Apps YouTube triOS Gateway Gmail Microsoft Teams | G... Word SAM keyboarding SAM SAM-Activity List Meeting | Microsoft... pvl08 - Proxmox Vir... Netflix ^ 367 / 550 11:23 PM = Working capital Inventories Trade receivables Capital assets Leasehold improvements Equipment Machinery/truck Research and development Marketing/promotion Total financial needs Financial Needs $60,000 40.000 100,000 70,000 80,000 Grip Case Inc.'s condensed projected statements of income for the first three years of operations follow: (in $) Years No. of units Unit selling price ($) Revenue Cost of sales Gross profit Administrative expenses Distribution costs Danraciation Back to Page $100,000 250,000 50,000 50.000 $450,000 2 20,000 25 500,000 3 25,000 25 625,000 (312,500) 312,500 (110,000) (80,000) 736 0003 1 15,000 25 375,000 (187,500) (250.000) 187,500 250,000 (85,000) (95,000) (90,000) (70,000) (30.000) (30.000) QAA P ** 369 368 / 550 > QAA Income tax expense Profit for the year (42,500) 30,000 (12,000) 55,500 Miriam and Ben had saved $150,000 over the past 10 years and were planning to invest the entire amount in the business in the form of equity. They knew that they would have difficulty obtaining debt financing but had a $250,000 house of which 40% could be used as collateral. However, they were prepared to use this option only as a last resort. Miriam and Ben were determined to adopt a conservative strategy, growing slowly and carefully in starting their business. Rather than investing huge sums of money in expensive equipment and buying a building, they intended to purchase some used equipment and rent a building belonging to Miriam's father. If, after the first three years, the attach case product line reached the expected level of sales, they would then consider making the briefcase and the portfolio product lines. Depending on the company's financial position three years after start-up, Miriam and Ben might lease a larger building or even build their own. Although Miriam and Ben were still at the research stage, they had done some costing to calculate how much profit they would make for each case. At 15,000 units, the cost of production would be around $187,500, for a total unit production cost of approximately $12.50. The cost breakdown is as follows: direct materials, $6.30/unit; direct labour, $2.00 (for a total of $124,500 in variable costs); and the rest ($63,000) in fixed manufacturing costs. Questions 1. What questions do you think lenders will ask Miriam and Ben about their venture? why 2. How many units would the company have to sell in the first year of operation to break even? When will the company break even? Is the break-even point in that year reasonable? Why or why not? (The break-even point was discussed in Chapter 5.) 370 3. What type of investors or lenders should Miriam and Ben approach? Why? 4. What type of collateral would the lenders want to take into consideration? 5. How much do you believe Miriam and Ben will be able to obtain from the different financing sources? Why? CASE 2: BALDWIN EQUIPMENT INC. Management of Baldwin Equipment Inc. is considering increasing the productivity of its plant. Management heard from suppliers that a certain piece of equipment could have an after-tax cash flow savings of more than $35,000 a year if it was installed in Baldwin's plant. However, Jim Henderson, the controller of the company, is unsure whether the company should buy or lease the equipment. If C