Question: MINICASE Chapter 18 Garnett Jackson, the founder and CEO of Tech Tune-Ups, stared t the windo...

MINICASE Chapter 18 Garnett Jackson, the founder and CEO of Tech Tune-Ups, stared t the window as he finished his customary peanut butter and jelly dwich, contemplating the dilemma currently facing his firm. ech Tune-Ups is a start-up firm, offering a wide range of com- ter services to its clients, including online technical assistance, ote maintenance and backup of client computers through the temet, and virus prevention and recovery. The firm has been 'ghly successful in the 2 years since it was founded; its reputation fair pricing and good service is spreading, and Mr. Jackson lieves the firm is in a good position to expand its customer base idly. But he is not sure that the firm has the financing in place to rt that rapid growth. Tech Tune-Ups' main capital investments are its own powerful mputers, and its major operating expense is salary for its consul- ts. To a reasonably good approximation, both of these factors w in proportion to the number of clients the firm serves. Currently, the firm is a privately held corporation. Mr. Jackson his partners, two classmates from his undergraduate days, have tributed $250,000 in equity capital, largely raised from their nts and other family members. The firm has a line of credit a bank that allows it to borrow up to $400,000 at an interest of 8%. So far, the firm has used $200,000 of its credit line. If when the firm reaches its borrowing limit, it will need to raise ity capital and will probably seek funding from a venture capi- firm. The firm is growing rapidly, requiring continual invest- t in additional computers, and Mr. Jackson is concerned that it approaching its borrowing limit faster than anticipated. 525 Mr. Jackson thumbs through past financial statements and esti- mates that each of the firm's computers, costing $10,000, can sup- port revenues of $80,000 per year but that the salary and benefits paid to each consultant using one of the computers is $70,000. Sales revenue in 2011 was $1.2 million, and sales are expected to grow at a 20% annual rate in the next few years. The firm pays taxes at a rate of 35%. Its customers pay their bills with an average delay of 3 months, so accounts receivable at any time are usually around 25% of that year's sales. Mr. Jackson and his co-owners receive minimal formal salary from the firm, instead taking 70% of profits as a "dividend," which accounts for a substantial portion of their personal incomes. The remainder of the profits are reinvested in the firm. If reinvested profits are not suffi- cient to support new purchases of computers, the firm borrows the required additional funds using its line of credit with the bank. Mr. Jackson doesn't think Tech Tune-Ups can raise venture funding until after 2013. He decides to develop a financial plan to determine whether the firm can sustain its growth plans using its line of credit and reinvested earnings until then. If not, he and his partners will have to consider scaling back their hoped-for rate of growth, negotiate with their bankers to increase the line of credit, or consider taking a smaller share of profits out of the firm until further financing can be arranged. Mr. Jackson wiped the last piece of jelly from the keyboard and settled down to work. Can you help Mr. Jackson develop a financial plan? Do you think his growth plan is feasible?

Chegg Study TEXTBOOK SOLUTIONS XPERT OL PRACTepe Sign in More Question: MINICASE Chapter 18 Garnett Jackson, the founder and CEO o MINICASE Chapter 18 Gamett Jackson, the founder and CEO of Tech Tune-Ups, stared t the window as he finished hi eustomary peanut butter and jelly dwich, contemplating the emma errently ing His fim ech Tune Ups is a start-up offering a wide range of com-ter services to its clients, including cnline technical assistance, ote maintenance and bachup of cient computers through the tenet, and vns Drevention and recovery. The frm has been .ghly successful in the 2 years snoert was founded: its reputation fair pricing and good service spreading, and Mr. Jackson leves thp fmns n a good position to expand its ortomer baseidy. But hent not that the frrm has the financing place to rt that rapid growth. Tech Tune-ups. main caokal investments reits own powerful moters, and its major operating eperse is salary for consul. t, To reasonably good apprormation, both of these factors w propertion to the number of Clients the fm, serves Currently, the fim is a privately heid corporation M, Jackson Pis partners, two classmates from his undergraduate days, have tributed 250,000 in equity capa largely raised from their nts and other family members The firm has a line of credit a bank that allows t to borrow UD toS400:000 at an interest of 8% So fathe fem has used S200.000 of itscredit ine,when the fern reaches its borrowing limit, it will need to raise ity capital nd will probably seek funding from a venture capi- fem The firm is growing rapidy, requiring continul invest- t in additional computees, and Mr, Jackson is concened that it approaching its bomowing limit fasher than anicipated 525 Mr. Jackson thumibs through past financial stabements and esti- mates that each of the firm comouters coting $20.000 can sup-port revenues of $80,000 per year but that the salary and bene ts paid to each consutan using one of the coroners 's 70,000. Sale, revenue r, 20was Slaniion and sam sre expected 50 grow at a 20% annual rate in the next few years. The firm pays tanes at a rate of 35%. ns customers pay ther bis with an average delay of 3months, so accorts receivable at any time are usualy around 25% or that year's sales Mr. Jackson and his ceowners recevo mnmal forma. salary from the fm nstead taking 70% e, ceofits as a 'ovidend," which accoves for a substamu portion of ther personal incomes The remainder of the profts are reinvested in the firm If reinvested profits are not suffi-cient to support new purchases ofcormoners, the firm borrows the required additionfunds using its ine of credit with the bank, Mr. Jackson doesn't think Tech Tune-Ups can raise ventune funding untl after 2013 He decides to develop a financial plan to determine whether the firm can usten its grown plans wing its inw of credit and rervested earnngs urel then. If not_ he hit Donners wil hav to onder scing back ther hoed-forate of growth, negotiane with their bankers to increase the line of creit, or co taking "maller sharo corones 0nA 0" th.rm untanather fir asting carte arranged Mr. Jackson woed the last Diece or "ey from the keyboard and seied down to work Can you help Me Jackson develsp a financial plan? Do you think his growth plan i feasible Expert Answer Get this answer with Chegg Study Ganett Jackion the foud response, plus Esce pread a 700-10S0 word porate Fnance Beiay peciicalview the full ans View this