Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You are at the end of 2010 and you found a great potential to sell drones to the public. You wanted to develop products as
You are at the end of 2010 and you found a great potential to sell drones to the public. You wanted to develop products as competitive as the Parrot AR.Drone, a smartphone-controlled video camera quadricopter. You analysed the market, the technology and the environment and you developed the following hypotheses for your business plan: You want to develop two innovative products in 2010, one cheap at 100 and one more developed at 250. Based on a market study, forecasts for the sales of those drones are the following: Number of drones Cheap product Developed product 2012 10 000 5 000 2013 20 000 10 000 2014 40 000 20 000 2015 60 000 30 000 2016 80 000 40 000 Variable costs include raw materials and distribution costs and are estimated to be 50% of the sales. Fixed costs include the development costs, employees' wages and marketing costs. They are however increasing in stages as the company is supposed to grow. In Fixed cost 2011 400 000 2012 2013 2014 2015 2016 1 000 000 1 000 000 1500 000 2 000 000 2 000 000 To manufacture the drones, you need to invest in a factory for 5 000 000 that will be linearly depreciated over 20 years. The working capital needs should represent 2 months of sales (sales in 2017 are estimated to amount to 22 000 000) Taxes on corporate income is 33% (a tax credit can be taken into account when the company is running losses). 1) Build a forecasted income statement for the next 6 years (2011-2016). Draw a table showing explicitly the logics of your calculations for each line. (15 points) 2) Build a forecasted cash flow statement including Cash Flows from Operations and Cash Flows from Investments for the next 6 years (2011-2016). Draw a table showing explicitly the logics of your calculations for each line. (15 points) 3) How much financing do you need to develop your activity? Justify your answer. (10 points) 4) What kind of sources of financing would you recommend for this activity? Debt or Equity? Explain the stakes and justify your answer. (10 points) 5) Were you to choose equity, to whom would you ask for financing? List the potential investors in the order you think would be best for you and justify your ranking. (10 points) 6) A venture capitalist is ready to invest in your business and you need to agree on a price. You believe that your FCF will increase by 5% perpetually after 2016. The cost of debt is assumed to be 3% and the cost of equity 15% for such a level of risk. Compute the value of your business based on your forecasts with a DCF model. (15 points) 7) Do you think your result truly represent the price of your business and should be a good basis for negotiation? Justify your answer. (10 points) 8) What would you recommend the venture capitalist to do to discuss/challenge the value you computed in question 6? Justify your answer. (15 points) You are at the end of 2010 and you found a great potential to sell drones to the public. You wanted to develop products as competitive as the Parrot AR.Drone, a smartphone-controlled video camera quadricopter. You analysed the market, the technology and the environment and you developed the following hypotheses for your business plan: You want to develop two innovative products in 2010, one cheap at 100 and one more developed at 250. Based on a market study, forecasts for the sales of those drones are the following: Number of drones Cheap product Developed product 2012 10 000 5 000 2013 20 000 10 000 2014 40 000 20 000 2015 60 000 30 000 2016 80 000 40 000 Variable costs include raw materials and distribution costs and are estimated to be 50% of the sales. Fixed costs include the development costs, employees' wages and marketing costs. They are however increasing in stages as the company is supposed to grow. In Fixed cost 2011 400 000 2012 2013 2014 2015 2016 1 000 000 1 000 000 1500 000 2 000 000 2 000 000 To manufacture the drones, you need to invest in a factory for 5 000 000 that will be linearly depreciated over 20 years. The working capital needs should represent 2 months of sales (sales in 2017 are estimated to amount to 22 000 000) Taxes on corporate income is 33% (a tax credit can be taken into account when the company is running losses). 1) Build a forecasted income statement for the next 6 years (2011-2016). Draw a table showing explicitly the logics of your calculations for each line. (15 points) 2) Build a forecasted cash flow statement including Cash Flows from Operations and Cash Flows from Investments for the next 6 years (2011-2016). Draw a table showing explicitly the logics of your calculations for each line. (15 points) 3) How much financing do you need to develop your activity? Justify your answer. (10 points) 4) What kind of sources of financing would you recommend for this activity? Debt or Equity? Explain the stakes and justify your answer. (10 points) 5) Were you to choose equity, to whom would you ask for financing? List the potential investors in the order you think would be best for you and justify your ranking. (10 points) 6) A venture capitalist is ready to invest in your business and you need to agree on a price. You believe that your FCF will increase by 5% perpetually after 2016. The cost of debt is assumed to be 3% and the cost of equity 15% for such a level of risk. Compute the value of your business based on your forecasts with a DCF model. (15 points) 7) Do you think your result truly represent the price of your business and should be a good basis for negotiation? Justify your answer. (10 points) 8) What would you recommend the venture capitalist to do to discuss/challenge the value you computed in question 6? Justify your answer. (15 points)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started