The main costs are therefore the wood sourcing and

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The main costs are therefore the wood sourcing and transportation, the designers' fees and the production costs for the accessories. Cost/income sources : In order to have an idea whether or not this project is profitable, it is important to know approximately what will be our outflows and inflows during the next five years: 1) Cost Investment: 2,000 (materials as seen in the previous paragraph) Price wood: 3€ per kilo 3,000 kilos per year 10,000 per year Transportation of wood (for production): 5,000 Cost of production (yearly contract for 5000 pieces): €3/unit - > €15 000 Distribution to the 160 selling points around the world: 10,000 We will have to employ for about a month a jewel designer that will design all our range of products: 4000 per month. (charge included) -> 2 months = €6000 Other minor costs (e.g.: thread, clips…) 2) Income We are thinking of producing 5000 accessories per year to begin with and we could sell them at an average price of €15 per article. Therefore the income would be of 15,000 .
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16 3) NPV Basing ourselves on the French inflation rate of December 2012 (1,3%), we can calculate the Net Present Value (NPV) of the project for a period of 5 years: Risks : The major risk that our company could encounter is the eventuality that these accessories are not sold. Nevertheless we have to keep in mind that the product is cheap to produce (low initial investment) as well as easy to stock if necessary. Therefore, we could start by producing and selling a small quantity of goods in order to analyze the demand. In conclusion, the risk for this project is low. Proposal 4 2013 2014 2015 2016 2017 2018 Total Req. Rate of return 10% Inflation 1,30% Outflows -38000 -42000 -42000 -42000 -42000 -42000 -248000 Inflows 75000 75000 75000, 75000, 75000 375000 Net inflows -38000 33000 33000 33000 33000 33000 127000 NPV 83 050
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17 Project Selection As we have seen, all these proposals are interesting in terms of strategy for the company and have the potential to increase significantly the company's sales as well as its brand recognition. In terms of the company analysis, we can summarize the main areas of concern and the expectation in terms of strategy by doing the following FAGUO’S SWOT analysis: STRENGHTS - Green approach - Cool, trendy design WEAKNESSES - Still an important carbon foot print - Chinese manufacturing (transportation costs; quality ?) OPPORTUNITIES - Develop the range - Reduce the carbon footprint - Increase the company’s « Green » image THREATS - European crisis (customers less willing to spend) - Increase in Chinese manufacturing costs The project that will be selected will have to be set up in less than a year and will have to get a positive return within 3 years. (Company's founder requirements) In order to select the definite project, we use different tools: 1) NPVs The first one is a simple comparison between the NPV to have a general overview of the different proposals costs.
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