| Data |
| Item | Quantity/Cost |
| Projected unit sales of ResiNet | 100,000.00 |
| Wholesale price in $ | 260.00 |
| Outsourcing cost in $ | 110.00 |
|
| Calculation steps |
| 1. Engineer costs |
| 50 Enginners each at a cost of $200 000.00 | 10,000,000.00 |
|
| 2. Equipment and depreciation |
| New equipment | 7,500,000.00 |
| Equipment salvage value | 1,000,000.00 |
|
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
| Rate (MACRS) | 20.00 | 32 | 19.2 | 11.52 | 11.52 | 5.76 |
| Depreciation Allocation | 1,500,000.00 | 2,400,000.00 | 1,440,000.00 | 864,000.00 | 864,000.00 | 432,000.00 |
|
| 3. Working capital |
| Working capital | Year 1 | Year 2 | Year 3 | Year 4 |
| Recievables @ 15% of sales | 3,900,000.00 | 3,900,000.00 | 3,900,000.00 | 3,900,000.00 |
| Payables@ 40% of cost of goods sold | 4,587,200.00 | 4,587,200.00 | 4,587,200.00 | 4,587,200.00 |
| Working capital(Recievables less payables | -687,200.00 | -687,200.00 | -687,200.00 | -687,200.00 |
| Cost of Working capital if it is negative at the treasury yield (1 year rate @ 1,5%) | 10,308.00 | 10,308.00 | 10,308.00 | 10,308.00 |
| Discount rate of 12 % recievables | 468,000.00 | 468,000.00 | 468,000.00 | 468,000.00 |
|
|
| 4. Cost benefit analysis |
| I will list all the costs and revenues flows in the lifespan of the product. Most of the costs have been tabulated above. The cost benefit analysis will then give an indication of the viability of the project. The project will be viable if the profit is more that the cost of the feasibility. |
| Revenue and Costs Schedule |
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Costs |
| Intial investment in $ | 5,000,000.00 |
| Depreciation | 1,500,000.00 | 2,400,000.00 | 1,440,000.00 | 864,000.00 | 864,000.00 |
| Engineering and design | 10,000,000.00 |
| Marketing and promotion | 2,800,000.00 | 2,800,000.00 | 2,800,000.00 | 2,800,000.00 |
| Outsourcing cost@110 | 11,000,000.00 | 11,000,000.00 | 11,000,000.00 | 11,000,000.00 |
| Cost of working capital | 10,308.00 | 10,308.00 | 10,308.00 | 10,308.00 |
| Discount cost | 468,000.00 | 468,000.00 | 468,000.00 | 468,000.00 |
| Total costs | 15,000,000.00 | 15,778,308.00 | 16,678,308.00 | 15,718,308.00 | 15,142,308.00 | 864,000.00 |
|
| Revenue |
| Sales | 26,000,000.00 | 26,000,000.00 | 26,000,000.00 | 26,000,000.00 |
| Salvage value | 1,000,000.00 |
|
| Total Revenue | – | 26,000,000.00 | 26,000,000.00 | 26,000,000.00 | 26,000,000.00 | 1,000,000.00 |
|
| Net profit(Revenue less costs) | 10,221,692.00 | 9,321,692.00 | 10,281,692.00 | 10,857,692.00 | 136,000.00 |
|
| Taxes @40% of net profit | – | 4,088,676.80 | 3,728,676.80 | 4,112,676.80 | 4,343,076.80 | 54,400.00 |
|
| Tax refund | – | – | – | – | – |
|
| Net income after taxes and tax refund | 4,088,676.80 | 3,728,676.80 | 4,112,676.80 | 4,343,076.80 | 54,400.00 |
|
|
| Analysis |
| Income from year 1 to year 4 | 16,273,107.20 |
| Less .Initial investment | 15,000,000.00 |
| Income from the venture | 1,273,107.20 |
|
| Recommendation is to undertake the project as the venture will return a profit of $1.23m. The projected profit is also above the cost of what the consultants will be paid which is $300 000.00. |
| It is important to note that variation in the costs is mainly due to use of MACRS depreciation which allocates earlier years a higher depreciation cost. |
| In this analysis we have tried to capture all the cost. Year 0 is not subject to income analysis . |
