1. Cash Flow. Estimates must present sales projections and sales revenue, operating and administration costs, including copyright payments mentioned, plus depreciation, tax estimate, net cash flow. 2. Initial investment. The estimate of the initial investment, the working capital and the residual value must be included. If there is a need for investment during the life of the project, include it in the cash flow in the indicated year.
A new book publishing and sales project estimates that the first year 7,000 printed units and 2,000 digital units will be sold.
The printer will charge them $5 for each book.
The publisher will sell the books for $12 each.
The virtual books will be sold for $6 through a platform and the publisher receives $3.
The authors of the books receive 5% of the sales made by the publisher, whether online or in print, which is recorded as an expense.
The market study suggests that sales of printed books can increase at 20% per year and those of digital format at 30% per year.
The initial equipment will be reduced, since they work with the subcontracting of printed material. Basically, they include computer equipment, software and furniture that have a value of 20,000; In addition, a vehicle will be purchased for a value of 15,000. Computer equipment, software and furniture are
straight line in 5 years. In year 6, these equipments must be bought again for the same value.
The vehicle is depreciated over 10 years, and it is expected to last that period, so it should not be changed during the life of the project. Considering the type of equipment, it is not estimated that there will be residual or salvage value for any.
The government has various rates for income taxes; for profits greater than 200,000 dollars a year, 20% is paid, and for profits less than 199,999 dollars, the tax rate is 12.5%. The books are exempt from transfer taxes, but the company must pay income tax.
Operating expenses are estimated at $4,000 per month, this includes renting a house whose cost is $1,500 per month. . The owner of the house has told them that the house is worth 200,000 and that he would also be interested in selling it at some point.
Administrative expenses add up to $3,000 per month. Operating and administrative expenses are estimated to increase at 2% per year.
The interest rate that banks offer on their deposits is 3%, and an additional 6% is added to the rate that banks offer to reflect investment risk.
It is necessary to establish a working capital, as part of the initial investment, that covers the first six (6) months of operating and administrative expenses. This working capital must be included at the beginning of the
project as a
The payback of the project should not be more than 4 years.
The project is estimated to have a useful life of 10 years.
CARRY OUT:
1. Cash Flow. Estimates must present sales projections and sales revenue, operating and administration costs, including copyright payments mentioned, plus depreciation, tax estimate, net cash flow.
2. Initial investment. The estimate of the initial investment, the working capital and the residual value must be included. If there is a need for investment during the life of the project, include it in the cash flow in the indicated year.
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