In this discussion, you will take the role of manager of technology acquisition at upscale knitwear seller JonSmedley. The firm is interested in usingKnyttantechnology as a platform for the production of bespoke goods in leisure lines, and as a means of appealing to more trendy, up-market consumers (Kansara, 2015). Production of bespoke goods is commissioned by the buyer. Knitwear seller JonSmedley'sintention is to form a partnership with Unmade (Unmade, n.d.), which developedKnyttantechnology for its own use. AlongsideKnyttan, Unmade developed a customization engine that serves asan easily embeddable product that can be integrated into any website, allowing a user (an employee internal to the firm, an intermediate buyer or an external customer) to turn a digital product into on-the-spot knitwear in minutes. JonSmedleyintends to useKnyttan, controlled by this customization engine available to consumers, to widen its sales substantially beyond its mainly traditionalist customer base using this technology. The firm sees significant possibilities for peer-to-peertrendsetting, as users form their own unique designs. We also see the possibility of celebrity-led designs. We believe that these features will be especially fruitful in the upscale market. The cost of theKnyttanunit ($197,445) will be paid off in seven equal installments, in which case interest is charged only on the remaining debt, per year.Taxes for JonSmedleyaverage 34%. Depreciation is straight line to zero, and net working capital is initially $20,000, but falls to 5% of sales (patient services) thereafter. You estimate that interest may rise to vary from 8% to 18%, prior to the point when financing will be conducted. The firm demands that new projects are discounted at a rate of 28%. Resulting tabulations at an 8% rate of interest are seen below, in Tables 1 and 2.Table 3 summarizes results at 8% and 18% rate of interest.

References

Kansara, V. (2015).

Knyttanaims to disrupt $200 billion knitwear market

.

Financial Times

.

Unmade. (n.d.)

Unmade unique knitwear

.

DISCUSSION PROMPT:

Managers in a variety of design and technical divisions are concerned that a project of this magnitude will strain resources available to other projects. As manager of technology acquisition, you have been invited to share a summary of major issues involved in a decision to adopt new technology of this nature, at a financial level, with key management peers. You understand that this may be challenging because your audience is non-financial, and so you plan to outline central financial issues involved in this decision to adopt aKnyttan, in partnership with Unmade.JonSmedley'schief executive officer has agreed to this approach, and has instructed you, as manager of technology acquisition at JonSmedley, to determine whether the project will be acceptable should interest rates increase as expected, and financing for theKnyttandevice will consist of debt, on which the firm will be charged a market rate of interest. Assume that you have prepared the summaries of financial data included below, using an interest rate of 8% (Tables 1 and 2). Table 3 summarizes the results.

Use the following link to viewTables 1 through 3.

TASKS:

1. At interest rates of 8% and 18%, analyze project finances using Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Criteria as these may be used to determine the acceptability of the proposed project, under the assumption that the project is standalone and will not draw resources from other areas of the firm. Include analysis of all components of project cash flow.
2. Recalling that (EBIT + Depreciation - Interest - Taxes) = Operating Cash Flow,evaluate the role of net working capital, depreciation and taxationin determining project cash flows.

Responses should comprise 200-600 words.

Post two additional replies to classmates, offering critical analyses and comments relating to their determinations and evaluations of JonSmedley'sopportunity to adoptKnyttantechnology. Please cite sources of additional research, and examine areas where you do and do not believe that your classmates' statements make optimal use of assigned readings, or could otherwise include additional considerations.

9/27/2017 https://mycourses.excelsior.edu/bbcswebdav/pid-868894-dt-forum-rid-38808214_1/courses/GBU.BUS505.Online.201708.201710.s30052901/m... Operating Cash Flow Year 0 Year 1 Revenue (197,445) 320,000 800,000 700,000 700,000 700,000 600,000 840,000 - 256,000 640,000 560,000 560,000 560,000 480,000 672,000 EBIT - 64,000 160,000 140,000 140,000 140,000 120,000 168,000 Depreciation - 28,206 28,206 28,206 28,206 28,206 28,206 28,206 Taxes (34%) - 21,760 54,400 47,600 47,600 47,600 40,800 57,120 Interest on outstanding debt (8%) - 15,796 13,539 11,283 9,026 6,770 4,513 2,257 Operating Cash Flow - 54,651 120,267 109,324 111,580 113,837 102,893 136,830 (20,000) - - - - - - - Change in NWC - 4,000 (24,000) 5,000 10,000 20,000 45,000 33,000 NWC Recovery - - - - - - - 13,000 Total Change in NWC (20,000) 4,000 (24,000) 5,000 10,000 20,000 45,000 46,000 (197,445) - - - - - - - - - - - - - - 29,617 (197,445) - - - - - 29,617 Cost of Sales Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 I. Operating Cash Flow II. Net Working Capital Initial NWC III. Capital Spending Initial Outlay Aftertax Salvage Total Capital Spending Table 1. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Operating Cash Flow - 54,651 120,267 109,324 111,580 113,837 102,893 136,830 Changes in NWC (20,000) 4,000 (24,000) 5,000 10,000 20,000 45,000 46,000 (197,445) - - - - - - 29,617 Capital Spending https://mycourses.excelsior.edu/bbcswebdav/pid-868894-dt-forum-rid-38808214_1/courses/GBU.BUS505.Online.201708.201710.s30052901/module_... 1/3 9/27/2017 https://mycourses.excelsior.edu/bbcswebdav/pid-868894-dt-forum-rid-38808214_1/courses/GBU.BUS505.Online.201708.201710.s30052901/m... Total Project Cash Flow (217,445) 58,651 96,267 114,324 121,580 133,837 147,893 212,447 Cumulative Cash Flow (217,445) (158,794) (62,527) 51,797 173,377 307,214 455,108 667,554 1.00 1.28 1.64 2.10 2.68 3.44 4.40 5.63 (217,445) (124,058) (38,163) 24,669 64,588 89,411 103,480 118,581 Discount Term = 1/(1+r)t at 28% Discounted Cash Flow Table 2. 8% NPV 21,093 IRR 30% Payback Period 3.2 Years 18% NPV (115,908) IRR 20% Payback Period 3 Years Table 3. https://mycourses.excelsior.edu/bbcswebdav/pid-868894-dt-forum-rid-38808214_1/courses/GBU.BUS505.Online.201708.201710.s30052901/module_... 2/3 9/27/2017 https://mycourses.excelsior.edu/bbcswebdav/pid-868894-dt-forum-rid-38808214_1/courses/GBU.BUS505.Online.201708.201710.s30052901/m... https://mycourses.excelsior.edu/bbcswebdav/pid-868894-dt-forum-rid-38808214_1/courses/GBU.BUS505.Online.201708.201710.s30052901/module_... 3/3