Roger Lovrenich

Roger Lovrenich of Lovrenich Motor Electronics has spent his career building his company, and invested all profits back into the company. He now realizes that he needs to plan for his retirement in 5 years and has little retirement funds beyond social security, and his company. His plan is to milk as much net earnings out of the company for five years and then sell it. To do this he will progressively reduce S.G,&A. expenses. He expects no change in the % for cost of goods sold, nor in working capital. The company will be sold in year 5 and this should be considered the salvage value. Capital Gains tax in his state is 15%.
A simplified Income statement for the five years is shown below. All assets are fully depreciated
Prepare a cash flow statement and determine the minimum price for selling the company at the end of year 5 to attain a present value of $5 million using a MARR of 10%?

Income Statement
year 0 1 2 3 4 5
Revenue $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000
COGS ($12,400,000)($12,400,000)($12,400,000($12,400,000)($12,400,000)
Gross Margin $7,600,000 $7,600,000 $7,600,000 $7,600,000 $7,600,000
S.G.&A. ($7,000,000) ($6,650,000) ($6,317,500) ($6,001,625) ($5,701,544)
EBIT $600,000 $950,000 $1,282,500 $1,598,375 $1,898,456
Tax @ 30% ($180,000) ($285,000) ($384,750) ($479,513) ($569,537)
Net Income $420,000 $665,000 $897,750 $1,118,863 $1,328,919