Fin 571 Week 4

FIN 571 WEEK 4

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FIN 571 Week 4,

The XYZ Company Inc. has decided to launch a product line. The company plans to introduce 2-3 varieties of the product line over the next 5 years. Due to the new initiative the firm expects the sales to increase by 20% within years 1-3 and sales will slow down to 10% from that point. Management feels the total cost of sales will increase from 60.% to 65% in the first 3 years by following a push strategy. The first three years will result in high inventory, purchases and production costs. With learning curve the firm is confident of bringing down the Cost of Sales to 60% from Year 4 onwards.

To support growth, XYZ Company Inc. plans to invest strongly in net fixed assets as the current capacity utilization is close to 85%. Net cash flow generated by the company can also be used to retire long term debt by 10% every year.

Furthermore, the company wants to keep minimum cash balance of $20,000 to ensure short term liquidity is healthy. Projections indicate that accounts receivable will reduce to 60 in first 3 Years and total sales will increase. The impact of the initiative and the Working Capital requirements are as shown below

The operating margin will slowly improve to 22.3% by the end of Year 5.

The XYZ Company Inc. has decided to launch a product line. The company plans to introduce 2-3 varieties of the product line over the next 5 years. Due to the new initiative the firm expects the sales to increase by 20% within years 1-3 and sales will slow down to 10% from that point. Management feels the total cost of sales will increase from 60.% to 65% in the first 3 years by following a push strategy. The first three years will result in high inventory, purchases and production costs. With learning curve the firm is confident of bringing down the Cost of Sales to 60% from Year 4...