Chat with us, powered by LiveChat Prepare either a 3-4 page report ?in which you analyze financial information and risks associated with an investment to expand an organization and make a recommendation o - Writeedu

Prepare either a 3-4 page report ?in which you analyze financial information and risks associated with an investment to expand an organization and make a recommendation o

Prepare either a 3-4 page report  in which you analyze financial information and risks associated with an investment to expand an organization and make a recommendation on whether or not to invest in expansion.

Introduction

This portfolio work project will allow you to review information and risks associated with an investment to expand an organization. As this information will be shared broadly across the organization, you will have a choice in your final deliverable audience and will organize your deliverable to meet the needs of that audience.

Scenario

ZXY Company is a food product company. ZXY is considering expanding to two new products and a second production facility. The food products are staples with steady demands. The proposed expansion will require an investment of $7,000,000 for equipment with an assumed ten-year life, after which all equipment and other assets can be sold for an estimated $1,000,000. They will be renting the facility. ZXY requires a 12 percent return on investments. You have been asked to recommend whether or not to make the investment.

Your Role

You are an accounting manager. Your boss has asked you to review and provide a recommendation on the expansion based on information that has been provided.

Requirements

In preparing and supporting your recommendation to either make the investment or not, include the following items as part of your analysis:

  • Analysis of financial information.
  • Identification of risks associated with the investment. Consider: 
    • How risky the project appears.
    • How far off your estimates of revenues and expenses can be before your decision would change.
    • The difference if the company were to use a straight line versus a MACRS depreciation.
  • Recommendation for a course of action.
  • Explanation of criteria supporting your recommendation.
Financial Information

As part of your analysis you might find that additional information from marketing, accounting, or finance would be useful in making an informed and well-supported recommendation. In a real workplace setting you would have the ability to ask for that information. However, for the purposes of this assessment, you can make assumptions about the values of that data or ratios in support of your recommendation.

Accounting worked with the marketing group to create the ZXY Company Financial Statements spreadsheet for the new products business and the new facility.

Notes about the financial information:

  • The expense line labeled SQF FDA Mandates refers to the costs of complying with Food and Drug Administration requirements.
  • Depreciation expense is calculated using 7-year life modified accelerated cost recovery system (MACRS).

Deliverable Format

Depending on the audience you choose to address, use one of the following options:

  • Report for a mid-management audience. Prepare a 3–4 page report detailing your recommendation and the information you used to make your recommendation.

Keep in mind that your recommendation may be shared with others, so your materials should be designed for clarity and readability.

Related company standards for either format:
  • The recommendation report is a professional document and should therefore follow the corresponding MBA Academic and Professional Document Guidelines, including single-spaced paragraphs.
  • In addition to the report or presentation, include: 
    • Title (slide or page).
    • References (slide or page).
    • Appendix with supporting materials.
    • At least two APA-formatted references.

Evaluation

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies through corresponding scoring guide criteria:

  • Competency 2: Apply principles of accounting to assess financial performance. 
    • Analyze financial statements for decision support.
    • Explain risks associated with an investment decision.
  • Competency 3: Analyze accounting information to support business decisions. 
    • Recommend a course of action based on financial information.
    • Explain how financial criteria support a decision.
  • Competency 4: Communicate financial information with multiple stakeholders. 
    • Communicate accounting information clearly.

Faculty will use the scoring guide to review your deliverable as if they were your boss. Review the scoring guide prior to developing and submitting your assessment.

ZXY

ZXY – Forecast
Ten Years
Pro-Forma Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total
Brand new Acme System – full system
Income
Revenue
Product A 2,400,000 2,800,000 2,800,000 3,240,000 3,900,000 3,900,000 3,900,000 3,900,000 3,900,000 3,900,000 34,640,000
Product B 900,000 1,350,000 2,500,000 3,000,000 4,000,000 4,950,000 5,500,000 22,200,000
Total · Revenue 2,400,000 2,800,000 2,800,000 4,140,000 5,250,000 6,400,000 6,900,000 7,900,000 8,850,000 9,400,000 56,840,000
Cost of Goods Sold
Pest Control 50,000 66,550 73,205 73,205 73,205 73,205 73,205 73,205 73,205 73,205 702,190
SQF FDA mandates 90,000 90,000 90,000 90,000 90,000 30,000 30,000 30,000 30,000 30,000 600,000
Rent – Plant 400,000 408,000 416,160 424,483 432,973 441,632 450,465 459,474 468,664 478,037 4,379,888
Plant Equip. – Fklf – Scrb/Lease 40,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 616,000
Plant Equip. – Ongoing maintenance 50,000 70,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 720,000
Plant Equip. – Parts 40,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 490,000
Miscellaneous – Equipment 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 150,000
Building repairs 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 250,000
Plant supplies 100,000 120,000 144,000 109,808 120,789 132,868 146,154 160,770 176,847 194,532 1,405,767
Plant Utilities 120,000 210,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 2,250,000
Garbage removal/Janitorial 30,000 45,626 52,470 52,470 52,470 52,470 52,470 52,470 52,470 52,470 495,388
Plant telephone 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 72,000
Plant payroll expense 495,000 675,000 825,000 885,000 915,000 975,000 1,005,000 1,065,000 1,095,000 1,125,000 9,060,000
Health Benefits 45,360 97,200 105,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 947,560
WC & P/R Expense 59,400 81,000 99,000 106,200 109,800 117,000 120,600 127,800 131,400 135,000 1,087,200
Installation/Additional Equipment 250,000 – 0 200,000 – 0 – 0 – 0 – 0 – 0 – 0 – 0 450,000
Total COGS 1,816,960 2,024,576 2,481,035 2,317,366 2,370,437 2,398,375 2,454,095 2,544,919 2,603,786 2,664,444 23,675,993
Gross Profit 583,040 775,424 318,965 1,822,634 2,879,563 4,001,625 4,445,905 5,355,081 6,246,214 6,735,556 33,164,007
Expenses Other than GOGS
Liability Insurance 60,000 91,253 104,940 104,940 104,940 104,940 104,940 104,940 104,940 104,940 990,776
Bank Service Charges 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 15,000
Interest on debt 90,627 187,626 232,323 206,766 166,740 122,959 75,071 31,993 7,539 111 1,121,754
Incentive Plan 13,200 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 145,200
Management 180,000 180,000 180,000 180,000 180,000 190,000 190,000 190,000 190,000 190,000 1,850,000
Workers Comp./P/R Taxes 21,600 21,600 21,600 21,600 21,600 22,800 22,800 22,800 22,800 22,800 222,000
Health Insurance Benefit 4,200 5,082 5,590 5,590 5,590 5,590 5,590 5,590 5,590 5,590 54,004
Office/Administrative Expenses 12,000 15,972 17,569 17,569 17,569 17,569 17,569 17,569 17,569 17,569 168,526
Legal and Professional – Tax 30,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 120,000
Cellular phones 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 50,000
Internet Services 4,400 5,856 6,442 6,442 6,442 6,442 6,442 6,442 6,442 6,442 61,793
Postage & Delivery 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448
Office supplies 11,000 9,983 10,981 10,981 10,981 10,981 10,981 10,981 10,981 10,981 108,829
Employee Food & Beverage 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448
Local/Business Taxes 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448
Property Taxes 12,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 147,000
Travel – Equip. Consultants 25,000 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 173,500
Licenses and Permits 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 100,000
Total Expense 470,627 592,964 658,777 633,220 593,194 560,613 512,725 469,647 445,193 437,765 5,374,724
Net Income before Depreciation 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282
Depreciation Expense ( 185,770 504,140 652,915 573,415 409,635 325,725 299,025 240,970 124,955 33,450 3,350,000
Tax Expense – 0 – 0 – 0 – 0 99,961 934,586 1,090,247 1,393,339 1,702,820 1,879,302 7,100,255
Net Income (73,357) (321,680) (992,727) 615,998 1,776,773 2,180,701 2,543,909 3,251,125 3,973,246 4,385,039 17,339,027
Forecast of Cash Flows
Net Income before Depreciation 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282
Deduct startup costs – 0 – 0 – 0 – 0 – 0 – 0 – 0 – 0 – 0 – 0 – 0
Cash flow before income taxes 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282
Working Capital – 0 – 0 – 0 – 0 – 0 – 0 – 0 – 0 – 0 – 0 – 0
Lease Payments – Principal 155,146 303,919 401,132 426,689 466,715 510,496 558,384 370,759 149,371 7,389 3,350,001
Pre-Tax Cash Flow (42,733) (121,460) (740,944) 762,725 1,819,654 2,930,516 3,374,796 4,514,674 5,651,651 6,290,402 24,439,282
Taxes – 0 – 0 – 0 – 0 99,961 934,586 1,090,247 1,393,339 1,702,820 1,879,302 7,100,255
After tax – Cash Flow (42,733) (121,460) (740,944) 762,725 1,719,693 1,995,930 2,284,549 3,121,335 3,948,831 4,411,100 17,339,027

CSTX Forecast Forecast 11

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