You and two of your very best friends have started an engineering consulting fir
ID: 2575322 • Letter: Y
Question
You and two of your very best friends have started an engineering consulting firm. Being confident people you name your firm "We're Right and You Need Us." This firm studies advanced principles and makes recommendations to clients. You have established a monthly revenue stream of $150,000 per month for the first year from six customers (two per partner) located in the southwestern US. In other words, your total revenue is $150,000 per month and you pay all your costs out of that revenue. Your headquarters is Las Cruces, NM but you spend a lot of time traveling. You actually make about 30 trips per partner a year at an average cost of $2,500 per trip to make sales and attend conferences besides consulting. Every year you each buy a new computer and update software at $5,000 per year per partner. You hope to expand to four customers per partner by year 3 Assume revenue per customer is $15,000 per month. Create and explain a financial model that governs a five-year planning horizon for your firm. The three of you consult, travel, market, make sales calls, attend professional conferences and use computers and Internet access to do your jobs. Do not consider inflation, taxes or interest in any part of this analysis.Explanation / Answer
Answer:
Staement showing the profit and loss statement for next five years ignoring infation
Particular
Year 1
Year 2
Year 3
Year 4
Year 5
No of Customer
6
6
12
12
12
Revenue (A)
1,800,000
1,800,000
2,880,000
2,880,000
2,880,000
Less: cost incurred
Travelling cost
225,000
225,000
225,000
225,000
225,000
Software upgradation cost
15,000
15,000
15,000
15,000
15,000
Total cost Incurred (B)
240,000
240,000
240,000
240,000
240,000
Profit Earned (A-B)
1,560,000
1,560,000
2,640,000
2,640,000
2,640,000
Dstribution of profit
A
520,000
520,000
880,000
880,000
880,000
B
520,000
520,000
880,000
880,000
880,000
C
520,000
520,000
880,000
880,000
880,000
Note:
1. In the absnece of Profit shareing ratio it is assumed that profit and loss will be divide among partner in equal sahring ration i.e. 1:1:1
2.Since from third year the no. of customer will increase from 6 to 12 but revenue from next custome will be 15000*6*12 and the revenue from 1st 6 customer is 150000*12 therefore 1st two year revenue will be 150000*12 = 1800000 from 3rd year revenue will be 1800000+15000*12*6 = 2880000, but on the expenses will be same.
3. Above profit is ignoring inflation if you will consider the effect of inflation then the above profit will be change.
Particular
Year 1
Year 2
Year 3
Year 4
Year 5
No of Customer
6
6
12
12
12
Revenue (A)
1,800,000
1,800,000
2,880,000
2,880,000
2,880,000
Less: cost incurred
Travelling cost
225,000
225,000
225,000
225,000
225,000
Software upgradation cost
15,000
15,000
15,000
15,000
15,000
Total cost Incurred (B)
240,000
240,000
240,000
240,000
240,000
Profit Earned (A-B)
1,560,000
1,560,000
2,640,000
2,640,000
2,640,000
Dstribution of profit
A
520,000
520,000
880,000
880,000
880,000
B
520,000
520,000
880,000
880,000
880,000
C
520,000
520,000
880,000
880,000
880,000
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