Question 1: {Ethical Issues} Suppose that you have just ‘run out of money’ and are not capable to move your ‘idea’ from its development phase to production and the start up phase. Though, you remain convinced that with a reasonable amount of additional financial capital you will be a successful entrepreneur. While your expectations are low, you are meeting up with a loan officer of the local bank in the hope that you can get a personal loan in order to carry on your venture.
A) As you are about to enter the bank, you see a bank money bag lying on street. No one is around to claim the bag. What would you do?
B) Now let’s suppose that what you found lying on the street was a $100 bill. The thought crosses your mind that it would be pleasant to take your significant other out for a nice dinner- something that you have not had for some months. What would you do?
C) Now rather than $100 you find a $1 bill on the street. The thought crosses your mind that you could purchase a lottery ticket with the dollar. Winning the lottery would certainly resolve all your financing requirements to start and run your venture. What would you do?
Question 2: {Ratio Calculations from financial statements} Ricardo Martinez has made the given financial statement projections as part of his business plan for beginning the Martinez Products Corporation. The venture is to manufacture and sell electronic components which make standard overhead projectors ‘smart’. In essence via voice commands a projector can be turned on, off, and the brightness of the projection altered. This will permit the user to avoid audience annoyances related with a bright projection light throughout periods when no overhead transparency is being used. Venture investors generally screen prospective venture opportunities in terms of projected profitability and financial performance.
A) Use the given projected financial statement for Martinez Products to compute financial ratios showing the ventures projected (i) gross profit margin, (ii) net profit margin, (iii) asset intensity, and (iv) ROA.
Question 3: {Ratio Calculations} Ricardo Martinez, the founder of Martinez Products Corporations (see problem above), projects sales to double to $400,000 in the second year of operation.
A) If the financial rations computed for year 1 in problem above remain the same in Year 2, what would be the Martinez dollar amount projections in his business plan for (i) gross profit, (ii) net profit or income and (iii) total assets?