While using the presumptions gave in the case, every aspect of earnings statement and balance sheet might be forecast-ed for next three years 2010, 2011 and 2012. Sales cycle in the products from the organization is actually that sales from the particular product increases initially for handful of many then starts to state no since the new technology produced through the rivals renders that exact product obsolete. The current product combination of the business is within this stage presently it's been thought that sales from the organization increases substantially for an additional couple of years then stay for your third year. Internet Sales for next three years are actually thought as $120 million, $144 million and $144 million. Cost of products offered remains thought being 81.10% of sales for next three years.
New project NPV
Cost of Equity
Financing for New Project
Q1: Assuming the company does not invest in the new product line, prepare forecasted income statements and balance sheets at year-end 2010, 2011, and 2012. Based on these forecasts, estimate Flash's required external financing: in this case all required external financing takes the form of additional notes payable from its commercial bank, for the same period.
Q2: Assume that firm will issue equity if it decides to go ahead with the new project:
a: Construct a table showing all the project cash flows from initial outlay to termination.
b: Calculate the NPV, IRR and Payback period for the project.
c: Should the company accept or reject this investment opportunity?
Q3: How would this decision change if the executive team decided to finance the project with bank loans?