Overview
RayDesks was contracted by Marathon Investment Incorporated to conduct a five-year financial analysis on the manufacturing of an ergonomic desk riser. Based on values given by all supporting roles on the RayDesks team, the information below helped determine the financial stability of the five-year venture.
Information below includes Initial Investments, Financial Analysis for years 1-5, and sensitivity analysis. The breakeven unit price for our product is $148. Based on current unit price and costs, the venture will not yield a profit. With certain changes to variables in sensitivity analyses conducted, a profit could be yielded, but will affect sales of the desk riser.
RayDesks was contracted by Marathon Investment Incorporated to conduct a five-year financial analysis on the manufacturing of an ergonomic desk riser. Based on values given by all supporting roles on the RayDesks team, the information below helped determine the financial stability of the five-year venture.
Information below includes Initial Investments, Financial Analysis for years 1-5, and sensitivity analysis. The breakeven unit price for our product is $148. Based on current unit price and costs, the venture will not yield a profit. With certain changes to variables in sensitivity analyses conducted, a profit could be yielded, but will affect sales of the desk riser.
Initial Investment and Loans
The initial investment and loans for this business can be found below.
The initial investment and loans for this business can be found below.
Financial Analysis for Years 1-5
RayDesks was able to conduct a financial analysis of the business venture from startup to year five based on all cost factors and unit price. The Net Cash Flow (NCF) for years zero through five can be found in Table 2. Based on the initial unit price and cash flow, RayDesks yields no profit in years one through five and the rate of return (ROR) is minute. Marathon Investments Incorporated would not yield a profit from this business venture with the current unit price and total costs.
RayDesks was able to conduct a financial analysis of the business venture from startup to year five based on all cost factors and unit price. The Net Cash Flow (NCF) for years zero through five can be found in Table 2. Based on the initial unit price and cash flow, RayDesks yields no profit in years one through five and the rate of return (ROR) is minute. Marathon Investments Incorporated would not yield a profit from this business venture with the current unit price and total costs.
EOY |
NCF |
1 |
$(3,365,579) |
1 |
$(6,305,552) |
2 |
$(6,586,029) |
3 |
$(6,693,224) |
4 |
$(6,819,709) |
5 |
$(6,991,579) |
Sensitivity Analysis
A sensitivity analysis was done to see how changing prominent variables would change the profit for Marathon Investments Incorporated. The variables that were changed consisted of unit price, material cost per unit, direct labor cost per unit, and general and administrative salaries. All variables were changed negatively and positively by 5%, 10%, 20%, 40%, and 60%. Increasing the unit price by 60% to $160 yields the highest ROR of 44.2% and allows a positive net cash flow in years one through five of the business venture. The best positive case, as shown in Table 4, in which unit price is increased by 40% and material cost per unit, direct labor cost per unit and general and administrative salaries were decreased by 40% yielded the highest ROR at 98.7% and a positive net cash flow in all five years. These prices and costs are not feasible with such a significant increase in unit price and a large decrease in general and administrative salaries.
A sensitivity analysis was done to see how changing prominent variables would change the profit for Marathon Investments Incorporated. The variables that were changed consisted of unit price, material cost per unit, direct labor cost per unit, and general and administrative salaries. All variables were changed negatively and positively by 5%, 10%, 20%, 40%, and 60%. Increasing the unit price by 60% to $160 yields the highest ROR of 44.2% and allows a positive net cash flow in years one through five of the business venture. The best positive case, as shown in Table 4, in which unit price is increased by 40% and material cost per unit, direct labor cost per unit and general and administrative salaries were decreased by 40% yielded the highest ROR at 98.7% and a positive net cash flow in all five years. These prices and costs are not feasible with such a significant increase in unit price and a large decrease in general and administrative salaries.
Sensitivity Analysis for 60% increase in unit price
EOY |
NCF |
$(3,365,579) |
|
1 |
$1,002,122 |
2 |
$1,532,795 |
3 |
$2,186,399 |
4 |
$2,829,678 |
5 |
$3,447,226 |
ROR |
44.2% |
Best Positive Case Analysis
EOY |
NCF |
$(3,365,579) |
|
1 |
$2,829,214 |
2 |
$3,501,543 |
3 |
$4,269,374 |
4 |
$5,030,368 |
5 |
$5,768,596 |
ROR |
98.7% |