Pro Forma statements showing expected annual revenues, variable costs, fixed costs, and net cash flows over the economic life of the project with appropriate supporting documentation:

Based on the data provided by Julian and the Manufacturer of the new Kiln, they prepared Table 1, showing the expected sales over its 10-year economic life and the expected selling price per job. Depreciation for this project was based on the 7-year MACRS rates as shown in Table 2. Julian estimated that he would need three 78 cubic foot gas kilns that cost $42,000 each. The cost shipping, handling, and installation, was estimated at $7,300 for the all three. It was estimated that after 10 years, the equipment and tools could be sold as scrap metal for about $3,000 a piece.

The kilns would require additional space. Available space in the area could be leased for $5,000 per month. Cost of production for both the Custom Art is 50% of the price and the Special Appeal Molds is about 40% of the price. Design Time for each Custom piece is about 5 hours. When Julian is working for contractors, he charges $100/hour. Some of the additional expenses that Julian and Gary identified include wages for the non-artistic workers. They expect that those costs will start at about $5,000 a year. Wages will be indexed with the CPI and increase at about 3% annually. Julian also agreed that he would need some more operational expense: Annual increase would include $1,500 in Advertising, $2,200 additional insurance premium, $600 more for equipment repair and about $800 more for general supplies. To get the project underway, some of the Special Appeal molds inventory of $10,500 would be required and would be paid for by an increase its accounts payable by $4,200. Once sales begin, Julian and Gary estimate that each year there after, the net working capital of the firm would amount to 6% of the next year sales for Special Appeal Art. The venture capitalist is looking for a return of about 18%. The companys tax rate is 34%.

Table 1

Projected Sales for Custom Art

Year	Unit Sales	Unit Price
1	16	$7,000
2	17	7,300
3	19	7,500
4	20	7,760
5	22	8,000
6	24	8,240
7	26	8,500
8	28	8,800
9	24	9,100
10	20	9,400

TABLE 1a Projected Sales for Special Appeal

Year	Unit Sales	Unit Price
1	5	$4,200
2	6	4,300
3	7	4,500
4	8	4,600
5	9	4,800
6	10	4,900
7	11	5,100
8	12	5,300
9	14	5,400
10	15	5,600

Table 2

Modified ACRS Depreciation Allowances

Year	3-Year	5-Year	7-Year
1	33.33%	20.00%	14.29%
2	44.44	32.00	24.49
3	14.82	19.20	17.49
4	7.41	11.52	12.49
5		11.52	8.93
6		5.76	8.93
7			8.93
8			4.45