Consider the enterprise value you determined for last week's post. Modify it if you wish. Recall the revenue and gross profit figures that Marcus shared during the episode. Also recall that Marcus indicated his investment would pay off the mortgage and assume that the remaining debt (to the third party lender and the shareholder) remain in place. Also, consider that some changes seem likely to be made to the business now that Marcus is "a 45% owner, but 100% in charge", including perhaps investing in more efficient production to improve margins (i.e. lower C/G/S as a percentage of sales) and perhaps some marketing and sales support to improve sales. Assume that Marcus expects a 20% pre-tax return on his investment. Assume that the existing debt and any debt that will remain after Marcus investment has a 7% interest

Required:

Determine the net income that Grafton Furniture will have to produce in order for Marcus to reach his desired return. Prepare a pro-forma (estimated) income statement that would be reasonable to reach this goal. Assume that before Marcus investment, the company was earning pretax income of exactly zero and use that as your starting point and then adjust for the changes you either know or project based on Marcus investment. General and Administrative costs (you can estimate them based on the assumptions above and the numbers Marcus provided) need only be broken down between interest expense and other General and Admin. Include in your analysis the assumptions you have made regarding product costs, etc. Do you think its likely that Grafton will improve to the point necessary for Marcus to achieve his investment goal? What are the major risks/obstacles to this goal being achieved?

From the video the numbers needed are as follows: nvestment: $1,500,000 Desired return: $1,800,000 Remaining debt at 7% interest = 50k other shareholder of property and 369k of 3rd party debt. Total: $419,000 Gross profit and margin before investment: $1,000,000 gross profit with a 50% margin. Net income needed for desired return: $1,800,000/.45= $4,000,000