Income statement and equity calculation

Based on market trends and industry experience, you have identified an opportunity to sell sustainable office furniture produced from recycled materials. You are making plans to launch your venture, GrunEco, beginning with three product lines this year: desks, office chairs, and meeting tables. Analysing market and industry data, a reasonable estimate of sales ('most likely' forecast) in the first year is calculated at 2000 tables at 300 per unit, 4000 desks at 200 per unit, and 6000 chairs at 100 each. Your cost of goods sold is expected to be 60%. Working with an attorney, you register the business, obtain a license and file incorporation papers at a total cost of 8000, to be expensed in the first year. You rent an office space at a cost of 3000 per month for the first 12 months. You invest 5000 in office equipment and 4000 for your own office furnishings, both to be depreciated using the straight-line method over 4 years with no residual value. Utilities such as phone, electricity and wifi, cost 200 per month for the first year. You will serve as CEO with your partner as CFO, each at a salary of 40,000, plus two administrative employees each at salaries of 30,000. You estimate first year marketing and advertising expenses of 135,000, office supplies 3000, insurance 8000, travel 20,000, and miscellaneous expenses of 600. Tax rates in your area are 20%. a) Based on the information above, develop a projected income statement for your first year of operations. [15 points] b) After the initial startup phase, you decide to seek angel investment to expand the venture. You make a pitch to an angel, who offers an investment of 200,000 in exchange for a 15% equity stake. The investor aims for an annual return of 30% and plans to exit after 5 years, when the firm is estimated to have a valuation of 8 million (NOT strictly based on the Y1 projection above). Based on an equity calculation, how attractive is this offer for your venture? What specific alternatives might be proposed to adjust it and why? [15 points)