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You manage a life-style apparel brand and are trying to expand your customer base. Your investment team provides you with the following proposal: to attract
You manage a life-style apparel brand and are trying to expand your customer base. Your investment team provides you with the following proposal: to attract more customers, you will provide a financing option in the form of 1 year interest free credit on all purchases, which will expand your sales (OPREV) by $300,000 each year for the next 5 years. To meet the higher demand, you need to invest in new machines worth $600,000 CAPEX. The IRS allows you to depreciate apparel machinery over 5 years straight line. You have total operating expenses of 40% of current sales, and you need stock inventory of the amount of 80% of expenses one year before sales are recorded, e.g., $1 in current revenue leads to $0.40 cent in operating expenses, of which inventory the year prior is $0.32. Taxes are a flat 21%. F
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