.455

2.743 $ 3.599 $ 4.218 $ 4.218


1.055

1.455

2.743 $ 3.639 $ 4.258 $ 4.258


1.955

2.911

5.940 $ 7.795 $ 9.135 $ 9.135


1.955

2.911

5.940 $ 7.881 $ 9.221 $ 9.221

110 75

624 100

1.689 $ 2.762 $ 3.237 $ 3.237 393 $ 393 $ 393 $ 393


110 75

624 100

1.689 $ 3.023 $ 3.537 $ 3.537 393 $ 393 $ 393 $ 393

Income from operations Interest expense*** Other expenses**

13

5

Pretax income

23

519

20 $

90 $

170 $

170

Income taxes*

8

208

510 $

911 $ 1.070 $ 1.070

Profit after tax

15

311

766 $ 1.367 $ 1.604 $ 1.604

Earnings/share

0,01

0,19

0,43 $

1.276 $ 2.279 $ 2.674 $ 2.674

0,77 $

0,90 $

0,90

Other expenses**

13

5

Pretax income

23

519

1.276 $ 2.526 $ 2.945 $ 2.945

20 $

104 $

198 $

Income taxes*

8

208

510 $ 1.010 $ 1.178 $ 1.178

Profit after tax

15

311

766 $ 1.516 $ 1.767 $ 1.767

Earnings/share

0,01

0,19

0,43 $

0,85 $




0,99


Pro Forma Income Statement 89-91 Inventory Policies D (only)

NE

(thousands dollars)

Pro Forma Income Statement 89-91 Inventory Policies E (only)

(thousands dollars) 1986 Net sales

198

0,99 $

*After 1986, Dynatronics' effective income tax rate at the federal and state level w as 40% *** Assumption same w ith 1988

1991

Net sales

(thousands dollars)

ND

1990

9.040 $ 13.860 $ 26.593 $ 34.000 $ 40.000 $ 40.000


NB

1987

1987

1988

4/29/89

1990

(thousands dollars)

1991

$ 9.040 $ 13.860 $ 26.593 $ 35.524 $ 41.524 $ 41.524

1986 Net sales

1987

1988

4/29/89

1990

1991

$ 9.040 $ 13.860 $ 26.593 $ 35.623 $ 41.623 $ 41.623

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 24.243 $ 24.243

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 24.233 $ 24.233

Gross profit

3.120

4.990

10.372 $ 14.784 $ 17.281 $ 17.281

Gross profit

3.120

4.990

10.372 $ 14.883 $ 17.390 $ 17.390


1.055

1.455

2.743 $ 3.664 $ 4.283 $ 4.283


1.055

1.455

2.743 $ 3.674 $ 4.293 $ 4.293


1.955

2.911

5.940 $ 7.935 $ 9.275 $ 9.275


1.955

2.911

5.940 $ 7.957 $ 9.297 $ 9.297


110 75

624 100

1.689 $ 3.185 $ 3.723 $ 3.723 393 $ 393 $ 393 $ 393


110 75

624 100

1.689 $ 3.252 $ 3.799 $ 3.799 393 $ 393 $ 393 $ 393

Other expenses**

13

5

Other expenses**

13

5

Pretax income

23

519

1.276 $ 2.675 $ 3.103 $ 3.103

Pretax income

23

519

1.276 $ 2.737 $ 3.169 $ 3.169

Income taxes*

8

208

510 $ 1.070 $ 1.241 $ 1.241

Income taxes*

8

208

510 $ 1.095 $ 1.268 $ 1.268

Profit after tax

15

311

766 $ 1.605 $ 1.862 $ 1.862

Profit after tax

15

311

766 $ 1.642 $ 1.901 $ 1.901

Earnings/share

0,01

0,19

0,43 $

Earnings/share

0,01

0,19

0,43 $

20 $

117 $

0,90 $

226 $

1,05 $

226

1,05

20 $

122 $

0,92 $

*After 1986, Dynatronics' effective income tax rate at the federal and state level was 40%

*After 1986, Dynatronics' effective income tax rate at the federal and state level was 40%



*** Assumption same with 1988

*** Assumption same with 1988

237 $

1,07 $

18

237

1,07

3.2 With new poduct line YN

Pro Forma Income Statement 89-91 Invest New Product Line (only)

YA (thousands dollars)

1986 Net sales

$

1988

4/29/89

1990

1991

1986

1988

4/29/89

1990

1991

Net sales

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 27.450 $ 28.365

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 27.372 $ 28.276

Gross profit

3.120

4.990

10.372 $ 13.260 $ 17.550 $ 18.135

Gross profit

3.120

4.990

10.372 $ 13.660 $ 18.028 $ 18.624


1.055

1.455

2.743 $

3.507 $


1.055

1.455

2.743 $ 3.548 $ 4.683 $ 4.838

Selling, general and administrative**

1.955

2.911

5.940 $

7.684 $ 10.171 $ 10.510


1.955

2.911

5.940 $ 7.774 $ 10.260 $ 10.599

110 75

624 100

1.689 $ 393 $

2.069 $ 393 $

Income from operations Interest expense****

110 75

624 100

1.689 $ 2.338 $ 3.085 $ 3.187 393 $ 393 $ 393 $ 393

4.642 $

4.796

2.738 $ 393 $

2.829 393

$ 9.040 $ 13.860 $ 26.593 $ 34.400 $ 45.400 $ 46.900

Other expenses***

13

5

20 $

69 $

77 $

77

Other expenses***

13

5

Pretax income

23

519

1.276 $

1.607 $

2.268 $

2.359

Pretax income

23

519

Income taxes*

8

208

510 $

643 $

907 $

944

Income taxes*

8

208

510 $

Profit after tax

15

311

766 $

964 $

1.361 $

1.415

Profit after tax

15

311

766 $ 1.120 $ 1.563 $ 1.624

Earnings/share

0,01

0,19

0,43 $

0,54 $

0,76 $

0,80

Earnings/share

0,01

0,19

0,43 $

20 $

79 $

87 $

87

1.276 $ 1.866 $ 2.605 $ 2.707 746 $ 1.042 $ 1.083 0,63 $

0,88 $

0,91



** Additional $90,000 from normal allocation


*** Additional $250,000 for specialized equipment and Annual Combined Setup, Warehouse, Handling, and Insurance Costs (Exhibit 3)

*** Additional $250,000 for specialized equipment and Annual Combined Setup, Warehouse, Handling, and Insurance Costs (Exhibit 3)

**** Assumption same w ith 1988


Pro Forma Income Statement 89-91 Invest New Product Line + Inventory Policies B (thousands dollar)

ands dollar)

1987

9.040 $ 13.860 $ 26.593 $ 34.000 $ 45.000 $ 46.500


YB

1987

Pro Forma Income Statement 89-91 Invest New Product Line + Inventory Policies A (thousands dollar)

1986 Net sales

1987

1988

4/29/89

1990

YC

Pro Forma Income Statement 89-91 Invest New Product Line + Inventory Policies C (thousands dollar)

1991

1986

$ 9.040 $ 13.860 $ 26.593 $ 34.896 $ 45.896 $ 47.396

Net sales

1987

1988

4/29/89

1990

1991

$ 9.040 $ 13.860 $ 26.593 $ 35.283 $ 46.283 $ 47.783

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 27.278 $ 28.169

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 27.206 $ 28.088

Gross profit

3.120

4.990

10.372 $ 14.156 $ 18.618 $ 19.227

Gross profit

3.120

4.990

10.372 $ 14.543 $ 19.077 $ 19.695


1.055

1.455

2.743 $ 3.599 $ 4.734 $ 4.889


1.055

1.455

2.743 $ 3.639 $ 4.774 $ 4.929


1.955

2.911

5.940 $ 7.885 $ 10.370 $ 10.709


1.955

2.911

5.940 $ 7.971 $ 10.456 $ 10.795

110 75

624 100

1.689 $ 2.672 $ 3.514 $ 3.629 393 $ 393 $ 393 $ 393


110 75

624 100

1.689 $ 2.933 $ 3.847 $ 3.972 393 $ 393 $ 393 $ 393

Income from operations Interest expense**** Other expenses***

13

5

Pretax income

23

519

20 $

90 $

99 $

99

Income taxes*

8

208

510 $

875 $ 1.209 $ 1.255

Profit after tax

15

311

766 $ 1.313 $ 1.814 $ 1.883

Earnings/share

0,01

0,19

0,43 $

1.276 $ 2.189 $ 3.023 $ 3.138

0,74 $

1,02 $

1,06

Other expenses***

13

5

Pretax income

23

519

20 $

104 $

112 $

112

Income taxes*

8

208

510 $

Profit after tax

15

311

766 $ 1.462 $ 2.005 $ 2.080

Earnings/share

0,01

0,19

0,43 $

1.276 $ 2.436 $ 3.342 $ 3.467 974 $ 1.337 $ 1.387 0,82 $

1,13 $





1,17

g, and Insurance Costs (Exhibit*** 3) Additional $250,000 for specialized equipment and Annual Combined Setup, Warehouse, Handling, and Insurance Costs (Exhibit *** 3) Additional $250,000 for specialized equipment and Annual Combined Setup, Warehouse, Handling, and Insurance Costs (Exhibit

housands dollar)


YD


Pro Forma Income Statement 89-91 Invest New Product Line + Inventory Policies D (thousands dollar) 1986 Net sales

1987

1988

4/29/89

1990

YE

Pro Forma Income Statement 89-91 Invest New Product Line + Inventory Policies E (thousands dollar)

1991

$ 9.040 $ 13.860 $ 26.593 $ 35.524 $ 46.524 $ 48.024

1986 Net sales

$

1987

1988

4/29/89

1990

1991

9.040 $ 13.860 $ 26.593 $ 35.623 $ 46.623 $ 48.123

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 27.162 $ 28.038

Cost of goods sold

5.920

8.870

16.221 $ 20.740 $ 27.144 $ 28.018

Gross profit

3.120

4.990

10.372 $ 14.784 $ 19.362 $ 19.986

Gross profit

3.120

4.990

10.372 $ 14.883 $ 19.479 $ 20.105


1.055

1.455

2.743 $ 3.664 $ 4.799 $ 4.954


1.055

1.455

2.743 $

3.674 $


1.955

2.911

5.940 $ 8.025 $ 10.510 $ 10.849


1.955

2.911

5.940 $

8.047 $ 10.532 $ 10.871

110 75

624 100

1.689 $ 3.095 $ 4.053 $ 4.184 393 $ 393 $ 393 $ 393


110 75

624 100

1.689 $ 393 $

3.162 $ 393 $


20 $

117 $

4.271 393

13

5

Other expenses***

13

5

20 $

122 $

130 $

130

Pretax income

23

519

1.276 $ 2.585 $ 3.535 $ 3.666

Pretax income

23

519

1.276 $

2.647 $

3.615 $

3.748

Income taxes*

8

208

510 $ 1.034 $ 1.414 $ 1.466

Income taxes*

8

208

510 $

1.059 $

1.446 $

1.499

Profit after tax

15

311

766 $ 1.551 $ 2.121 $ 2.200

Profit after tax

15

311

766 $

1.588 $

2.169 $

2.249

Earnings/share

0,01

0,19

0,43 $

Earnings/share

0,01

0,19

0,43 $

0,89 $

1,22 $

1,26

1,19 $

125

4.138 $ 393 $

4.964

Other expenses***

0,87 $

125 $

4.809 $

1,24





Handling, and Insurance Costs (Exhibit***3)Additional $250,000 for specialized equipment and Annual Combined Setup, Warehouse, Handling, and Insurance Costs (Exhibit 3) *** Additional $250,000 for specialized equipment and Annual Combined Setup, Warehouse, Handling, and Insurance Costs (Exhibit 3) **** Assumption same w ith 1988


19

4. Proforma Cash Flow Cash Flow Projection '89-'91 - Without New Product Line + Inventory Policy Proforma 89 (thousands dollars) 1989 1990 1991 Revenue $ 34.000 $ 40.000 $ 40.000 Total Expense** $ 32.303 $ 37.977 $ 37.977 EBITDA $ 1.697 $ 2.023 $ 2.023 Depreciation $ 388 $ 388 $ 388 EBIT $ 1.309 $ 1.635 $ 1.635 Taxes(40%) $ 524 $ 654 $ 654 NOPAT $ 785 $ 981 $ 981 Depreciation $ 388 $ 388 $ 388 Operating Cash Flow $ (955) $ 1.173 $ 1.369 $ 1.369

Cash Flow Projection '89-'91 - Without New Product Line + Inventory Policy A (thousands dollars) 1989 1990 1991 Revenue $ 34.400 $ 40.400 $ 40.400 Total Expense** $ 32.444 $ 38.087 $ 38.087 EBITDA $ 1.956 $ 2.313 $ 2.313 Depreciation $ 388 $ 388 $ 388 EBIT $ 1.568 $ 1.925 $ 1.925 Taxes(40%) $ 627 $ 770 $ 770 NOPAT $ 941 $ 1.155 $ 1.155 Depreciation $ 388 $ 388 $ 388 Operating Cash Flow $ (955) $ 1.329 $ 1.543 $ 1.543

Fix Asset Investment

Interest Rate* NPV


15,5% 1.710

$

* using prime(11.5%) + 4% interest rate from factoring division ** COGS, R&D, Selling, general, administrative, interest, other expense from Pro Forma Income Statement

Cash Flow Projection '89-'91 - Without New Product Line + Inventory Policy B (thousands dollars) 1989 1990 1991 Revenue $ 34.896 $ 40.896 $ 40.896 Total Expense** $ 32.617 $ 38.222 $ 38.222 EBITDA $ 2.279 $ 2.674 $ 2.674 Depreciation $ 388 $ 388 $ 388 EBIT $ 1.891 $ 2.286 $ 2.286 Taxes(40%) $ 756 $ 914 $ 914 NOPAT $ 1.134 $ 1.372 $ 1.372 Depreciation $ 388 $ 388 $ 388 Operating Cash Flow $ (955) $ 1.522 $ 1.760 $ 1.760

Interest Rate* NPV

$

15,5% 2.038


Cash Flow Projection '89-'91 - Without New Product Line + Inventory Policy C (thousands dollars) 1989 1990 1991 Revenue $ 35.283 $ 41.283 $ 41.283 Total Expense** $ 32.757 $ 38.338 $ 38.338 EBITDA $ 2.526 $ 2.945 $ 2.945 Depreciation $ 388 $ 388 $ 388 EBIT $ 2.138 $ 2.557 $ 2.557 Taxes(40%) $ 855 $ 1.023 $ 1.023 NOPAT $ 1.283 $ 1.534 $ 1.534 Depreciation $ 388 $ 388 $ 388 Operating Cash Flow $ (955) $ 1.671 $ 1.922 $ 1.922



Interest Rate* 15,5% NPV $ 2.445 * using prime(11.5%) + 4% interest rate from factoring division ** R&D, Selling, general, administrative, interest, other expense from Pro Forma Income Statement

Interest Rate* NPV

$

15,5% 2.754


Cash Flow Projection '89-'91 - Without New Product Line + Inventory Policy D (thousands dollars) 1989 1990 1991 Revenue $ 35.524 $ 41.524 $ 41.524 Total Expense** $ 32.849 $ 38.421 $ 38.421 EBITDA $ 2.675 $ 3.103 $ 3.103 Depreciation $ 388 $ 388 $ 388 EBIT $ 2.287 $ 2.715 $ 2.715 Taxes(40%) $ 915 $ 1.086 $ 1.086 NOPAT $ 1.372 $ 1.629 $ 1.629 Depreciation $ 388 $ 388 $ 388 Operating Cash Flow $ (955) $ 1.760 $ 2.017 $ 2.017

Cash Flow Projection '89-'91 - Without New Product Line + Inventory Policy E (thousands dollars) 1989 1990 1991 Revenue $ 35.623 $ 41.623 $ 41.623 Total Expense** $ 32.886 $ 38.454 $ 38.454 EBITDA $ 2.737 $ 3.169 $ 3.169 Depreciation $ 388 $ 388 $ 388 EBIT $ 2.349 $ 2.781 $ 2.781 Taxes(40%) $ 940 $ 1.112 $ 1.112 NOPAT $ 1.409 $ 1.669 $ 1.669 Depreciation $ 388 $ 388 $ 388 Operating Cash Flow $ (955) $ 1.797 $ 2.057 $ 2.057


Interest Rate* NPV

$


15,5% 2.935


Interest Rate* NPV

$

15,5% 3.011


20

Cash Flow Projection '89-'91 - Invest New Product Line + Inventory Policy Proforma 89 (thousands dollars) 1989 1990 1991 Revenue $ 34.000 $ 45.000 $ 46.500 Total Expense** $ 32.393 $ 42.732 $ 44.141 EBITDA $ 1.607 $ 2.268 $ 2.359 Depreciation $ 438 $ 438 $ 438 EBIT $ 1.169 $ 1.830 $ 1.921 Taxes(40%) $ 468 $ 732 $ 768 NOPAT $ 701 $ 1.098 $ 1.153 Depreciation $ 438 $ 438 $ 438 Operating Cash Flow $ (1.205) $ 1.139 $ 1.536 $ 1.591

Cash Flow Projection '89-'91 - Invest New Product Line + Inventory Policy A (thousands dollars) 1989 1990 1991 Revenue $ 34.400 $ 45.400 $ 46.900 Total Expense** $ 32.534 $ 42.795 $ 44.193 EBITDA $ 1.866 $ 2.605 $ 2.707 Depreciation $ 438 $ 438 $ 438 EBIT $ 1.428 $ 2.167 $ 2.269 Taxes(40%) $ 571 $ 867 $ 908 NOPAT $ 857 $ 1.300 $ 1.362 Depreciation $ 438 $ 438 $ 438 Operating Cash Flow $ (1.205) $ 1.295 $ 1.738 $ 1.800


Interest Rate* NPV


$

15,5% 1.701


Interest Rate* NPV

$

15,5% 2.067


Cash Flow Projection '89-'91 - Invest New Product Line + Inventory Policy B (thousands dollars) 1989 1990 1991 Revenue $ 34.896 $ 45.896 $ 47.396 Total Expense** $ 32.707 $ 42.873 $ 44.258 EBITDA $ 2.189 $ 3.023 $ 3.138 Depreciation $ 438 $ 438 $ 438 EBIT $ 1.751 $ 2.585 $ 2.700 Taxes(40%) $ 700 $ 1.034 $ 1.080 NOPAT $ 1.050 $ 1.551 $ 1.620 Depreciation $ 438 $ 438 $ 438 Operating Cash Flow $ (1.205) $ 1.488 $ 1.989 $ 2.058

Cash Flow Projection '89-'91 - Invest New Product Line + Inventory Policy C (thousands dollars) 1989 1990 1991 Revenue $ 35.283 $ 46.283 $ 47.783 Total Expense** $ 32.847 $ 42.941 $ 44.316 EBITDA $ 2.436 $ 3.342 $ 3.467 Depreciation $ 438 $ 438 $ 438 EBIT $ 1.998 $ 2.904 $ 3.029 Taxes(40%) $ 799 $ 1.162 $ 1.211 NOPAT $ 1.199 $ 1.742 $ 1.817 Depreciation $ 438 $ 438 $ 438 Operating Cash Flow $ (1.205) $ 1.637 $ 2.180 $ 2.255


Interest Rate* NPV


15,5% 2.519

$


Interest Rate* NPV

15,5% 2.866

$


Cash Flow Projection '89-'91 - Invest New Product Line + Inventory Policy D (thousands dollars) 1989 1990 1991 Revenue $ 35.524 $ 46.524 $ 48.024 Total Expense** $ 32.939 $ 42.989 $ 44.358 EBITDA $ 2.585 $ 3.535 $ 3.666 Depreciation $ 438 $ 438 $ 438 EBIT $ 2.147 $ 3.097 $ 3.228 Taxes(40%) $ 859 $ 1.239 $ 1.291 NOPAT $ 1.288 $ 1.858 $ 1.937 Depreciation $ 438 $ 438 $ 438 Operating Cash Flow $ (1.205) $ 1.726 $ 2.296 $ 2.375

Cash Flow Projection '89-'91 - Invest New Product Line + Inventory Policy E (thousands dollars) 1989 1990 1991 Revenue $ 35.623 $ 46.623 $ 48.123 Total Expense** $ 32.976 $ 43.008 $ 44.375 EBITDA $ 2.647 $ 3.615 $ 3.748 Depreciation $ 438 $ 438 $ 438 EBIT $ 2.209 $ 3.177 $ 3.310 Taxes(40%) $ 884 $ 1.271 $ 1.324 NOPAT $ 1.325 $ 1.906 $ 1.986 Depreciation $ 438 $ 438 $ 438 Operating Cash Flow $ (1.205) $ 1.763 $ 2.344 $ 2.424


Interest Rate* NPV

$


15,5% 3.076


Interest Rate* NPV

$

15,5% 3.162


21

5. Capital Structure

22

23

Dynatronics

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