Commercial banks and other institutions in the marketplace offer a 3-month certificate of deposit that allows you to invest cash and earn a 1.5% quarterly interest rate.

I have $1.5. million and am looking to open a bike shop. how much should i put into a CD and why?

here is more background,

The Market Opportunity

You are about to start a new company that will be entering a new segment of the bicycle industry. Your company will license the technology to build carbon fiber bikes using 3D printing and a new economical form of carbon fiber. With this new technology, it will be possible to make bicycle parts anywhere in the world with carbon fiber, a material that is stronger, lighter, and now less expensive than the light metals. You should lead your executive team to develop this market opportunity.

A New Price Point

Perhaps the best part of this innovation is how it will affect the pricing of a carbon fiber bike. Current carbon fiber bikes are very expensive. The 3D manufacturing process and new carbon fiber will cut costs substantially, allowing the new bikes to be priced well below the other carbon fiber bikes on the market. The price range of the new bikes will actually be low enough to compete with higher-end, metal bikes.

The Target Market

3D-printed, carbon fiber bikes will appeal to the higher end of the conventional bike market. This subset of customers is more affluent than the typical bike purchaser. They cannot afford the current high-end carbon fiber bikes, but have coveted them for a long time. Your business will give them the opportunity to own an elite bike at a price that is affordable, although just barely. The status and pleasure of riding a carbon fiber bike is more than enough to push even economically-minded customers to dig deep into their pocketbooks to own one of these bikes. You must determine the profitability of this niche. If you are able to lower prices and/or add more value, perhaps more bike riders will switch as well.

Consumer and Business Advantages

The consumer advantages to a 3D-printed, carbon fiber bike will be impressive:

• The bike will be far lighter than a metal bike and, therefore, much easier to pedal;
• The ride will be more comfortable because carbon fiber dampens vibrations from rough surfaces;
• Riders will experience less fatigue and more comfortbecause the 3D-printed bike frame will be custom-built to their gender, size, shape, weight, and performance requirements;
• Riders will feel more energized (they will be working less and be more comfortable);
• The bikes will be much more affordable than currently available carbon fiber bikes; and
• More people will get to ride the latest, greatest, best-looking, carbon fiber bike that only the most committed, elite riders could justify buying until today.

The business advantages to 3D printing will be just as impressive:

• Production will be streamlined because less equipment and no inventory storage is required, even an inexpensive warehouse can be a fabrication site;
• Labor costs will be much lower because the 3D printer will create one carbon fiber bike frame per hour, a task that previously took long hours and involved highly skilled workers;
• Material costs will be much lower because the new carbon fiber is created from a low-cost polyester that is used in common athletic socks;
• There will be no need for inventory because the bicycles will be custom-built as orders are received at the bike shop;
• Debt and equity requirements will be far less because there will be no money tied up in inventory at the production facility, in distribution centers, or in the stores;
• A bicycle shop will be smaller, less expensive, and yet more esthetically pleasing; and
• Consumers will be able to quickly get the perfect bike, resulting in fewer lost sales (more revenue).

New Company

You will be a totally integrated company that does it all from marketing to production to human resource management. You will have limited financial resources and complete accounting responsibility.

As the executive team, you will provide the seed capital (investment money) needed to start your business up. You can use this money to build a production facility, open sales outlets, and design brands. You will invest 1,500,000 in the first quarter and another 500,000 in each of the next two quarters. An additional 2,500,000 will become available in quarter 4 from venture capitalists, for a total of 5,000,000.

Your executive team has the next year and a half (six quarters or decision periods) to get this company off the ground. Within this time frame, your firm should become self-sufficient and earn substantial profits from your operations.

A New Kind of Bike Shop

Normally, bicycle stores will have 50 to 100 bicycles on display in order to have a male and female version of each brand/model in at least 3 sizes. With 3D printing, you will need only one copy of each model for sale. A much smaller outlet will actually be less crowded. You will be able to use the open space to your advantage to give customers personal attention for fitting the bike to their exact size requirements.

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