URGENT!!!

Pradeep Kumar, founder of Athlete Stars, has developed new material that can be used in athletic clothing to provide additional cautioning and support without violating competition standards in various sports. Pradeep Kumar is seeking financing that can be used to hire a clothing designer and produce several prototypes.

1. (5 points) What type of financing is this venture likely seeking and what are the potential sources?

Pradeep anticipates paying monthly rent of $700 for space in a local warehouse where the Athlete Stars products will be designed, developed, and tested. Utility expenses for power and heat are estimated at $150 per month. Pradeep estimates that the designer will require a salary of $6,000 per month and estimates the fair value of his time to be $6,500 per month. Materials needed to create initial prototypes are expected to cost $14,500. Pradeep anticipates that the clothing will be ready for market at the end of six months. Costs associated with test marketing are estimated at $11,000.

2. (5 points) Determine the amount of financial capital that Pradeep Kumar will need during the first six-months

Lets assume that Pradeep Kumar does indeed develop and successfully market several sports jackets and pants. Kumars venture will purchase materials for making the product from others, assemble the products at the Athlete Stars ventures facilities, and hire product sales representatives to sell the clothing items through local retail stores that sell athletic gear. The costs of fabric accessories and various decorative items, as well as the ingredients for the new material that makes the clothing unique is expected to be $26.3 per unit. Labor costs are projected at $45 per unit. Shipping and delivery costs are estimated at $3.20 per unit and Pradeep Kumar will have to pay commissions of $5.40 per unit sold to the sales representatives.

3. (5 points) What will it cost to produce and sell one clothing item?

4. (5 points) What price will Pradeep Kumar have to charge for each item if he wants a markup of 50 percent on each sale? Now, what would the retailers have to ultimately sell that item for if they, in turn, desired a mark-up before their expenses of 40 percent? Round your answers to dollars and cents.

5. (10 points) Suppose Pradeep Kumar decides to purchase the warehouse space for $90,000 and spends additional $23,000 on the equipment needed to mass produce the clothing. To support the sales, he also plans to maintain the average level of inventory of 150 units. Calculate ROA for Athletic Stars venture assuming annual sales of 2,500 units.
6. (15 points) Under the assumptions in problem 5, how many clothing items need to be sold in order to achieve the Survival Break-Even for the venture?
7. (15 points) What is the ventures cash conversion period if Pradeep Kumar pays for all the supplies in cash and makes no sales on credit?
8. (15 points) Value the venture assuming the sales are projected to start at 4,000 per year and are expected to grow by 10% per year in the foreseeable future. The venture is currently fully financed out of Pradeep Kumars savings. At the time of withdrawal, Phil Youngs savings account offered return of 2.5%. A venture capital firm contacted by Mr. Young indicated it would require a 20% return on investment into the venture, while a local bank offered a 7% loan on the condition that the warehouse is used as collateral.
9. (10 points) Based on your answer to question 8, is this venture worth financing? Explain your reasoning.

10. (15 points) Suppose in two years the success of the venture prompts Phil Young to expand into other sports accessories for children. The expansion would require an additional investment of 500,000. The venture firm willing to provide the financing demands 20% annualized return and has exit horizon of 5 years. The expansion is projected to produce an annual income of $1,357,000 at the time of exit. The average P/E ratio for similar firms is 4. What percentage ownership should Phil Young offer to the venture capital firm in exchange for their investment?