01-12-1987 Council Packet - Laserfiche WebLink

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Page 'Three 3. The proposr_d cash balance of Dowden Partners which approximates $325,860 is significantly higher than the cash balance shown in the DCI balance sheet totaling to $13,775. II. FINANCIAL FORECAST Included as Exhibit 1 in the offering document is a financial forecast and accountant's report of the Dowden Partners, for the period December 1, 1986 through December 31, 1994. Review of the Dowden Partners' financial forecast and summary of significant forecast assumptions and notes to financial forecasts revealed no unusual items when compared to financial forecasts assumptions made in other cable transactions and actual industry experience. The financial forecast is the basis upon which an investor most often determines whether a business plan is worthwhile of an equity investment. In the financial plan it is anticipated that between the Dowden Communications Investors, L.P. and Bariston Cable Investors, L.P. that approximately $16,050,000 of equity will be contributed to Dowden Partners. As a result of making this equity investment, it is forecast that distributions of operating cash flow to partners will be made in the years 1987 through 1994. In calculating a return on the partners' investment totaling to $16,050,000 it iL appropriate that the discounted cash flow method be used. Under this method it is assumed that the $16,050,000 represents a cash outflow and that the distribution of operating cash flow to partners represents the cash inflow. In the year 1994 it is further assumed that Dowden Partners would have a market value of approximately $114,561,000. This amount reflects the cash proceeds due on sale based on the hypothetical sale price for the systems equal to ten times forecasted operating cash flow for 1994 before management and investment banking fees. The factor of ten times forecasted operating cash flow is appropriate for establishing the market value of the systems in the year 1994. Schedule A attached to this memorandum illustrates the $16,050,000 investment along with the distributions of operating cash flow to the partners. It has been calculated on Schedule A that based 000n the $16,050,000 equity contributions made Ly the partners of Dowden Partners that a 32.152% pre-tax internal rate of return will be experienced assuming the forecasted 'cash flows become reality. Assuming that the partners are able to utilize tax losses during the earlier years of the business plan, it is likely that the rate of return will be higner to the partners. Exhibit 1 documents that the financial forecast as prepared by Dowden Partners has been reviewed by certified public accountants and management consultants. This should provide the Comm=.ssion with comfort as to the assumptions used in preparing the financial frrocasts. Additionally, as indicated