Entrepreneurial Case Study An engineer has an idea for a new product. To get the product to market wil require an investment of $575,000. Salvage is expected to be 0, and the investment is expected to last 10 years. The investment qualifies for a 7 year life under the MACRS system of depreciation. Annual operating and maintenance costs are expected to be $25,000 before any increases. The investment also qualifies for a tax credit of 10%. This tax credit will not decrease the depreciable base. The engineer believes the product will sell for $35.00.. The expected annual demand is believed to be 7000. It is thought that the annual price increase for the product will be 2.3%. Labor and material expenses are expected to be $10.00 per unit. It is expected that these costs will increase 3% each year. Maintenance expenses are also expected to increase by 3% each year. Financing will be 78% through shareholders and 22% debt through a bank loan at 8.75% per year. The debt will be repaid through equal annual payments. The tax rate is 40%- Prepare a report analyzing this investment. Your report should be considered a report to potential investors. It must be well written with all graphs, charts, and tables clearly labeled. The report should be concise and to the point, and clearly show the basis for your analysis 7 hand a. Assume the investors want to earn a 10%, after tax return. Use the AEC equation to determine how many units need to be sold per year to earn this return. Construct a spreadsheet showing the ATCF, the EPS, and the income each year. Use solver to verify the units per year t. a Entrepreneurial Case Study An engineer has an idea for a new product. To get the product to market wil require an investment of $575,000. Salvage is expected to be 0, and the investment is expected to last 10 years. The investment qualifies for a 7 year life under the MACRS system of depreciation. Annual operating and maintenance costs are expected to be $25,000 before any increases. The investment also qualifies for a tax credit of 10%. This tax credit will not decrease the depreciable base. The engineer believes the product will sell for $35.00.. The expected annual demand is believed to be 7000. It is thought that the annual price increase for the product will be 2.3%. Labor and material expenses are expected to be $10.00 per unit. It is expected that these costs will increase 3% each year. Maintenance expenses are also expected to increase by 3% each year. Financing will be 78% through shareholders and 22% debt through a bank loan at 8.75% per year. The debt will be repaid through equal annual payments. The tax rate is 40%- Prepare a report analyzing this investment. Your report should be considered a report to potential investors. It must be well written with all graphs, charts, and tables clearly labeled. The report should be concise and to the point, and clearly show the basis for your analysis 7 hand a. Assume the investors want to earn a 10%, after tax return. Use the AEC equation to determine how many units need to be sold per year to earn this return. Construct a spreadsheet showing the ATCF, the EPS, and the income each year. Use solver to verify the units per year t. a
