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Financing Analysis In order to launch the new gadget line, Acme is securing investor financing to cover the first year of fixed costs from private

Financing Analysis

In order to launch the new gadget line, Acme is securing investor financing to cover the first year of fixed costs from private investors. A first private investor is willing to loan Acme the funds needed to cover the fixed costs associated with producing the chosen gadget to be paid back over 12 equal payments, with a fixed cost of borrowing of $1,350,000; that is, the lender will charge a fixed dollar amount of $1,350,000 for the loan regardless of the principle borrowed. A second investor is willing to loan the money under a simple interest payment plan of 2.5% interest but requires the loan be repaid in 6 months. Given that Acme will have to borrow Y dollars, provide Acme with a detailed comparison of the financing options and determine how each impacts the breakeven analysis below.

Breakeven analysis

The following Cost and Sales projections were captured by the Acmes production and Sales/Marketing teams.

Table : Projected costs

Gadget

Factory Set-up ($/year)

Utilities ($/year)

Property Taxes ($/year)

Salary - Engineers

$/FTE

Salary Hardware technician

$/FTE

Salary Software technician

$/FTE

Financing costs ($/year)

A

10,000,000

50,000

25,000

185,000

150,000

120,000

TBD

B

7,500,000

50,000

25,000

185,000

150,000

120,000

TBD

C

12,500,000

50,000

25,000

185,000

150,000

120,000

TBD

Table : Projected sales

Gadget

Production Capacity (Units/year)

Target Sales at 50% production Capacity (Units/year)

Target Sales at 75% production Capacity (Units/year)

Target Sales at 100% production Capacity (Units/year)

MSRP

Net Price

A

250,000

125 000

187,500

250,000

449

TBD

B

150,000

75,000

112,500

150,000

499

TBD

C

1,000,000

500,000

750,000

1,000,000

425

TBD

Run a break-even analysis using the information captured in projected costs and revenues tables and any relevant information from your production, pricing and financing analyses.

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