Explain the difference between the yellow-highlighted row 14 and row 15 (please see attached picture).In addition to digesting the details of Investment Opportunity (page 4, attached), the 5th paragraph on page 2 and the3rd paragraph on page 3 offer background on working capital.

B C D E F G H J K L Assignment Question Q2 The classic capital budgeting analysis for the new project line (page 4 of the Flash Memory case) is shown below. Read the 4 paragraphs under the Investment Opportunity subhead carefully. Most of the analysis is already completed. This assignment question requires you to examine the numbers and explain where they come from, and to enter the missing information in rows 29-33. CFW Chapter 5 explains the process, using the Generic Capital Budgeting Template. 8 The Flash Memory template below is much shorter but contains the same information. 10 base year ...forecast years..............." 11 ($000s) 2010 2011 2012 2013 2014 2015 12 13 Investment in equipment $2,200 14 Net working capital required (total from balance sheet each year) $5,648 $7,322 $7,322 $2,877 $1,308 $0 15 Investment in net working capital -$5,648 -$1,674 so $4,446 $1,569 $1,308 16 Sales $21,600 $28,000 $28,000 $11,000 $5,000 17 Cost of goods sold (includes depreciation) $17,064 $22,120 $22,120 $8,690 $3,950 18 Research & development $0 $0 $0 $0 19 Selling, general & administrative $1,806 $2,341 $2,341 $920 $418 20 Launch promotion $300 $0 21 Income before income taxes $2,430 $3,539 $3,539 $1,390 $632 22 Income taxes $972 $1,416 $1,416 $556 $253 23 Net income $1,458 $2,124 $2,124 $834 $379 24 Depreciation $440 $440 $440 $440 $440 25 Cash flow from operations $1,898 $2,564 $2,564 $1,274 $819 26 Total cash flow -$7,848 $225 $2,564 $7,009 $2,843 $2,127 27 Cumulative total cash flow -$7,848 -$7,624 -$5,060 $1,949 $4,792 $6,919 28 29 k-wacc Enter it from previous tab 30 NET PRESENT VALUE (NPV) 31 PROFITABILITY INDEX (PI) 32 INTERNAL RATE OF RETURN (IRR) 33 PAYBACK PERIOD (PP) By inspectionInvestment Opportunity One of Hathaway Browne's primary responsibilities as CFO was to nance both the growth of Flash's existing product lines and all new investments that were approved by the board of directors. Investment proposals were prepared by the company's design, manufacturing, and marketing managers, thoroughly analyzed by Browne and the nance group, and then sent to the board for discussion, evaluation, and finally acceptance or rejection. Browne had recently been given a proposal for a major new product line, which was expected to have a signicant impact on the company's sales, prots, and cash ows. This new product line had been in development for the past nine months, and $400,000 had already been spent taking the product from the concept stage to the point where working prototypes had been built and were currently being tested. Flash's design and marketing people were very excited about this new product line, believing its combination of speed, size, density, reliability, and power consumption, would make it a winner in the fastest growing segment of the memory industry. Customer acceptance and competitor reaction to the new product line was uncertain, but the project's sponsors were confident it would generate sales of at least $21.6 million in 2011 and $28 million in 2012 and 2013, before falling off to $11 million in 2014 and $5 million in 2015. The product was also believed to be superior to existing memory products, and would therefore comde gross margins of 21% throughout its life. Implementing this new product line would also require large investments and expenditures by the company. New plant and equipment costing $2.2 million must be purchased, and this specific equipment would be depreciated straight-line to zero salvage value over its ve-year life. This depreciation expense all flowed to cost of goods sold expense, and was already included in the estimate that cost of goods sold would be 79% of sales. Flash also expected net working capital would be 26.15% of sales. This initial investment in equipment and net working capital would occur in 2010, and in subsequent years the net working capital would increase and then decrease, as sales of the new product line rose and then fell. SG&A expenses were expected to be the same percent of sales as the company experienced in 2009, but in addition the marketing manager also planned a one- time $300,010 advertising and promotion campaign simultaneous with the launch of the product in 2011. Financing Alternatives Although the loan officer of Flash's commercial bank had stated the company could obtain additional nancing through their factoring group, a private sale of common stock was another financing alternative. Investment bankers had indicated to Browne that the company could issue up to 300,000 shares of new common stock to a large institutional investor at a price of $25.00 per share. After deducting the investment bankers' fee and other expenses associated with negotiating and closing this private transaction, the company could expect to receive about $23.00 per share. Browne needed to analyze this proposed equity offering in comparison to the publicly traded common stock of a select group of competitors (Exhibit 4), and in comparison to Flash's forecasted results with and without a new equity offering. As general economic conditions improved in the first few months of 2010, Flash's sales increased rapidly, and the company continued to generate profits in approximately the same percentage of sales as in 2009. Unfortunately this rapid sales growth had also required a large increase in working capital, and internal cash ow had not been sufficient to fund this increase in receivables and inventories. The bank's position on extending additional financing remained the same, and when approached in May about extending additional credit to the company, the loan officer had been unwilling to do so. The loan officer did, however, discuss the factoring division of the bank with Browne, which serviced higher-risk customers with more aggressive accounts receivable financing. The factoring group would lend up to 90% of a company's existing accounts receivable balances, but this group would also monitor Flash's credit extension policies and accounts receivable collection activities more rigorously than the commercial loan department that currently managed the company's loan agreement. Because of the additional risk and greater cost associated with closer monitoring of the Based on the overall economic recovery and recent reports of robust sales of smart phones and net books, in early May the company was forecasting full-year 2010 sales of $120 million, with a corresponding cost of goods sold number of $97.32 million. Flash's projected year-end 2010 current asset investment necessary to support this level of sales and cost of goods sold was also prepared to assess the company's immediate financing needs. Cash $ 3,960,000 Accounts receivable 19,726,000 Inventory 13,865,000 Prepaid expenses 480 000 Total current assets $38,031,000 These forecasts of working capital requirements were based on sales in recent months, projected demand from OEMs, distributors, and retailers during the remainder of the year, and expected relationships between the income statement and these working capital accounts. Cash had been estimated at 3.3% of sales, accounts receivable were calculated based on an estimated 60 days sales outstanding, and the inventory forecast assumed the company would improve its inventory turnover, holding only 52 days of cost of goods sold in inventory