Assignment:
Mr. Smith is considering using some funds accumulated in the past in order to start a new retail store. The fixed investment in the store is expected to be $4,150,000. The investment will require no maintenance expenditures for the first 5 years but after the first 5 years a $395,000 expense will be needed in order to maintain the facility. The required investment in net working capital is expected to be 24% of annual sales. Variable cost is estimated to be 29% of sales. Assume that there are no taxes payables on the business income.
Do your calculations, read the information in the background material, look for more information, and then write a 4 to 5 pages report for Mr. Smith by answering the following questions:
1) What is the cash flow breakeven point of the venture during the first five years? What is it after the fifth year?
2) Suppose Mr. Smith projects first year sales of $1,000,000, second year sales of $1,100,000, and sales after the second year of $1,500,000 each year.
- How much of an investment will be required to undertake the project?
- How much surplus cash is the venture expected to generate each year in the first six years of operations?
3) Is the cash breakeven analysis useful forecasting method? Are there other methods that are preferable? Please explain your reasoning. This section should be a one to two page essay.
- Examine the relationship between a business plan of an entrepreneurial venture and the financial needs of the business
- Explain methods of forecasting the future financial needs of the enterprise