Question

Financing Analysis

In order to launch the new gadget line, Acme is securing investor financing to cover the first year of fixed costs from private investors. A first private investor is willing to loan Acme the funds needed to cover the fixed costs associated with producing the chosen gadget to be paid back over 12 equal payments, with a fixed cost of borrowing of $1,350,000; that is, the lender will charge a fixed dollar amount of $1,350,000 for the loan regardless of the principle borrowed. A second investor is willing to loan the money under a simple interest payment plan of 2.5% interest but requires the loan be repaid in 6 months. Given that Acme will have to borrow Y dollars, provide Acme with a detailed comparison of the financing options and determine how each impacts the breakeven analysis below.

Breakeven analysis

The following Cost and Sales projections were captured by the Acme’s production and Sales/Marketing teams.

Table : Projected costs

Gadget	Factory Set-up ($/year)	Utilities ($/year)	Property Taxes ($/year)	Salary - Engineers $/FTE	Salary – Hardware technician $/FTE	Salary – Software technician $/FTE	Financing costs ($/year)
A	10,000,000	50,000	25,000	185,000	150,000	120,000	TBD
B	7,500,000	50,000	25,000	185,000	150,000	120,000	TBD
C	12,500,000	50,000	25,000	185,000	150,000	120,000	TBD

Table : Projected sales

Gadget	Production Capacity (Units/year)	Target Sales at 50% production Capacity (Units/year)	Target Sales at 75% production Capacity (Units/year)	Target Sales at 100% production Capacity (Units/year)	MSRP	Net Price
A	250,000	125 000	187,500	250,000	449	TBD
B	150,000	75,000	112,500	150,000	499	TBD
C	1,000,000	500,000	750,000	1,000,000	425	TBD

Run a break-even analysis using the information captured in projected costs and revenues tables and any relevant information from your production, pricing and financing analyses.

Answer 1

Answer :

Based on the information given, i have made the following assumptions

• The assumption on expected sales based for one year
• Assumption of number of employees as the amount given below is $ / FTE rate

Based on the given information and above assumptions,please find the below computation of expected total sales expected total costs, Net income and total investment required for the project of the factor setup as well as a working capital requirement

Statement showing the calculation of Projected sales

Gadget	Capacity	Target sales @ 50%	Target sales @75%	Target sales @100%	Expected sales #	MSRP	Total sales value
A	2,50,000	1,25,000	1,87,500	2,50,000	1,87,500	449	8,41,87,500
B	1,50,000	75,000	1,12,500	1,50,000	1,12,500	499	5,61,37,500
C	10,00,000	5,00,000	7,50,000	10,00,000	7,50,000	425	31,87,50,000
Total							45,90,75,000

Assuming 1/3rd of the year with sales at 50% of capacity, 1/3 rd at 75% capacity and rest at 100% capacity

Statement showing the calculation of projected costs

Gadget	Factory set up	Utilities / Year	Propety taxes / year	Salary engineers	Salary Hardware techicians	Salary software technicians	Financing costs
A	1,00,00,000	50,000	25,000	1,85,000	1,50,000	1,20,000	TBD
B	75,00,000	50,000	25,000	1,85,000	1,50,000	1,20,000	TBD
C	1,25,00,000	50,000	25,000	1,85,000	1,50,000	1,20,000	TBD

Note : Information of n.of Employees is missing . Hence assumed as 100 FTE's in total

Statement showing the calculation of Net operating income

-	A	B	C	D
Factory set up cost	1,00,00,000	75,00,000	1,25,00,000	3,00,00,000
Expected sales	8,41,87,500	5,61,37,500	31,87,50,000	45,90,75,00
Salary costs total	4,55,00,000	4,55,00,000	4,55,00,000	13,65,00,000
Utilities	50,000	50,000	50,000	50,000
Property taxes	25,000	25,000	25,000	75,000
Total costs	4,55,75,000	4,55,75,000	4,55,75,000	13,67,25,000
Operating income	3,86,12,500	1,05,62,500	27,31,75,000	32,23,50,000

Statement showing the calcualation of total investment Required

Factory set up cost	1,00,00,000	75,00,000	1,25,00,000	3,00,00,000
Working capital	4,55,75,000	4,55,75,000	4,55,75,000	13.67,25,000
Total				16,67,25,000