R$ 12,454

R$ 654

R$ 12,454

R$ 13,108

R$ 0

Note that while the total payment remains unchanged, the break down into interest and principal payments changes from year to year.

Exhibit 5.3 summarizes the net income from plant investment to Aracruz each year for the next 10 years. Note that all of the projections are in real cashflows. Consequently, the price of paper (which grows at the same rate as inflation) is kept constant in real terms, as is any other item having this characteristic.

In Exhibit 5.4 we estimate the cash flows to equity from the plant to Aracruz. To arrive at these cash flows, we do the following:

• Subtract out the portion of the initial capital expenditures that comes from equity; of the initial investment of 250,000 BR, only 150,000 BR comes from equity. In year 5, there is an additional investment of 50,000 BR.

• Add back depreciation and amortization, since they are non-cash charges.

• Subtract the changes in working capital; since investments in working capital are made at the beginning of each period, the initial investment in working capital of 35.1 million BR is made at time 0 and is 15% of revenues in year 1. The changes in working capital in the years that follow are 15% of the changes in revenue in those years. At the end of year 10, the entire investment in working capital is recovered as salvage.

• Subtract the principal payments that are made to the bank in each period, since these are cash outflows to the non-equity claimholders in the firm.

• Add the salvage value of the plant in year 10 to the total cash flows, since this is a cash inflow to equity investors.

The cash flows to equity measure the cash flows that equity investors at Aracruz can expect to receive from investing in the plant.

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