View the step-by-step solution to:

Case Study #4 MGT 181 Rusty is a maker of custom high performance surfboards. He has successfully branched out into clothing. Recently one of his...

how to project pro forma cash statement.
should I start with asset or revenue?
I cannot combine asset revenue and expenses. and there are three volumes ..
please help me. ( I am asking about mgt 181 case study #4)
Case Study #4 MGT 181 Rusty is a maker of custom high performance surfboards. He has successfully branched out into clothing. Recently one of his largest competitors, Channel Islands Surfboards, was acquired by Burton Snowboards. Rusty believes that the potential of combining snowboard technology along with surfboards could significantly change the surfboard industry. He has recently been approached by a snowboard company to develop a line of snowboards. Rusty’s initial capital investment will be as follows: Tenant Improvements: $500,000 Equipment: $250,000 Computers, software, networking: $ 25,000 Vehicles: $ 50,000 He estimates his on-going costs to be: Cost of Goods Sold (Variable Costs) Materials 35% of revenues Production Labor $450,000 per year Sales, general and administrative (Fixed costs) Sales personnel $300,000 Travel & Entertainment $150,000 Promotional Events $300,000 Team Costs and Sponsorships $400,000 Administrative expenses $150,000 Rent $ 75,000 Miscellaneous expenses $100,000 Given the current economy Rusty believes that he will not be forced to pay higher fixed and variable costs during the second year of operations. (The salary figures include salaries plus all other personnel costs.) Rusty does not believe in hire and then fire so he established a policy of keeping the production people employed during the slow season. Rusty hopes to produce three separate models: the R1 is an intro board and costs $350. The R2 is an intermediate board and costs $450 and the R3 is an advanced board and costs $600.
Background image of page 1
The projected sales volumes are as follows: Year 1 Year 2 R1 4,250 4,250 R2 3,700 3,700 R3 2,400 2,400 Total 10,350 10,350 Please note that 75% of all sales come from January through March and then October through December. These sales are evenly allocated during these two three month periods. The remaining 25% of sales are evenly allocated during the April through September time period. Given the current economy Rusty does not forecast a price increase for the boards during the first two years of operations Project the pro-forma cash flow statement for Rusty’s snowboard venture. When does the breakeven occur? What is the NPV if Rusty’s cost of capital is 20%? What is the NPV if Rusty’s cost of capital is 10%? Should he go forward? How do we take into account any effects the new snowboard technology may have on Rusty’s surfboard business? (A short written answer is appropriate.)
Background image of page 2
Sign up to view the entire interaction

Top Answer

Dear Student, I have reviewed your assignment thoroughly, based on your assignment details and current... View the full answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online