FINA CASE Portfolio Assignment:

Larry and Janice Martin have decided, after 20 years of working for others, that they wanted to open their own business. CompuTech would be a repair and sales shop in the Kitchener area.

Between the two of them they thought that their experience in sales and service, along with their passion to strike out on their own, would serve as a great base.

As they prepared their Business Plan and the related financial projections they knew that there would be many business, operational and financial decisions that they would need to consider. This was to be important not only as they were sketching out their plan but also once the business started operating.

To get as full a preparation as possible they approached a number of small business consultants at local banks and with the local small business office of the local government. Not only were they reminded that they needed a unique offering but also the need to manage successfully each and every day. Beyond planning, operating and organizing they would need to operate their business and make decisions based on results. To make sure of this they needed the ability to read financial statements and analyze the results of their decisions before considering next steps.

To succeed they were reminded that they needed to operate to generate profits, to be able to pay bills and to grow the business through investment and growth. Further they knew that investing decisions at the start and throughout the life of the business, operating decisions on a day to day basis and above all financing decisions as to where and how to use monies from investors to make the greatest returns.

MODULE 1:

Larry and Janice intend to invest $200,000 in the business. Their financial projections show that during the first year of operations their business could generate $25,000 in profits. Subsequent years could grow well beyond this level. The couple could borrow on a long term basis $100,000 from the bank (@6%) and they could use $100,000 of their savings (which were currently generating 8% returns).

Q1: With the above info what is CompuTechs projected return on investment in year 1? What is their cost of capital?

Q2: Should the couple launch their business based on your answer to Q1? Why or why not?

Q3: If small business is taxed at 33% what is the business Weighted Cost of Capital?