An engineering report, provided by a civil engineering firm on a fee-for-service basis, along with soil...

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An engineering report, provided by a civil engineering firm on a fee-for-service basis, along with soil samples, determines the depth at which to install the system for maximum foundation stabilization. The average price per installation is expected to be about $4500 yielding a 19% markup or a contribution per installation of $850. Since many consumers were expected to want to finance the system over at least 5 years, a local bank agreed to finance the sale of the system to credit worthy homeowners. While the addition of the stabilization system was seen as a complementary product to the repair business, Kent anticipated a substantial investment in materials, crew training, and equipment. Kent would need to locate additional capital as new areas were developed. Estimates of the initial investment needed for each market area are $150,000. This includes all the expenses of opening a new branch office; leasing office and storage space; hiring a general manager, sales staff, secretary, and work crews; equipment rentals; purchase of tools; and working capital of $25,000 per branch. Since the firm was already in business in the Tulsa market, the initial investment was expected to be only about $50,000 for that market. However, since the concept of a stabilization system was new, promotion expenses were expected to run about $50,000 a year for the first three years of operation and at least $25,000-$30,000 a year thereafter for all locations. Additional crews could be added and equipment rented within a short period of time to allow for wide variations in demand for the system. In the Tulsa market, a 2-5% penetration would yield a substantial base from which to expand into other areas of the country. EXHIBIT C17.7 Cost per Installation Material $1800 Labor $1200 Engineering Report $200 Sales Commissions Total Cost $450 $3650 The Smiths needed to calculate the expected returns they would make from an investment in the foundation system. In the case of the proposed venture, the net inflows of cash expected from the project should be equal to or greater than the net profit after taxes plus depreciation. The analysis should terminate after 10 years with zero salvage at that time, which would force the new company to stand alone with only the near term cash flows determining operational feasibility. The company wanted the new venture to generate an internal rate of return of at least 15% if it were to be launched An engineering report, provided by a civil engineering firm on a fee-for-service basis, along with soil samples, determines the depth at which to install the system for maximum foundation stabilization. The average price per installation is expected to be about $4500 yielding a 19% markup or a contribution per installation of $850. Since many consumers were expected to want to finance the system over at least 5 years, a local bank agreed to finance the sale of the system to credit worthy homeowners. While the addition of the stabilization system was seen as a complementary product to the repair business, Kent anticipated a substantial investment in materials, crew training, and equipment. Kent would need to locate additional capital as new areas were developed. Estimates of the initial investment needed for each market area are $150,000. This includes all the expenses of opening a new branch office; leasing office and storage space; hiring a general manager, sales staff, secretary, and work crews; equipment rentals; purchase of tools; and working capital of $25,000 per branch. Since the firm was already in business in the Tulsa market, the initial investment was expected to be only about $50,000 for that market. However, since the concept of a stabilization system was new, promotion expenses were expected to run about $50,000 a year for the first three years of operation and at least $25,000-$30,000 a year thereafter for all locations. Additional crews could be added and equipment rented within a short period of time to allow for wide variations in demand for the system. In the Tulsa market, a 2-5% penetration would yield a substantial base from which to expand into other areas of the country. EXHIBIT C17.7 Cost per Installation Material $1800 Labor $1200 Engineering Report $200 Sales Commissions Total Cost $450 $3650 The Smiths needed to calculate the expected returns they would make from an investment in the foundation system. In the case of the proposed venture, the net inflows of cash expected from the project should be equal to or greater than the net profit after taxes plus depreciation. The analysis should terminate after 10 years with zero salvage at that time, which would force the new company to stand alone with only the near term cash flows determining operational feasibility. The company wanted the new venture to generate an internal rate of return of at least 15% if it were to be launched