Help One Paragraph Start-up Capital Requirements Equipment (oven, trays, mixers)
ID: 2595653 • Letter: H
Question
Help One Paragraph
Start-up Capital Requirements
Equipment (oven, trays, mixers) $4350
Raw materials (per month) $45-650
Packaging (per month) $50-200
Health Permits $1200
Overall Attractiveness of the Investment
Annual Unit Sales: 2600 boxes
Price Per Unit: 1 box = $15 for 24 cookies. $0.62 per cookie
Variable Cost per unit (production and sales) : .085 per cookie
Fixed Costs (admin, production, and sales): 300
One-Time Startup Costs (Equipment, mktg, legal, etc.): $5550
Working Capital: (receivables, inventory, ect.): 150
Annual Growth and Income
G. Estimated annual income (AXB): $39,000
H. Estimated annual variable costs (AXC): $221
Estimated annual contribution margin (G-H-D): $38,479
Calculate Break-even figures
J. Contribution margin per unit (B-C): $0.535
K. Annual break-even quantity (D/J): 560.75
L. Ration of Break Even to expected quantities (K/A): 0.22
Estimated Startup Costs
M. Total up-front funds required (E+F): $5,600
N. Additional Units to cover up-front funds (M/J): 10467.29
O. Break-even quantity with up-front funds (K+N): $11,028.04
Financial Performance Figures
P. Payback period for startup funds (M/I): .146
Q. Annual Return on Startup Investment (I/M): 6.87
R. Variable Costs to price ratio (C/B): .137
S. Contribution Margin Ratio (I/G): .987
To conclude this section, you need to summarize what you learned from your assessment of start-up capital requirements and overall attractiveness of the investment, and rank financial feasibility using a 1-5 scale. You need to justify the number you selected on the 1-5 scale, and note concerns in the area financial feasibility analysis to guard against and/or try to overcome. Describe the most important areas you noted and how you plan to address them.
Explanation / Answer
As we know that every investment option requires some start-up capital but we should see whether that investment proposal will be able to cover overall start-up capital more quickly. Start-up capital refers to fixed amount of capital that is needed to start the project, if such capital is not arranged then project can not be started. Overall we can say that this this project will be good because contribution margin is very high and apart from this start-up capital will be recovered very quickly due to high contribution margin.
Now let’s rank financial feasibility;
Payback period for startup funds is .146 thus we can rank it as 1 because pay back period is very low and we know that very low payback period is always good for the project.
Annual Return on Startup Investment is also very attractive because overall this investment project will generate $38479 on the one time investment of $5600. Thus we will rank it as 1 out of 5.
Variable Costs to price ratio is looking very good because variable cost is 13.7% of the selling price hence we can say that due to very low variable costs this project is able to generate such amazing contribution margin. Thus we will also rate it as 1 out of 5.
Contribution Margin Ratio is also very attractive because it is .987 overall high degree of contribution margin will help in generating high amount of net income. Apart from this high percentage of contribution margin also will reduce break-even sale. Thus we will rank it as 1 out of 5.
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