The Escholar Ent Fin Case assignment required you to input information into an integrated financial model. The benefit of the integrated financial model is that you can get a really good idea of how the company is doing and how all of the financial aspects affect each other. Please utilize your completed Escholar Ent Fin Case submission to answer the questions below.

#1 - How is the company doing at the end of Month 42? How do you know? (please identify where your numbers come from)

#2 - Is/was this a good investment for the investor? Why or why not?

#3 - If the investor backs out after the initial $2.5million investment, how long could the company last before running out of money? What would you do if you were the management team and realized you were running out of cash at that point?

Input the fact pattern below into the Integrated Financial Model workbook. Submit your completed excel spreadsheet with your name in the file name.

Integrated Technologies Inc. (ITI) is a new startup that is developing and introducing new products in the consumer electronics category. This company does the design work for new products, but outsources all of the production. There are only 5 employees working out of an office space. Rent is $2,000 per month. Utilities are $300 per month. Their investor has invested $4.5million for a 30% stake in the company. $2.5million is available in month 1 and the other $2million will be made available in $500,000 chunks every 6 months (in month 6 and month 12) as long as the team stays on track for profitability. The investor will provide another $5million once the company brings a new version of their product to market (Product 2).

The company will launch Product 1 at the beginning of Year 1. Based upon the company's market and customer research, they believe that the total market for their first product is approximately 1.2 million (units) per year. The company believes that they can sell 12,000 units of Product 1 in its first year. Sales will not be distributed evenly from month to month; they expect to see a spike in sales beginning in October, and ramping up through November and December due to the holiday season, and a continued (but smaller) bump in sales in January, due to the annual Consumer Electronics Show.

Jan 1000 units

Feb-Sep 5% of annual sales

Oct 1200 units

Nov 2100 units

Dec 2900 units

For Product 1, the company anticipates selling to distributors, who will then sell to retailers, with a target retail price of $400. The distributor has agreed to pay 75% of the retail price. ITI will have a Cost of Goods Sold of 75% of selling price. ITI has negotiated terms with their supplier to pay 80% of accounts payable upfront and the balance in the next month.

0% of sales will be in cash. Historically, in this industry, accounts receivable collections have been collected as follows, reflecting 60 day payment terms:

% collected in month of sale	5%
% collected in month following	10%
% collected in second month following	65%
% collected in third month following	8%
% not collected (bad debt expense)	12%

The company aims to keep a minimum of $10,000 in cash and 2 months of inventory on hand. ITI does not own its own manufacturing, and has no plans to purchase property, plant, or equipment.

The company runs lean and keeps very few full-time employees. The CEO makes $100,000 per year and the other 4 employees make $80,000 each per year. With a competitive benefits package, additional benefits account for 12% of salaries. They have no salaries that are considered direct expense, the company records all 5 salaries as administrative.

ITIs only insurance expense is the $1,000 monthly general business insurance they include as an administrative expense. They have an attorney and accountant on retainer for $1000 per month.

Office supplies are minimal at $100 per month, since printing and coffee are their main expenses. The company leases some prototyping equipment and computers for a total of $1200 per month.

In a crowded market, ITI knows that marketing is incredibly important. They start by spending $1000 in marketing in the first 8 months and then increase their advertising spend by 50% each month (previous month marketing spend x1.5) until the end of the year. They start with small blog and internet ads and ramp up to targeted magazine ads in magazines like Popular Mechanics, Pc World, and Scientific American for the holiday purchasing season.

In Year 2, the company intends to double sales of Product 1 as compared to Year 1, and the same distribution of sales from month-to-month is expected. Marketing must be increased to boost sales. They will spend $5000 per month in the first 8 months and then increasing by 50% each month until the end of the year. With increased order size and some tweaks to the product, ITI slashes Cost of Goods Sold to 65%. All other numbers remain the same from year 1.

In Year 3, ITI will roll out Product 2, which will replace product 1 in Month 1 of Year 3. Product 2 is a higher-end version of Product 1 and is planned to retail for $800, with a 65% cost of goods sold. ITI also hires a part-time sales person to boost sales. The salesperson works on 100% commission, which is $2 for every sale. They expect to sell approximately 22,000 units of Product 2 in Year 3, with similar month-to-month sales distribution to Product 1 (5% of sales in Feb-Sep, 10% in Oct, 17.5% in Nov, remainder in Dec). The only difference is that, due to retooling and as part of their marketing campaign, no products will be sold in Month 1. $10000 per month will be spent on marketing in year 3. Other expenses will not change.

Year 4 begins with 4200 sales in Month 1 due to a strong performance at the Consumer Electronics Show. Sales then level off at half that amount. New terms with the manufacturer lower the cost of goods sold to just 60%.