How far off your estimates of revenues and expenses can be before your decision would change? in relation to ZXY Company is a food product company. ZXY is considering expanding to two new products and a second production facility. The food products are staples with steady demands. The proposed expansion will require an investment of $7,000,000 for equipment with an assumed ten-year life, after which all equipment and other assets can be sold for an estimated $1,000,000. They will be renting the facility. ZXY requires a 12 percent return on investments. You have been asked to recommend whether or not to make the investment.

5 ZXY - Forecast Ten Years Your four year3 Your years Years Your Four Year Year 10 Total Pro-Forma Income Statement B Brand new Acme System - full system Income 0 Revenue N 2,400,000 2,800,000 2,800,000 3 Product A 4 Product B 5 Total Revenue 3,240,000 900,000 4,140,000 3,900,000 1,350,000 5,250,000 3,900,000 2,500,000 6,400,000 3.900.000 3,000,000 6,900,000 3,900,000 4,000,000 7,900,000 3,900,000 4,950,000 8,850,000 3,900,000 5,500,000 9.400,000 34,640,000 22.200,000 56,840,000 2,400,000 2,800,000 2,800,000 73.205 30,000 50,000 90,000 400,000 40,000 50,000 40,000 15,000 25,000 8 Cost of Goods Sold 9 Pest Control 0 SQF FDA mandates 1 Rent - Plant 2 Plant Equip-Fkif - Scrb Lease 3 Plant Equip-Ongoing maintenance 4 Plant Equip - Parts 5 Miscellaneous - Equipment 6 Building repairs 7 Plant supplies 8 Plant Utilities 9 Garbage removal Janitorial 0 Plant telephone 1 Plant payroll expense 2 Health Benefits 3 WC & P/R Expense 4 Installation/Additional Equipment 5 Total COGS 66,550 90,000 408,000 64,000 70,000 50,000 15,000 25,000 120,000 210,000 45,626 7,200 675,000 97,200 81.000 73,205 90,000 424 483 64,000 75,000 50,000 15,000 25,000 109,808 240,000 52.470 7.200 885,000 100,000 106,200 73,205 90,000 416,160 64,000 75,000 50,000 15,000 25,000 144,000 240,000 52.470 7,200 825,000 105,000 99 000 200.000 2.481,035 73,205 90,000 432,973 64,000 75,000 50,000 15,000 25,000 120,789 240,000 52.470 7,200 915,000 100,000 109,800 73.205 30,000 450,465 64,000 75,000 50,000 15,000 25.000 73,205 30,000 441,632 64,000 75,000 50,000 15,000 25,000 132,868 240,000 52.470 7,200 975,000 100,000 117,000 73.205 30,000 459,474 64,000 75,000 50,000 15,000 25,000 160,770 240,000 52.470 7.200 1,065,000 100,000 127 800 100,000 73.205 30,000 478,037 64,000 75,000 50,000 15.000 25,000 194532 240,000 52.470 7.200 1,125,000 100 000 135,000 64,000 75,000 50.000 15,000 25,000 176.847 240.000 52.470 7.200 1.095,000 100.000 131 400 702, 1901 600,000 4,379,888 ! 616,000 720,000 490,000! 150,000 1 250,000 1.405.767 ! 2.250,000 495 388 72.000! 9.080.000 947,560 1,087 200! 450,000 23.675.993 120,000 30,000 7,200 495,000 45,360 59,400 250,000 240,000 52.470 7.200 1,005,000 100,000 120,600 2,024,576 2,317,366 2,370,437 2,398,375 2 ,454,095 2,544 919 2.603,786 2.684 444 7 Gross Profit 583,040 775,424 318,965 1,822,634 2,879,583 4,001,625 4,445,905 5,355,081 6.248.214 6.735.556 33,164,007 i 104,940 1,500 104,940 1,500 31.993 104.940 1,500 206.766 9 Expenses Other than GOGS 0 Liability Insurance 60,000 91,253 1 Bank Service Charges 1,500 1,500 2 Interest on debt 90,627 187,626 3 Incentive Plan 13,200 4 Management 180,000 180,000 5 Workers Comp/PIR Taxes 21,600 21,600 6 Health Insurance Benefit 4.200 5,082 7 office/Administrative Expenses 12,000 15,972 8 Legal and Professional - Tax 30,000 10,000 ZXY + Select destination and press ENTER or choose Paste 16.500 104,940 1,500 232,323 16.500 180,000 21,600 5,590 17,569 10,000 104,940 1,500 166,740 16,500 180,000 21,600 16,500 180,000 21,600 5,590 17,589 10,000 104.940 1,500 122.959 16,500 190,000 22.800 5,500 17,569 10,000 104,940 1,500 75,071 16,500 190,000 22,800 5,590 17.569 10,000 104.940 1,500 7,539 16,500 190,000 22,800 5,590 17,569 10,000 190,000 22,800 5,590 17,569 10,000 16,500 190,000 22.800 5,590 17,569 10,000 990,778 ! 15.000 i 1,121,754 145.200 ! 1,850,000 222.000 54,004 168,528i 120,000 5.590 17,589 10,000 0 - + 100%