Football Mower Analysis

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By:

Shane R. Rettberg

Table of Contents

INTRODUCTION 3

PROFORMA STATEMENT 3 WORST & BEST CASE SCENARIOS 3

SENSITIVIY ANALYSIS 4

INTEREST EXPENSE 14

CASH BREAKEVEN 15

ACCOUTNING BREAKEVEN 16

FINANCIAL BREAKEVEN 17

INVESTMENT 18

INTERNAL RATE OF RETURN 18

NPV SENSITIVITY 19

OPERATING LEVERAGE 20

CONTINGENCY PLANNING 21

APPENDIX A 22-23

APPENDIX B 24-25

APPENDIX C 26-27

APPENDIX D 28-29

APPENDIX E 30

APPENDIX F 30

APPENDIX G 31

APPENDIX H 32

APPENDIX I 33

Introduction

We were asked to analyze whether or not the Football Mower is a viable project to invest in based upon a given set of parameters. We were also required to determine at what level the Football Mower would become the most profitable or to determine if it was profitable at all.

We started by creating a standard proforma statement based upon the base assumptions that were given. We also calculated the proforma statement using an optimistic outlook with increased sales of 15% above the normal, and a pessimistic one using 15% below the normal.

Proforma Statement

In preparing our normal proforma statement we calculated the estimated cash flows for the next 10 years based upon the unit sales and price per unit in the assumptions. Our calculation determined that based upon the circumstances and costs given, the Football Mower project has a negative net present value of $11,061,250 with an Internal Rate of Return of 5.96% (Appendix A).

The problem is that with the cost of capital at 18% and the variable costs at $400 per unit, the project is not feasible. Essentially it...