Bob, the new Chief Marketing Officer at the XYZ company has proposed an expansion of the companies marketing efforts. He claims that an investment of $1,000,000 in marketing research this year, and following this with an increase in marketing expenditures of $250,000 a year will increase sales by 10% each year over the sales forecasted without the marketing program. The sales forecasts and costs are shown below. The market research study is not depreciable but should be considered as an investment in year 0.
Year 0 1 2 3 4
Revenue without Marketing program $18,000,000 $20,000,000 $22,000,000 $24,000,000 $26,000,000
Proposal increase in revenue 10%
Revenue with Marketing program $18,000,000 $22,000,000 $24,200,000 $26,400,000 $28,600,000
COGS percentage of revenues 48%
S.G.A. (no change)
Market Research $1,000,000
Annual Marketing Increase $250,000
Working Capital (all kinds) 45% of revenue
Determine the how the present worth would be affected by prices of $47, $49, $51 and $53 with a quantity sold of 55,000.
$47 $49 $51
($61,716) ($421,235) ($181,556) $58,123
Use the Data Table function in Excel (MSExcel 2010). ...
The expert calculates the incremental revenues and incremental COGS.
Creating a Statement of Cashflows
1. In Module 3, you will take your income statements and start to construct a cash flow
2 .Using the income statement from Assignment 1, forecast a ten year cash flow using the following assumptions: from 2010-2019
Capital Expenditures of $50,000 per year.
Leasehold Improvements of $10,000 per year.
DSO of 75 Days.
Inventory Turnover of 12 times.
Accounts Payable of 30 days.
Depreciation is constant.
The combined Federal and State Tax Rate is 40%.
There are no additional financing expenses associated with the transaction.
After you have completed your cash flow forecast, calculate a Net Present Value assuming a discount rate of 15%.