After working for many years at a depressing corporate job, you and your co-worker, Sam, decide you
Question:
After working for many years at a depressing corporate job, you and your co-worker, Sam, decide you guys earnestly need to quit and start planning to open a brand new business together called "Project X". Before you can quit though, investors want you two to explain how much funding you guys will need to start this new business. Together you and Sam sit down and make the following projections for Project X's income statement for year one:
| Revenue | $ 2,000,000.00 |
| COGS | $ 1,000,000.00 |
| Gross profit | $ 1,000,000.00 |
| Other variable expenses | $ 200,000.00 |
| Depreciation | $ 50,000.00 |
| Other fixed expenses | $ 600,000.00 |
| Net profit | $ 150,000.00 |
Further, to start the business, your partner Sam tells you that Project X will need somewhere between $100K to $150K (i.e., you can assume $125,000) in capital assets. Also, Project X will carry inventory, and Sam projects that annual inventory turnover will be somewhere between 3.0 to 5.0 (i.e., just assume 4.0.) Finally, all sales will be on credit, and Sam projects that annual Accounts Receivable turnover will be somewhere between 9.0 and 11.0 (i.e., just assume 10.0).
How much financing (i.e. funding $) will you and Sam need to start your new business, Project X, together so you can finally quit your jobs and live your dreams? Explain your assumptions and process to your potential investors as to how you arrived at your answer (a paragraph or two write up).
Expert Answer:
Working Capital Accounts Receivable Inventory Working Capital 200000250000450000 Amount in ... View the full answer
