ZXY Forecast Ten Years Pro Forma Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Brand new Acme System full system Income Revenue Product A 2,400,000 2,800,000 2,800,000 3,240,000 3,900,000 3,900,000 3,900,000 3,900,000 3,900,000 3,900,000 34,640,000 Product B 900,000 1,350,000 2,500,000 3,000,000 4,000,000 4,950,000 5,500,000 22,200,000 Total Revenue 2,400,000 2,800,000 2,800,000 4,140,000 5,250,000 6,400,000 6,900,000 7,900,000 8,850,000 9,400,000 56,840,000 Cost of Goods Sold Pest Control 50,000 66,550 73,205 73,205 73,205 73,205 73,205 73,205 73,205 73,205 702,190 SQF FDA mandates 90,000 90,000 90,000 90,000 90,000 30,000 30,000 30,000 30,000 30,000 600,000 Rent Plant 400,000 408,000 416,160 424,483 432,973 441,632 450,465 459,474 468,664 478,037 4,379,888 Plant Equip Fklf Scrb Lease 40,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 616,000 Plant Equip Ongoing maintenance 50,000 70,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 720,000 Plant Equip Parts 40,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 490,000 Miscellaneous Equipment 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 150,000 Building repairs 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 250,000 Plant supplies 100,000 120,000 144,000 109,808 120,789 132,868 146,154 160,770 176,847 194,532 1,405,767 Plant Utilities 120,000 210,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 2,250,000 Garbage removal Janitorial 30,000 45,626 52,470 52,470 52,470 52,470 52,470 52,470 52,470 52,470 495,388 Plant telephone 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 72,000 Plant payroll expense 495,000 675,000 825,000 885,000 915,000 975,000 1,005,000 1,065,000 1,095,000 1,125,000 9,060,000 Health Benefits 45,360 97,200 105,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 947,560 WC P R Expense 59,400 81,000 99,000 106,200 109,800 117,000 120,600 127,800 131,400 135,000 1,087,200 Installation Additional Equipment 250,000 200,000 450,000 Total COGS 1,816,960 2,024,576 2,481,035 2,317,366 2,370,437 2,398,375 2,454,095 2,544,919 2,603,786 2,664,444 23,675,993 Gross Profit 583,040 775,424 318,965 1,822,634 2,879,563 4,001,625 4,445,905 5,355,081 6,246,214 6,735,556 33,164,007 Expenses Other than GOGS Liability Insurance 60,000 91,253 104,940 104,940 104,940 104,940 104,940 104,940 104,940 104,940 990,776 Bank Service Charges 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 15,000 Interest on debt 90,627 187,626 232,323 206,766 166,740 122,959 75,071 31,993 7,539 111 1,121,754 Incentive Plan 13,200 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 145,200 Management 180,000 180,000 180,000 180,000 180,000 190,000 190,000 190,000 190,000 190,000 1,850,000 Workers Comp P R Taxes 21,600 21,600 21,600 21,600 21,600 22,800 22,800 22,800 22,800 22,800 222,000 Health Insurance Benefit 4,200 5,082 5,590 5,590 5,590 5,590 5,590 5,590 5,590 5,590 54,004 Office Administrative Expenses 12,000 15,972 17,569 17,569 17,569 17,569 17,569 17,569 17,569 17,569 168,526 Legal and Professional Tax 30,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 120,000 Cellular phones 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 50,000 Internet Services 4,400 5,856 6,442 6,442 6,442 6,442 6,442 6,442 6,442 6,442 61,793 Postage Delivery 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448 Office supplies 11,000 9,983 10,981 10,981 10,981 10,981 10,981 10,981 10,981 10,981 108,829 Employee Food Beverage 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448 Local Business Taxes 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448 Property Taxes 12,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 147,000 Travel Equip Consultants 25,000 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 173,500 Licenses and Permits 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 100,000 Total Expense 470,627 592,964 658,777 633,220 593,194 560,613 512,725 469,647 445,193 437,765 5,374,724 Net Income before Depreciation 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282 Depreciation Expense ( 185,770 504,140 652,915 573,415 409,635 325,725 299,025 240,970 124,955 33,450 3,350,000 Tax Expense 99,961 934,586 1,090,247 1,393,339 1,702,820 1,879,302 7,100,255 Net Income (73,357) (321,680) (992,727) 615,998 1,776,773 2,180,701 2,543,909 3,251,125 3,973,246 4,385,039 17,339,027 Forecast of Cash Flows Net Income before Depreciation 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282 Deduct startup costs Cash flow before income taxes 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282 Working Capital Lease Payments Principal 155,146 303,919 401,132 426,689 466,715 510,496 558,384 370,759 149,371 7,389 3,350,001 Pre Tax Cash Flow (42,733) (121,460) (740,944) 762,725 1,819,654 2,930,516 3,374,796 4,514,674 5,651,651 6,290,402 24,439,282 Taxes 99,961 934,586 1,090,247 1,393,339 1,702,820 1,879,302 7,100,255 After tax Cash Flow (42,733) (121,460) (740,944) 762,725 1,719,693 1,995,930 2,284,549 3,121,335 3,948,831 4,411,100 17,339,027 ZXY Company is a food product company ZXY is considering expanding to two new products and a second production facility The food products are staples with steady demands The proposed expansion will require an investment of $7,000,000 for equipment with an assumed ten year life, after which all equipment and other assets can be sold for an estimated $1,000,000 They will be renting the facility ZXY requires a 12 percent return on investments You have been asked to recommend whether or not to make the investment In preparing and supporting your recommendation to either make the investment or not, include the following items as part of your analysis Analysis of financial information Identification of risks associated with the investment Consider How risky the project appears How far off your estimates of revenues and expenses can be before your decision would change The difference if the company were to use a straight line versus a MACRS depreciation Recommendation for a course of action Explanation of criteria supporting your recommendation

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ZXY - Forecast Ten Years Pro-Forma Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year


ZXY - Forecast
											Ten Years
Pro-Forma Income Statement	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10	Total
Brand new Acme System - full system
Income
Revenue


Product A	2,400,000	2,800,000	2,800,000	3,240,000	3,900,000	3,900,000	3,900,000	3,900,000	3,900,000	3,900,000	34,640,000
Product B				900,000	1,350,000	2,500,000	3,000,000	4,000,000	4,950,000	5,500,000	22,200,000
Total Revenue	2,400,000	2,800,000	2,800,000	4,140,000	5,250,000	6,400,000	6,900,000	7,900,000	8,850,000	9,400,000	56,840,000


Cost of Goods Sold
Pest Control	50,000	66,550	73,205	73,205	73,205	73,205	73,205	73,205	73,205	73,205	702,190
SQF FDA mandates	90,000	90,000	90,000	90,000	90,000	30,000	30,000	30,000	30,000	30,000	600,000
Rent - Plant	400,000	408,000	416,160	424,483	432,973	441,632	450,465	459,474	468,664	478,037	4,379,888
Plant Equip. - Fklf - Scrb/Lease	40,000	64,000	64,000	64,000	64,000	64,000	64,000	64,000	64,000	64,000	616,000
Plant Equip. - Ongoing maintenance	50,000	70,000	75,000	75,000	75,000	75,000	75,000	75,000	75,000	75,000	720,000
Plant Equip. - Parts	40,000	50,000	50,000	50,000	50,000	50,000	50,000	50,000	50,000	50,000	490,000
Miscellaneous - Equipment	15,000	15,000	15,000	15,000	15,000	15,000	15,000	15,000	15,000	15,000	150,000
Building repairs	25,000	25,000	25,000	25,000	25,000	25,000	25,000	25,000	25,000	25,000	250,000
Plant supplies	100,000	120,000	144,000	109,808	120,789	132,868	146,154	160,770	176,847	194,532	1,405,767
Plant Utilities	120,000	210,000	240,000	240,000	240,000	240,000	240,000	240,000	240,000	240,000	2,250,000
Garbage removal/Janitorial	30,000	45,626	52,470	52,470	52,470	52,470	52,470	52,470	52,470	52,470	495,388
Plant telephone	7,200	7,200	7,200	7,200	7,200	7,200	7,200	7,200	7,200	7,200	72,000
Plant payroll expense	495,000	675,000	825,000	885,000	915,000	975,000	1,005,000	1,065,000	1,095,000	1,125,000	9,060,000
Health Benefits	45,360	97,200	105,000	100,000	100,000	100,000	100,000	100,000	100,000	100,000	947,560
WC & P/R Expense	59,400	81,000	99,000	106,200	109,800	117,000	120,600	127,800	131,400	135,000	1,087,200
Installation/Additional Equipment	250,000	-	200,000	-	-	-	-	-	-	-	450,000
Total COGS	1,816,960	2,024,576	2,481,035	2,317,366	2,370,437	2,398,375	2,454,095	2,544,919	2,603,786	2,664,444	23,675,993

Gross Profit	583,040	775,424	318,965	1,822,634	2,879,563	4,001,625	4,445,905	5,355,081	6,246,214	6,735,556	33,164,007

Expenses Other than GOGS
Liability Insurance	60,000	91,253	104,940	104,940	104,940	104,940	104,940	104,940	104,940	104,940	990,776
Bank Service Charges	1,500	1,500	1,500	1,500	1,500	1,500	1,500	1,500	1,500	1,500	15,000
Interest on debt	90,627	187,626	232,323	206,766	166,740	122,959	75,071	31,993	7,539	111	1,121,754
Incentive Plan		13,200	16,500	16,500	16,500	16,500	16,500	16,500	16,500	16,500	145,200
Management	180,000	180,000	180,000	180,000	180,000	190,000	190,000	190,000	190,000	190,000	1,850,000
Workers Comp./P/R Taxes	21,600	21,600	21,600	21,600	21,600	22,800	22,800	22,800	22,800	22,800	222,000
Health Insurance Benefit	4,200	5,082	5,590	5,590	5,590	5,590	5,590	5,590	5,590	5,590	54,004
Office/Administrative Expenses	12,000	15,972	17,569	17,569	17,569	17,569	17,569	17,569	17,569	17,569	168,526
Legal and Professional - Tax	30,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	120,000
Cellular phones	5,000	5,000	5,000	5,000	5,000	5,000	5,000	5,000	5,000	5,000	50,000
Internet Services	4,400	5,856	6,442	6,442	6,442	6,442	6,442	6,442	6,442	6,442	61,793
Postage & Delivery	1,100	1,464	1,611	1,611	1,611	1,611	1,611	1,611	1,611	1,611	15,448
Office supplies	11,000	9,983	10,981	10,981	10,981	10,981	10,981	10,981	10,981	10,981	108,829
Employee Food & Beverage	1,100	1,464	1,611	1,611	1,611	1,611	1,611	1,611	1,611	1,611	15,448
Local/Business Taxes	1,100	1,464	1,611	1,611	1,611	1,611	1,611	1,611	1,611	1,611	15,448
Property Taxes	12,000	15,000	15,000	15,000	15,000	15,000	15,000	15,000	15,000	15,000	147,000
Travel - Equip. Consultants	25,000	16,500	16,500	16,500	16,500	16,500	16,500	16,500	16,500	16,500	173,500
Licenses and Permits	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	100,000
Total Expense	470,627	592,964	658,777	633,220	593,194	560,613	512,725	469,647	445,193	437,765	5,374,724

Net Income before Depreciation	112,413	182,460	(339,812)	1,189,413	2,286,369	3,441,012	3,933,181	4,885,434	5,801,021	6,297,791	27,789,282

Depreciation Expense (	185,770	504,140	652,915	573,415	409,635	325,725	299,025	240,970	124,955	33,450	3,350,000
Tax Expense	-	-	-	-	99,961	934,586	1,090,247	1,393,339	1,702,820	1,879,302	7,100,255

Net Income	(73,357)	(321,680)	(992,727)	615,998	1,776,773	2,180,701	2,543,909	3,251,125	3,973,246	4,385,039	17,339,027



Forecast of Cash Flows

Net Income before Depreciation	112,413	182,460	(339,812)	1,189,413	2,286,369	3,441,012	3,933,181	4,885,434	5,801,021	6,297,791	27,789,282
Deduct startup costs	-	-	-	-	-	-	-	-	-	-	-
Cash flow before income taxes	112,413	182,460	(339,812)	1,189,413	2,286,369	3,441,012	3,933,181	4,885,434	5,801,021	6,297,791	27,789,282
Working Capital	-	-	-	-	-	-	-	-	-	-	-
Lease Payments - Principal	155,146	303,919	401,132	426,689	466,715	510,496	558,384	370,759	149,371	7,389	3,350,001
Pre-Tax Cash Flow	(42,733)	(121,460)	(740,944)	762,725	1,819,654	2,930,516	3,374,796	4,514,674	5,651,651	6,290,402	24,439,282

Taxes	-	-	-	-	99,961	934,586	1,090,247	1,393,339	1,702,820	1,879,302	7,100,255

After tax - Cash Flow	(42,733)	(121,460)	(740,944)	762,725	1,719,693	1,995,930	2,284,549	3,121,335	3,948,831	4,411,100	17,339,027

ZXY Company is a food product company. ZXY is considering expanding to two new products and a second production facility. The food products are staples with steady demands. The proposed expansion will require an investment of $7,000,000 for equipment with an assumed ten-year life, after which all equipment and other assets can be sold for an estimated $1,000,000. They will be renting the facility. ZXY requires a 12 percent return on investments. You have been asked to recommend whether or not to make the investment.

In preparing and supporting your recommendation to either make the investment or not, include the following items as part of your analysis:

Analysis of financial information.

Identification of risks associated with the investment. Consider:

How risky the project appears.

How far off your estimates of revenues and expenses can be before your decision would change.

The difference if the company were to use a straight line versus a MACRS depreciation.

Recommendation for a course of action.

Explanation of criteria supporting your recommendation.