Question
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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