Case: You are working as a financial advisor for Mr. Xavier Gomez, who is a well-known investor. Today Mr. Xavier Gomez has explained to you a new business project that he has, and he wants you to prepare projected financial statements to have an idea of the profitability of the project.

Following we have the data that Mr. Xavier Gomez has delivered to you:

Sales: The expected sales are 10.000.000 units, when the market is fully developed, we will need a period of five years in order to achieve that level. He expects to sale 10% on the first year, 30% on the second year, 60% on the third year, 80% on the fourth year until achieving 100% on the year 5.

The sales price per unit is 2.8 per unit.

Direct materials: The recipe of the product explains that direct material will have a cost of 1.5 per unit.

Production labor: The first year the plant needs 4 technicians with a cost of 32500 per person per year, 38 production workers with an annual cost of 28.000 per employee per year, and 1 manager with a cost of 90.000 per person per year. The next years the production labor will increase, due to the fact that the production of the plant will also be increasing. The year 2 the cost will be 7.25% higher than year 1, the year 3 the cost will be 16% higher than year 1, the year 4 the cost will be 22% higher than year 1 and in year 5 the cost will be 30% higher than year 1.

Investment: the required investment is 8.500.000, of which 5.000.000 will be depreciated over a period of 10 years and the rest will be depreciated over a period of 4 years. No more investments will be required during the years 2 until 5.

Utilities expense: We expect a cost of 0.18 per unit on the first year, and 0.21 for the remaining years.

Quality control: the control will be outsourced, and we expect a cost of 3% of our sales per year.

General and administration costs are expected to be 200.000 for the first year. For the following years the cost should increase in line with the sales volume, having a cost of 2.5% of sales.

The days to collect accounts receivable are 60, the days to pay suppliers are also 60.

The company will need an inventory of 30 days.

Mr. Xavier Gomez is ready to invest 5.000.000. The investments need to be paid upfront and the rest of money needed will come from a bank credit line, you should make your own estimation of the amount needed.

The tax rate is 25% and the interest rate is 3.5%.

Mr. Xavier Gomez is requesting from you a proposal of Profit & loss account for the next 5 years and a balance sheet for the same period.