If you look at the bottom of the excel document, you will see tabs. I need assistance with Milestones 3 Metrics and Questions. Information can be found within the other tabs.
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RIO & REQUIREMENTS
Milestones)
ura-Clear windows” that never need washin ! Nothing sticks to them – not pollution, pollen, dirt, dust, ird droppings, ingerprints, nothing. You’ve invested all your own savings, your parents’ savings, and some of your friends’ savings as well into the R&D, production, and start-up of your business. It’s been three years since you started selling your windows primarily to single-family homeowners, but now apartment building contractors across the nation have been requesting your windows. Unfortunately, you’re already operating at full capacity. It’s time to make the switch from single-family homes to commercial buildings, but to do so requires a large infusion of funding for expansion. You need more of everything: space, equipment, employees, etc.
NOTE : You must show all your work. Either your computations are in the cell behind your result, or you must place them out to the right on the tab. If you choose to show your work out to the right, show all steps and label your work clearly so it can be understood. ESTONE 1: Sales Forecast ( 0 points)
23
, and you’ll be going on Shark Tank in 2 weeks. Using the information below, create your -year Sales Forecast for the years – .
1 75,000
2 1 . lace your results on the Sales line of the tab in the highlighted area. 2 tab. 0 points)
Required: 1 ) Using the information on the tab, create a 5-year forecasted Income Statement on the Forecasted Financials tab. 2 3 tab, compute various metrics based upon your forecasted financials. 4 tab. 0 points)
Required: 1 tab, use your forecasted financials from Milestone 2 to compute all of the following for each forecasted year: in sales dollars
and Flows and 2 tab. Milestone 1 Sales Forecast 2020 2023 2027 1,200,000 before Milestone 1 Questions 1 2 Assumptions % Required Rate of Return on their investment (needed for Milestone 3).
,000 per year in 2020-2022, increasing to $200,000 per year in 2023-2027. 2. Depreciation expense is included in S&A in the amount of 10% of Plant & Equipment each year.
.
into the 39.6% tax bracket. Because of this, use 36% as your effective tax rate. (NOTE: If the taxes shown for 2020-2022 seem high, it’s because you had income from another job that threw your LLC income into a slightly higher tax bracket. However, you’ll quit that job IF the sharks fund you!)
S: Plan to keep at 60% of Cash levels.
Forecasted Financials Fill in the yellow highlighted cells with your forecasted figures. SHOW ALL YOUR SUPPORTING CALCULATIONS! You may do this either within the cell by using formulas, out to the right, or both — clearly labeling your work. All your work must be shown on this sheet, not on a separate tab. DURA-CLEAR WINDOWS, LLC Proforma Income Statement 2020 Sales (all on credit) 1,200,000 )
400,000 )
before Taxes
60,000 DURA-CLEAR WINDOWS, LLC 2020 40,000 30,000 585,000 200,000 30,000 60,000 190,000 1,035,000 Milestone 2 Metrics All your work must be shown on this sheet, not on a separate tab. 2023 a b c d e f g ) for each year
2022 A S L P D Milestone 2 Questions 1 2 3 Milestone 3 Metrics SHOW ALL YOUR SUPPORTING CALCULATIONS! You may do this either within the cell by using formulas, out to the right, or both — clearly labeling your work. All your work must be shown on this sheet, not on a separate tab. 2023 a b 2 pts c d 3 pts e f 2023 Net Income a 3 pts b 3 pts c 3 pts d e 4 pts 2023 2023 3 pts Milestone 3 Questions 1 5 pts 2 5 pts 3 5 pts 4 5 pts
2
S
c
e
a
SCEN
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3
SCENARIO:
You invented “
D
g
b
f
Ever the optimist, you applied to the TV show Shark Tank–where entrepreneurs compete for funding from angel investors (“sharks”)–to see if a shark will invest in your company and serve as a mentor as well. To your surprise, you were accepted to the show! You’ve already prepared most of your marketing and sales pitches, and now it’s time to put together your forecasted financial statements. You intend to show the sharks that backing your business would be a very profitable investment. You also need to determine how much funding to ask for in exchange for how much ownership you’ll give up.
The following 2 Notes apply to all 3 Milestones!
1
Forecasted Financials
NOTE 2: Do not round computations until you have found your final answer. Then, round your result to the nearest dollar. No pennies!
MI
L
4
DUE: WEEK 3
It’s currently January 1,
20
5
2023
202
7
Information:
Actual annual sales in the past:
2020
20
21
20
22
Actual SALES
$
1,
200,000
$
1,500,000
$
1,
8
Because you feel your most recent sales are the best predictor of future sales, you weight your sales as follows: W1 = 0.2 and W2 = 0.8
Required:
(20 pts) Conduct a 2-year weighted annual sales forecast for the years 2023-
2027
P
Milestone 1 Sales Forecast
(20 pts) Answer the questions on the Milestone 1 Questions
MILESTONE 2: Creation of Forecasted Financials (
10
DUE: WEEK 5
It’s STILL January 1, 2023, and you’ll be going on Shark Tank in 2 weeks. You are unhappy with your previous Sales Forecast because your current sales to residences do not really predict your upcoming sales to commercial builders. You believe your incoming orders will be much higher than before with each order resulting in a much higher revenue stream. You decide to change your method of forecasting to a mix of Percent-of-Sales and Pro Forma forecasting.
(2
5 pts
Assumptions
(30 pts) Using the information on the Assumptions tab, create a 5-year forecasted Balance Sheet on the Forecasted Financials tab.
(20 pts) On the Milestone 2 Metrics
(25 pts) Answer questions about your results on the Milestone 2 Questions
MILESTONE 3: Analysis of Forecasted Financials (
6
DUE: WEEK 7
You’ve created forecasted financials assuming the sharks will provide the funding you’ll request for expansion. Now you need to determine the profitability of your proposal.
(40 pts) On the Milestone 3 Metrics
Fixed Costs and Variable Costs
Contribution Margin ratio
Breakeven
DOL
DFL
Growth rate of earnings
Operating
Cash
Free
Cash Flow
Year (and partial year) of Payback for your shark investor
IRR and NPV for your shark investor
(20 pts) Answer questions about your results on the Milestone 3 Questions
MILESTONE 1 SALES FORECAST
Fill in the yellow highlighted cells with your forecasted figures.
SHOW ALL YOUR SUPPORTING CALCULATIONS! You may do this either within the cell by using formulas, out to the right, or both — clearly labeling your work.
All your work must be shown on this sheet, not on a separate tab.
DURA-CLEAR WINDOWS, LLC
Proforma Income Statement
2021
2022
2024
2025
2026
Sales (all on credit)
1,500,000 1,875,000
Cost of Goods Sold
Gross Profit
Selling and Administrative Expense
Operating profit (EBIT)
Interest expense
Net Income
Taxes
Taxes
Net Income
Shares
Earnings per Share
MILESTONE 1 QUESTIONS
(10 points) How reliable is your Sales Forecast? Explain your answer.
(10 points) What are some ways you could potentially improve the accuracy of your forecast?
ASSUMPTIONS
NOTE: You will use a combination of the Proforma and the Percent-of-Sales methods to create your forecasted financials.
1
The Sharks gave you the $1,000,000 in funding you asked for in exchange for 25% ownership of your company’s profits. You issued 26,000 $1-par shares to the Sharks and updated your additional paid-in capital by the excess received. The sharks have a
9
2
All the following are complete by March 31, 2023: 1) your shark funding has been received, 2) new capital investments have been purchased and set up, and 3) additional labor has been hired and trained.
3
SALES:
a. All Sales are credit sales.
b. In 2023, your expanded operations enable Production and Sales to double your 2022 sales (due to selling more windows to the commercial builders and increasing the sale price per window).
c. Quantity of windows sold is expected to increase 25% every year from 2024 on.
d. Due to inflation and demand, at the start of 2024 you increase your selling price per window by 9%.
4
COGS: Compute your 2022 COGS as a Percent of Sales ratio, and then subtract 10% because you’ll be able to get volume discounts for your materials now that you’ve expanded. Use this adjusted ratio to forecast COGS across all years.
5
SELLING & ADMINISTRATIVE EXPENSE: S&A Expense is a “mixed” expense, so fixed expenses must be removed before forecasting S&A, and then added back once that’s done. Use a 3-year average Percent of Sales to forecast variable S&A expenses. (HINT: Recall that since S&A is an expense, and therefore negative, to remove fixed expenses, you must ADD them!) All S&A expenses are variable expenses EXCEPT for the following 2 fixed costs: 1. Rent expense of $
15
6
INTEREST EXPENSE: This is a Fixed cost, and is 10% of
Long-term Liabilities
7
TAXES: Because you live in a business-friendly State (Wyoming), you don’t have to pay state taxes on your LLC’s income. You do, however, still have to pay Federal taxes. Also, in 2022, higher tax rates were passed for the 2023 tax year, pushing income over $
400,000
8
SHARES: Issued 72,000 $1-par shares to the sharks for a 48% ownership stake.
9
CASH: Increases to $50,000 in 2023 and stays at that level.
10
MARKETABLE SECURI
TIE
Marketable Securities
11
ACCOUNTS RECEIVABLE: Use a 3-year average Receivables Turnover ratio to forecast.
12
INVENTORY: Compute a 3-year average of inventory as a percent of sales, and then use that figure to forecast inventory levels through 2027.
13
PLANT & EQUIPMENT: New capital expenditure of $750,000 dollars in 2023, paid for with equity funding from the sharks, rather than new debt. All capital expenditures are assumed to occur on January 1st of the year of purchase, and no equipment is sold or salvaged during the forecasted period.
14
ACCUMULATED DEPRECIATION: Each year, 10% of the total amount of Plant and Equipment is added to the depreciation amount.
15
ACCOUNTS PAYABLE: Use the 3-year average Current Ratio to forecast.
16
ACCRUED EXPENSES: Use the 3-year average Percent of Sales method to forecast.
17
LONG-TERM LIABILITIES: Pay down $100,000 of old debt every year starting in 2023.
18
COMMON STOCK ($1 Par): Increase by the dollar value of shares issued to sharks (26,000 shares at $1 par).
19
CAPITAL PAID IN EXCESS OF PAR: Compute new figure using shark investment, less par value of common stock.
20
RETAINED EARNINGS: Fill in the amount needed to balance the Balance Sheet.
21
DIVIDENDS: You do not pay dividends now and do not plan to while in a growth stage.
22
FIXED & VARIABLE COSTS: The only fixed costs are rent expense, depreciation expense, and interest expense. All other costs are variable.
MILESTONE 2 FORECASTED FINANCIALS
Forecasted Income Statement (25 points)
2021
2022
2023
2024
2025
2026
2027
1,500,000
1,875,000
Cost of Goods Sold
(800,000)
(1,0
40,000
(1,105,000)
Gross Profit
4
60,000
770,000
Selling and Administrative Expense
(304,900)
(350,500)
(443,700)
Operating profit (EBIT)
95,100
109,500
326,300
Interest expense
(
35,000
(45,000)
(85,000)
Net Income
60,100
64,500
241,300
Taxes
(36,900)
(49,200)
(55,600)
Net Income
23,200
15,300
185,700
Shares
60,000
78,000
Earnings per Share
$0.39
$0.26
$2.38
Forecasted Balance Sheet (30 points)
Proforma Balance Sheet
2021
2022
2023
2024
2025
2026
2027
ASSETS
Cash
30,000
30,000
Marketable Securities
20,000
25,000
Accounts Receivable
170,000
259,000
360,000
Inventory
230,000
261,000
290,000
Total Current Assets:
450,000
585,000
710,000
Plant and equipment
650,000
765,000
1,390,000
Less: accumulated depreciation
(65,000)
(141,500)
(280,500)
Net Plant and equipment
623,500
1,109,500
Total Assets
1,035,000
1,208,500
1,819,500
LIABILITIES & STOCKHOLDER’S EQUITY
Accounts Payable
310,000
505,000
Accrued Expenses
20,400
35,000
Total Current Liabilities
220,400
340,000
540,000
Long-term Liabilities
325,000
363,600
703,900
Total Liabilities
545,400
703,600
1,243,900
Common Stock ($1 par)
60,000
78,000
Capital paid in excess of par
190,000
262,000
Retained Earnings
239,600
254,900
235,600
Total Stockholder’s Equity
489,600
504,900
575,600
Total Liabilities & Stockholder’s Equity
1,208,500
1,819,500
MILESTONE 2 METRICS
SHOW ALL YOUR SUPPORTING CALCULATIONS! You may do this either within the cell by using formulas, or to the side or below — clearly labeling your work.
1
(10 points) Based upon your financial forecast for the years 2023 – 2027, compute the following ratios, placing your final results in the yellow highlighted area:
Industry Averages
2024
2025
2026
2027
Profit Margin
12.20%
ROA
8.75%
ROE
22.42%
Current ratio
2.33X
Quick ratio
1.45X
Debt-to-Total Assets
43.05%
TIE 10.28X
2
(10 points) Compute Required New Funds (
RNF
HINT: It may be helpful to fill out the table below identifying the necessary variables before attempting to compute RNF.
2023
2024
2025
2026
change in S
S2
MILESTONE 2 QUESTIONS
Inventory (5 pts) Is it reasonable to assume that inventory levels will remain the same percent of sales in your forecast
as when your business was smaller? Explain. What actions have you taken that should decrease the percent
of inventory in your forecast?
RNF (5 pts) You asked the sharks for $1M. Is it enough?
If it is not enough, or if you simply would like access to additional funds, what existing source(s) of funds could you use instead?
(HINT: Look at your financials.)
Ratio analysis
(5 pts) What trends do you see looking at your profitability ratios? What is causing this trend?
Are the sharks likely to challenge these figures?
(5 pts) What trends do you see looking at your debt utilization ratios? What is causing this trend?
(5 pts) How do you explain the difference between your liquidity ratios and the industry standard ratios?
MILESTONE 3 METRICS
1
(16 pts) Based upon your financial forecast for the years 2023 – 2027, compute the following, placing your final results in the yellow highlighted area.
HINT: Taxes should NOT be included in your Fixed or Variable costs for this computation.
2024
2025
2026
2027
Total Fixed Costs
2 pts
Total Variable Costs
Contribution Margin ratio (See Week 5 Lesson)
3 pts
Breakeven in sales dollars (See Week 5 Lesson)
DOL
3 pts
DFL
3 pts
2
(17 pts) Based upon your financial forecast for the years 2023 – 2027, compute a – e below FROM THE VIEWPOINT OF THE SHARK,
placing your final results in the yellow highlighted area. (HINT: Remember the shark has only 48% ownership!)
2024
2025
2026
2027
Change in Current Assets
Change in Current Liabilities
Depreciation Expense
Cash Flows from Operations (Total for company)
($1,000,000)
Cash Flows from Operations (shark only)
($1,000,000)
Payback (in years) of the shark’s $1M investment (x.xx years)
IRR of shark’s investment
4 pts
NPV of shark’s investment
3
(3 pts) What is the growth rate of earnings for each of the forecasted years?
2024
2025
2026
2027
4
(4 pts) Compute the following for the forecasted years. (Total company)
2024
2025
2026
2027
Free Cash Flow
1 pt
Free Cash Flow per share
MILESTONE 3 QUESTIONS
DOL & DFL
Is your DOL increasing or decreasing? What caused this, and what does it mean for your company? What about your DFL?
Breakeven Does your breakeven point (in terms of sales dollars) increase, decrease, or stay fairly level? Why do you think this is?
Financial Analysis
Based upon the Payback, IRR, and NPV results, is this a wise investment for the shark? Explain what your results mean. Finally, discuss whether you think your forecast is realistic, and explain why you think the way you do.
Cash Flow Looking at your FCF results, do you think you should have gone to the Sharks for money? If so, why? If not, why not?
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