Question

Background: During your first business class, you saw the opportunity to bring white paper squares to the Salisbury University market. On a whim, you started manufacturing low quality, thin, white, flexible squares of paper. Shockingly, your business took off and the company was successful in competing in a saturated market. Seeing the need for diversification, you launched a new specialty product with the hope of increasing sales and setting the business apart. With moderately good recording keeping and a solid IT infrastructure, paper sales skyrocketed. The writing was on the wall, if you want to grow and remain competitive, it was time to expand. After many brainstorming sessions you decide on three areas where expansion would be most valuable. A couple of employees seemed an obvious choice. The team you started with turned out to be slackers, and since record keeping is clearly not your strong suit, you believe it would be worth hiring an accountant. In addition you would like to increase sales with a salesperson and an inventory manager. You are currently operating your business out of a classroom at the Perdue School and it is therefore, clearly time to secure an office and manufacturing space. You really want to focus on your core seller and while you are known for your thin, low quality, highly irregular paper, your hands are blistered and full of paper cuts. For the sake of your skin, you would like to purchase a reliable paper cutting machine. Knowing, the old business adage, “it takes money to make money” you decide to pitch your business plan in the Salisbury University Entrepreneurship Competition with the hopes of enticing an investor. You plan is to present and ask for $100,000 in startup money but know any good investor will want to make sure a return is possible. After extensive research, you compile a list of information surrounding the three areas of expansion. Research Details: Fortunately, you have been in the paper business long enough to have some solid market knowledge. Your business goal is to increase efficiency and sales in such a way that puts your competitors out of business. With your knowledge and the insider information you have secured on your competitors, you decide to use the market values (not your individual company) to estimate sales. You manage to compile the following information on the three expansion areas to help you create your forecast and pitch this to potential investors: Employees : As a startup, you can’t pay your employees a high salary but you hope to entice them with good working environment, a strong benefits package and time off. You hope to start with three employees in addition to you - the principal owner. Each will work the paper cutter and provide additional business support. You are planning on paying each of your employees $25.00 per hour or $20,800 per year. You estimate with salary, insurance, and benefits, each employee will cost you about $35,000 per year. You know this is not a strong financial offer so you decide to sweeten the pot by offering a 4-day work week. You base this on the traditional 52 week working calendar. It is true that many small business owners do not draw a salary for a number of years, but you can’t do that - you have no other source of income. You are hoping your new cutter will allow you to take at least $60,000 this first year. As the business becomes secure, you are sure you will be able to pay yourself more. New Location: With the cities incentives to bring new manufacturing companies downtown, you were able to secure a deal for six dollars a square foot in a 1000 ft.² facility. Your rent of $6,000 per month allows you space to operate your paper cutter, house your new employees, and handle the day-to-day business. Your space will also work for expansion and you estimate it will last for the next many years. Fortunately, your lease covers insurance, maintenance, and building taxes. Paper, Cutter, & Production: If you start buying your paper in reams (500 sheets), you can get a 10% discount on the markets average price. While the cutter is much faster than scissors, it still takes a toll on your employee’s wrist. You estimate that an employee can't cut for more than 4 hours each day and you decide that one 4-hour cutter shift per day is the best way to ensure both the cutter and your employee does not get burnt out. The cutter only needs one employee to run it. A new paper cutter will allow a single employee to cut 2 reams per hour. This is much better than the 6 hours it would take to cut one ream by hand. As the cutter is used the blade becomes dull. The manufacturer’s recommendation is to change the blade every 1,000 sheets or 2 reams. Blades cost $5.00 to replace. Based on the market and what you know of paper sales, you make the assumption that every bit of paper you produce, you can sell. Cutter cost is $6000 for one Average original square sale price is $3.76 Average original paper purchase price is $3.64 Even though your specialty item can demand a high price, you recognize the strength of your business lies in its core operation - original squares. Other business expenses: After talking to a lawyer and insurance agent, you estimate company insurance at $38.00 per month. Business licenses and lawyer fees should run you about $2,000 each year. You expect to spend the equivalent of $1 per ream on advertising and marketing. Additional miscellaneous business expenses you hope to keep below $500 per month. You expect to pay about 30% in taxes Your cutter will depreciate over the course of 1 year - meaning it won’t be worth anything at the end of the year. You expect to pay 6.1% interest on your loan each year. Assignment A: Create a 1-year projected forecast with one cutter and three employees. Make sure your case has the following Correct information in the Constants section Formulas in the Production Calculations section Formulas and/or cell references in the forecast section

Answer 1

Hi,

Calculation given herein below. Please note that due to the size of the image exceeding the approved limit I pasted the calculation herein below. For the cells marked in yellow in Forecast table, supporting calculation given beneath the table.

Forecast Calculation
Particulars	Unit	Rate	Nos	Total Amount
Revenue
Sale price of paper	No of Papers	$     3.76	832000	$   3,128,320
Costs
Salary
Accountant	Employee			$       (35,000)
Salesperson	Employee			$       (35,000)
Inventory Manager	Employee			$       (35,000)
Owner	Owner			$       (60,000)
Rent (For 12 Months)	Month	$ (6,000)	12	$       (72,000)
Cutter Costs	Unit	$ (6,000)	1	$         (6,000)
Paper Costs	No of Papers	$    (3.28)	832000	$ (2,725,632)
Blade Costs	No of Blades	$         (5)	832	$         (4,160)
Company Insurance	Month	$       (38)	12	$            (456)
Business License + Lawyer Fees	Year	$ (2,000)	1	$         (2,000)
Advertising & Marketing	No of Reams	$         (1)	1664	$         (1,664)
Miscellaneous Expenses	Month	$     (500)	12	$         (6,000)
Interest on Loan (On $100,000 @6.1% / Year)	Year	$ (6,100)	1	$         (6,100)
		Net Profit/(Loss)		$      139,308
Taxes			30%	$      (41,792)
Profit After Taxes				$        97,516
Supporting Calculation
Employee required for One Cutter	1
No of Hours worked / Day	4
No of Working Days	4
No of Working Weeks	52
Total No of Hours / Employee	832
No of Reams that can be cut / Hour	2
Total No of Reams	1664
No of Blades to be replaced / 2 Reams	832
No of Paper / Reams	500
No of paper produced	832000
Price of / Paper	$           3.64
Price of / paper after 10% discount	$           3.28