Final Exam Business Plan Invest $800,000 cash savings for capital equipment and

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Final Exam Business Plan Invest $800,000 cash savings for capital equipment and "working capital. " Buy Capital Equipment (Roasting Machines) for $540,000 during organizing period for business Buy Green (unroasted) Coffee Beans for cash on delivery - $2/pound after receiving bulk order for roast beans Additional variable cost per pound roasted for fuel, labor, packaging, transportation, etc to deliver beans to retailer is $2/pound Average time from order to delivery is 1 month Rent, Utilities, Insurance, Bookkeeping, etc (fixed costs) - $10,000/month Sell roasted, packaged, and delivered beans to retailer for $6/pound Average time from delivery until when retailer pays is 2 months (Typical "Net 60" Payment Terms) Assume steady orders and sales of 25,000 pounds per month, first sale in January, first delivery in February, first payment received in April, and so on. Scenario 1- Assume steady unit sales of bags a month Scenario 1 - Profit and Loss Statement - Calculated Monthly Profit & Loss (P&L) Statement [Simplified] Organizing Period January February March April May June July August September October November December Unit Sales 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Sales Revenue 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 General & Administrative (G&A) Expense 0 ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) Variable costs of good sold 0 ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) Depreciation (3 years straight line on computer, camera equipment) 0 ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) Net Profit (calculated monthly) 0 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 Aggregate Profit 0 $25,000 $50,000 $75,000 $100,000 $125,000 $150,000 $175,000 $200,000 $225,000 $250,000 $275,000 $300,000 First year's profits are $600,000 - return of invesment $800,000 Scenario 1 - Cash Flow Statement - Calculated Monthly Statement of Cash Flows [Simplified] Organizing Period January February March April May June July August September October November December Unit Sales 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Cash Received $800,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 Capital Purchases ($540,000) General & Administrative (Fixed) Expense ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) Variable Expense for current month's purchases ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) $40,000 $40,000 Net Cash flow for Month $260,000 ($110,000.00) ($110,000.00) ($110,000.00) $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $180,000.00 $180,000.00 Aggregate Net Cash Flow (me + the Business together) ($540,000) ($650,000.00) ($760,000.00) ($870,000.00) ($830,000.00) ($790,000.00) ($750,000.00) ($710,000.00) ($670,000.00) ($630,000.00) ($590,000.00) ($410,000.00) ($230,000.00) Cash on Hand $260,000 $150,000.00 $40,000.00 ($70,000.00) ($30,000.00) $10,000.00 $50,000.00 $90,000.00 $130,000.00 $170,000.00 $210,000.00 $390,000.00 $570,000.00 Tracking cash flow gives a different picture The business almost ras out of cash in March, ending the month with only $5,000 of the original $800,000 still in the bank. It will take more than 15 months to get back to the original $800,000 invested. Required: 1)    Prepare monthly preliminary income statement and cash flow statement for the first year in spreadsheet (feel free to use any spreadsheets we developed during the class) 2)    Determine if there are any external funding requirements 3)    What are the business’s profit margin, return on assets, debt to assets, debt to equity, and asset to equity ratios? 4)    According to the integrated reporting framework, what kind of capitals are the most relevant in this business context? 5)    Calculate the sustainable growth rate for the business at the end of year 1 6)    Recommend two dynamic metrics for this business and explain briefly why. Final Exam Business Plan Invest $800,000 cash savings for capital equipment and "working capital. " Buy Capital Equipment (Roasting Machines) for $540,000 during organizing period for business Buy Green (unroasted) Coffee Beans for cash on delivery - $2/pound after receiving bulk order for roast beans Additional variable cost per pound roasted for fuel, labor, packaging, transportation, etc to deliver beans to retailer is $2/pound Average time from order to delivery is 1 month Rent, Utilities, Insurance, Bookkeeping, etc (fixed costs) - $10,000/month Sell roasted, packaged, and delivered beans to retailer for $6/pound Average time from delivery until when retailer pays is 2 months (Typical "Net 60" Payment Terms) Assume steady orders and sales of 25,000 pounds per month, first sale in January, first delivery in February, first payment received in April, and so on. Scenario 1- Assume steady unit sales of bags a month Scenario 1 - Profit and Loss Statement - Calculated Monthly Profit & Loss (P&L) Statement [Simplified] Organizing Period January February March April May June July August September October November December Unit Sales 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Sales Revenue 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 General & Administrative (G&A) Expense 0 ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) Variable costs of good sold 0 ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) Depreciation (3 years straight line on computer, camera equipment) 0 ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) Net Profit (calculated monthly) 0 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 Aggregate Profit 0 $25,000 $50,000 $75,000 $100,000 $125,000 $150,000 $175,000 $200,000 $225,000 $250,000 $275,000 $300,000 First year's profits are $600,000 - return of invesment $800,000 Scenario 1 - Cash Flow Statement - Calculated Monthly Statement of Cash Flows [Simplified] Organizing Period January February March April May June July August September October November December Unit Sales 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Cash Received $800,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 Capital Purchases ($540,000) General & Administrative (Fixed) Expense ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) Variable Expense for current month's purchases ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) $40,000 $40,000 Net Cash flow for Month $260,000 ($110,000.00) ($110,000.00) ($110,000.00) $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $180,000.00 $180,000.00 Aggregate Net Cash Flow (me + the Business together) ($540,000) ($650,000.00) ($760,000.00) ($870,000.00) ($830,000.00) ($790,000.00) ($750,000.00) ($710,000.00) ($670,000.00) ($630,000.00) ($590,000.00) ($410,000.00) ($230,000.00) Cash on Hand $260,000 $150,000.00 $40,000.00 ($70,000.00) ($30,000.00) $10,000.00 $50,000.00 $90,000.00 $130,000.00 $170,000.00 $210,000.00 $390,000.00 $570,000.00 Tracking cash flow gives a different picture The business almost ras out of cash in March, ending the month with only $5,000 of the original $800,000 still in the bank. It will take more than 15 months to get back to the original $800,000 invested. Required: 1)    Prepare monthly preliminary income statement and cash flow statement for the first year in spreadsheet (feel free to use any spreadsheets we developed during the class) 2)    Determine if there are any external funding requirements 3)    What are the business’s profit margin, return on assets, debt to assets, debt to equity, and asset to equity ratios? 4)    According to the integrated reporting framework, what kind of capitals are the most relevant in this business context? 5)    Calculate the sustainable growth rate for the business at the end of year 1 6)    Recommend two dynamic metrics for this business and explain briefly why.

Explanation / Answer

1)

2) External Funding is required only in the month of March and April as in these months the amount of cash balance is negative.

3) Total Profit of the year= 600000

Total Revenue=1800000

Net profit margin= 33.33%

Total Assets= 600000+450000=1050000

Return=600000

Return on Assets=57.14%

Since the company has not employed any debt in its financing so debt to assets and debt to equity cant be calculated.

4) Looking at the business condition, working capital is relevant in this business context.

6) Two dynamic metrices of the business are:

Working Capital

External Financing and debt equity ratio

Scenario 1 - Profit and Loss Statement - Calculated Monthly Profit & Loss (P&L) Statement [Simplified] Organizing Period January February March April May June July August September October November December Unit Sales 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Sales Revenue 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 General & Administrative (G&A) Expense 0 ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) Variable costs of good sold 0 ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) Depreciation (3 years straight line on computer, camera equipment) 0 ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) Net Profit (calculated monthly) 0 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 Aggregate Profit 0 $25,000 $50,000 $75,000 $100,000 $125,000 $150,000 $175,000 $200,000 $225,000 $250,000 $275,000 $300,000 First year's profits are $600,000 - return of invesment $800,000 Scenario 1 - Cash Flow Statement - Calculated Monthly Statement of Cash Flows [Simplified] Organizing Period January February March April May June July August September October November December Unit Sales 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Cash Received $800,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 Capital Purchases ($540,000) General & Administrative (Fixed) Expense ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) Variable Expense for current month's purchases ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) ($100,000) $40,000 $40,000 Net Cash flow for Month $260,000 ($110,000.00) ($110,000.00) ($110,000.00) $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 $180,000.00 $180,000.00 Aggregate Net Cash Flow (me + the Business together) ($540,000) ($650,000.00) ($760,000.00) ($870,000.00) ($830,000.00) ($790,000.00) ($750,000.00) ($710,000.00) ($670,000.00) ($630,000.00) ($590,000.00) ($410,000.00) ($230,000.00) Cash on Hand $260,000 $150,000.00 $40,000.00 ($70,000.00) ($30,000.00) $10,000.00 $50,000.00 $90,000.00 $130,000.00 $170,000.00 $210,000.00 $390,000.00 $570,000.00

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