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How to analyze each product's projected cash flow over a 5-year period? and which new products to launch?
How to analyze each product's projected cash flow over a 5-year period? and which new products to launch?
*Access up to $30 million dollars from financiers.
*Loan interest rate 6%
*Investor expect a return of 12% on equity.
*weighted average cost of capital is 9.45%.
*30% tax rate on income.
Product 1:
-First year sales are projected to be $15 million with a 10% increase in revenue each year over the next 5 years.
-In the prior two years your company has spent $1 million on the development of this project. To finish the development and create the manufacturing infrastructure to produce it, It is estimated to need another $20 million in equipment purchases. This equipment has a 5-year life.
- Cost of goods sold will be 45% of revenue.
- Incremental SG&A will be 15% of revenue.
- Working capital requirements will be 8% of revenue.
- one-time advertising budget of $2.5 million, which will be spent in the first year of sales.
Product 2:
- Prior years' development cost for this product has totaled $1.5 million dollars.
- $10 million dollars in new equipment purchases to manufacture this product. The economic life of this equipment is also 5 years.
-forecasts first year revenue at $9.5 million
-one time marketing expense of $1.25 million
-revenue is expected to increase by 7% year over year for the next 5 years.
-costs of goods sold will be 55% of revenue. -Incremental SG&A will be 13% of revenue
-Working capital requirements will be 10% of revenue.
Product 3:
- it will provide an additional $50,000 of cash flow per year in 5-year time period.
-Revenue projections will be $4 million in the first year of sales.
-sales projected to increase by only 2% per year over the next five years.
-require an additional $6 million of capital for equipment with use life 7 years.
-costs of goods sold will be 55% of revenue. -Incremental SG&A will be 13% of revenue
- Working capital requirements will be 12% of revenue.
