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Operating Costs : This model assumes that each piece of furniture will have an average selling price of 2,000. This selling price includes the 100% mark-up offered to retailers. Table 1: Cost and Pricing Structure for European Sale and Manufacture. This issconsidered to. be the average cost and pricing structure for the standard contemporary furniture pieces. Capital Structure Nicholas Shadow will hold the majority of the shareholding 60%, with the remaining 40% to be allocated equally to the other two parties (Andreas Pelekanos 20% and Antonio Romeo 20\%). Nicholas Shadow will pay the full nominal value of his shareholding in cash (shares of 1.00 each) and Antonio Romeo 15%. The remaining shares ( 5% of Antonio Romeo's shareholding and 20% of Andreas Pelekano's shareholding) will not be paid in cash but they will be issued on the basis of an in kind contribution to the company of Antonio and Andreas respectively. The intention is to combine shareholding (equity) and debt capital (long term borrowing) for financing the lona term capital of the business. The debt capital will be obtained through the issue of a 10 year 41/2% convertible corporate bond (to be converted at maturity into ordinary share capital at the price of 2.50 per share). Recognising the high risk involved in a new business set up, the plan is to initialize the operation through a gearing (leverage) ratio of 50%. Table 2: Andreas Relecanos (Contemporary Epiplo Design) label Budgeted Financial Statements for the two years to 31 December 2024 and 2025 . Exercise: Prepare the new Balance sheet and Profit \& Loss statements according to the above notes: YOU MUST SHOW ALL THE CALCULATIONS AND WORKINGS 1. All sales are contracted for, before production - thus all production is to forward orders. 2. The business faces no seasonality. Therefore all sales are considered to flow normally during the year. iavie 0 . Dunyelen vilueis. 3. Inventory (stock) comprises of finished furniture pieces that have not been delivered to buyers. There is no stock of raw materials or work in progress. 4. All sales are on credit. 5. Collection s from debtors are based on an improving relationship with retailers. No allowance for bad debts has been made. i able4: collections rrom vebtors. 6. Capital funds to sales should eventually stabilize at about 10% of sales by the time the business is properly established. An increased investment in plant and equipment will be needed at the 2,500 furniture production level. 7. Depreciation is applied at 20% straight line. 8. Market Testa a well known European market research and promotion company based in Italy has 7. Depreciation is applied at 20% straight line. 8. Market Testa a well known European market research and promotion company based in Italy has been contracted to promote the Andreas Pelekanos (Contemporary Epipla Design) label. Market Testa has provided a comprehensive promotion plan with the costs involved as shown in table 5. The expenditure will provide for two major exhibition shows, media training, tv and radio interviews, advertorials in glossy magazine and several big parties for the critical media writers. The whole thrust of the PR campaign is to create a furniture designer label that is associated with its designer - it is 3 retailer independent. It is assumed that in the worst case scenario there will be no expenditure on the promotion of the Andreas Skarearis (Contemporari Epiplo Desian) label. Table 5: Costing for Creating the Andreas Pelekanos (Contemporary Epiplo Design) label.5 9. Estimated establishment costs are expected to cover the accounting and legal advice during the establishment of the business entity, costs associated with securing suitable leased premises and the initial round of staff recruitment. 10. The cost structure that will apply to this new business is estimated at: 9. Estimated establishment costs are expected to cover the accounting and legal advice during the establishment of the business entity, costs associated with securing suitable leased premises and the initial round of staff recruitment. 10. The cost structure that will apply to this new business is estimated at: i avie u. cstlliaten cust su ultule. 11. Administrative costs including rent are estimated at 150,000 per year. 12. Selling and distribution costs are a mix of fixed 200,000 per annum and 100 per piece of furniture sold. 13. All costs incurred are assumed to be paid immediately. 14. All figures are stated exclusive of direct and/or indirect (sales) taxes. For the purpose of calculating the WACC you may assume a 12.5% corporation tax. The dividend policy is proposed to stand at the 30% of Earnings ( 79% of Earnings will be transferred to the relevant reserve account). Operating Costs : This model assumes that each piece of furniture will have an average selling price of 2,000. This selling price includes the 100% mark-up offered to retailers. Table 1: Cost and Pricing Structure for European Sale and Manufacture. This issconsidered to. be the average cost and pricing structure for the standard contemporary furniture pieces. Capital Structure Nicholas Shadow will hold the majority of the shareholding 60%, with the remaining 40% to be allocated equally to the other two parties (Andreas Pelekanos 20% and Antonio Romeo 20\%). Nicholas Shadow will pay the full nominal value of his shareholding in cash (shares of 1.00 each) and Antonio Romeo 15%. The remaining shares ( 5% of Antonio Romeo's shareholding and 20% of Andreas Pelekano's shareholding) will not be paid in cash but they will be issued on the basis of an in kind contribution to the company of Antonio and Andreas respectively. The intention is to combine shareholding (equity) and debt capital (long term borrowing) for financing the lona term capital of the business. The debt capital will be obtained through the issue of a 10 year 41/2% convertible corporate bond (to be converted at maturity into ordinary share capital at the price of 2.50 per share). Recognising the high risk involved in a new business set up, the plan is to initialize the operation through a gearing (leverage) ratio of 50%. Table 2: Andreas Relecanos (Contemporary Epiplo Design) label Budgeted Financial Statements for the two years to 31 December 2024 and 2025 . Exercise: Prepare the new Balance sheet and Profit \& Loss statements according to the above notes: YOU MUST SHOW ALL THE CALCULATIONS AND WORKINGS 1. All sales are contracted for, before production - thus all production is to forward orders. 2. The business faces no seasonality. Therefore all sales are considered to flow normally during the year. iavie 0 . Dunyelen vilueis. 3. Inventory (stock) comprises of finished furniture pieces that have not been delivered to buyers. There is no stock of raw materials or work in progress. 4. All sales are on credit. 5. Collection s from debtors are based on an improving relationship with retailers. No allowance for bad debts has been made. i able4: collections rrom vebtors. 6. Capital funds to sales should eventually stabilize at about 10% of sales by the time the business is properly established. An increased investment in plant and equipment will be needed at the 2,500 furniture production level. 7. Depreciation is applied at 20% straight line. 8. Market Testa a well known European market research and promotion company based in Italy has 7. Depreciation is applied at 20% straight line. 8. Market Testa a well known European market research and promotion company based in Italy has been contracted to promote the Andreas Pelekanos (Contemporary Epipla Design) label. Market Testa has provided a comprehensive promotion plan with the costs involved as shown in table 5. The expenditure will provide for two major exhibition shows, media training, tv and radio interviews, advertorials in glossy magazine and several big parties for the critical media writers. The whole thrust of the PR campaign is to create a furniture designer label that is associated with its designer - it is 3 retailer independent. It is assumed that in the worst case scenario there will be no expenditure on the promotion of the Andreas Skarearis (Contemporari Epiplo Desian) label. Table 5: Costing for Creating the Andreas Pelekanos (Contemporary Epiplo Design) label.5 9. Estimated establishment costs are expected to cover the accounting and legal advice during the establishment of the business entity, costs associated with securing suitable leased premises and the initial round of staff recruitment. 10. The cost structure that will apply to this new business is estimated at: 9. Estimated establishment costs are expected to cover the accounting and legal advice during the establishment of the business entity, costs associated with securing suitable leased premises and the initial round of staff recruitment. 10. The cost structure that will apply to this new business is estimated at: i avie u. cstlliaten cust su ultule. 11. Administrative costs including rent are estimated at 150,000 per year. 12. Selling and distribution costs are a mix of fixed 200,000 per annum and 100 per piece of furniture sold. 13. All costs incurred are assumed to be paid immediately. 14. All figures are stated exclusive of direct and/or indirect (sales) taxes. For the purpose of calculating the WACC you may assume a 12.5% corporation tax. The dividend policy is proposed to stand at the 30% of Earnings ( 79% of Earnings will be transferred to the relevant reserve account)