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Part 2: Modules 5, 6, 7 are due Week 12 (Sun Dec. 03) 11:59pm-> Slate Dropbox [13 marks (5%)] ** plagiarism will result in a
Part 2: Modules 5, 6, 7 are due Week 12 (Sun Dec. 03) 11:59pm-> Slate Dropbox [13 marks (5%)] ** plagiarism will result in a 0 grade Larry and Janice Martin have decided, after 20 years of working for others, that they want to open their own business. CompuTech would be a repair and sales shop in the Kitchener area. Between the two of them they thought that their experience in sales and service, along with their passion to strike out on their own, would serve as a great base. ** As they prepared their Business Plan and the related financial projections, they knew that there would be many decisions that they would need to consider. This was to be important not only as they were sketching out their plan, but also once the business started operating. In their research, they approached several small business consultants at local banks and with the local small business office of the local government. They were reminded that they need a unique offering, and successful day-to-day management. Beyond planning, operating, and organizing they would need to operate their business and make decisions based on results. To ensure this, they needed the ability to read financial statements and analyze the results of their decisions before considering next steps. To succeed they were reminded that they needed to operate to generate profits, to be able to pay bills and to grow the business through investment and growth. Further they knew that investing decisions at the start and throughout the life of the business, operating decisions on a day to day basis and above all financing decisions as to where and how to use monies from investors to make the greatest returns. Module 1: [4 marks] I Larry and Janice intend to invest $250,000 in the business. Their financial projections show that during the first year of operations their business could generate $40,000 in profits (subsequent years could grow well beyond this level). The couple can borrow $125,000 from the bank (6%), and they can use $125,000 of their savings (consider this "equity"), a 7% return. Q1: Given a 40% tax rate, what is CompuTech's projected return on investment in year 1? What is their weighted cost of capital? Use the template from our in-class activity. [2] Q2: Should the couple launch their business based on your answer to Q1? Why or why not? Answer using less than 20 words, and use abbreviated terms ROI and WACC. [2] Module 2: [3 marks] The Martins will use a projected Income Statement to plan their operations: Raw Materials Purchases: $200,000 Sales Salaries: 80,000 Advertising: 3,000 Travel: 5,000 Revenue: 400,000 Financing Costs: 7,500 Office Lease: 5,000 Depreciation: 15,000 Income Taxes: 40% Admin Salary: 40,000 Use these accounts to prepare CompuTech's Income Statement for the year ended December 31, 2021.
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