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I need help in questions B,C and D MINI CASE Jen and Larry's Frozen Yogurt Company (Revisited) In 2010, Jennifer (Jen) Liu and Larry Mestas
I need help in questions B,C and D
MINI CASE Jen and Larry's Frozen Yogurt Company (Revisited) In 2010, Jennifer (Jen) Liu and Larry Mestas founded Jen and Lany's Frozen Yogurt Company, which was based on the idea of ap- plying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quan- tities of unique flavors and blends in limited editions. Revenues were $600,000 in 2010 and were estimated at $1.2 million in 2011. Because Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3, and the cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Jen and Larry's salaries and expenses for an accountant and two other administrative staff, were estimated at $180,000 in 2011. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in 2011. An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in lower downtown (known as LoDo) of $450,000 occurred at the beginning of 2010 along with $50,000 being invested in inventories. An additional equipment investment of $100,000 was estimated to be needed at the begin- ning of 2011 to make the amount of yogurt forecasted to be sold in 2011. Depreciation expenses were expected to be $50,000 in 2011, and interest expenses were estimated at $15,000. The tax rate was expected to be 25 percent of taxable income. A. How much net profit, before any financing costs, is the venture expected to earn in 2011? What would be the net profit if sales reach $1.5 million? What would be the net profit if sales are only $800,000? B. If inventories are expected to turn over ten times a year (based on cost of goods sold), what will be the venture's average in- ventories balance next year if sales are $1.2 million? How much might the venture be able to borrow if a lender typically lends an amount equal to 50 percent of the average inventories balance? If the borrowing rate is 12 percent, how much dollar amount of interest would have to be paid on the loan? C. How might the venture acquire and finance the new equipment that is needed? D. Identify potential government credit resources for the ventureStep by Step Solution
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