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Prepare either a 3-4 page report  in which you analyze financial information and risks associated with an investment to expand an organization and make a recommendation on whether or not to invest in expansion.
Introduction
This portfolio work project will allow you to review information and risks associated with an investment to expand an organization. As this information will be shared broadly across the organization, you will have a choice in your final deliverable audience and will organize your deliverable to meet the needs of that audience.
Scenario
ZXY Company is a food product company. ZXY is considering expanding to two new products and a second production facility. The food products are staples with steady demands. The proposed expansion will require an investment of $7,000,000 for equipment with an assumed ten-year life, after which all equipment and other assets can be sold for an estimated $1,000,000. They will be renting the facility. ZXY requires a 12 percent return on investments. You have been asked to recommend whether or not to make the investment.
Your Role
You are an accounting manager. Your boss has asked you to review and provide a recommendation on the expansion based on information that has been provided.
Requirements
In preparing and supporting your recommendation to either make the investment or not, include the following items as part of your analysis:

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Analysis of financial information.
Identification of risks associated with the investment. Consider: 

How risky the project appears.
How far off your estimates of revenues and expenses can be before your decision would change.
The difference if the company were to use a straight line versus a MACRS depreciation.

Recommendation for a course of action.
Explanation of criteria supporting your recommendation.

Financial Information
As part of your analysis you might find that additional information from marketing, accounting, or finance would be useful in making an informed and well-supported recommendation. In a real workplace setting you would have the ability to ask for that information. However, for the purposes of this assessment, you can make assumptions about the values of that data or ratios in support of your recommendation.
Accounting worked with the marketing group to create the ZXY Company Financial Statements spreadsheet for the new products business and the new facility.
Notes about the financial information:

The expense line labeled SQF FDA Mandates refers to the costs of complying with Food and Drug Administration requirements.
Depreciation expense is calculated using 7-year life modified accelerated cost recovery system (MACRS).

Deliverable Format
Depending on the audience you choose to address, use one of the following options:

Report for a mid-management audience. Prepare a 3–4 page report detailing your recommendation and the information you used to make your recommendation.

Keep in mind that your recommendation may be shared with others, so your materials should be designed for clarity and readability.
Related company standards for either format:

The recommendation report is a professional document and should therefore follow the corresponding MBA Academic and Professional Document Guidelines, including single-spaced paragraphs.
In addition to the report or presentation, include: 

Title (slide or page).
References (slide or page).
Appendix with supporting materials.
At least two APA-formatted references.

Evaluation
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies through corresponding scoring guide criteria:

Competency 2: Apply principles of accounting to assess financial performance. 

Analyze financial statements for decision support.
Explain risks associated with an investment decision.

Competency 3: Analyze accounting information to support business decisions. 

Recommend a course of action based on financial information.
Explain how financial criteria support a decision.

Competency 4: Communicate financial information with multiple stakeholders. 

Communicate accounting information clearly.

Faculty will use the scoring guide to review your deliverable as if they were your boss. Review the scoring guide prior to developing and submitting your assessment.

cf_ZXY_company_financial_statements.xlsx

ZXY

ZXY – Forecast

Ten Years

Pro-Forma Income Statement
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Total

Brand new Acme System – full system

Income

Revenue

Product A
2,400,000
2,800,000
2,800,000
3,240,000
3,900,000
3,900,000
3,900,000
3,900,000
3,900,000
3,900,000
34,640,000

Product B

900,000
1,350,000
2,500,000
3,000,000
4,000,000
4,950,000
5,500,000
22,200,000

Total · Revenue
2,400,000
2,800,000
2,800,000
4,140,000
5,250,000
6,400,000
6,900,000
7,900,000
8,850,000
9,400,000
56,840,000

Cost of Goods Sold

Pest Control
50,000
66,550
73,205
73,205
73,205
73,205
73,205
73,205
73,205
73,205
702,190

SQF FDA mandates
90,000
90,000
90,000
90,000
90,000
30,000
30,000
30,000
30,000
30,000
600,000

Rent – Plant
400,000
408,000
416,160
424,483
432,973
441,632
450,465
459,474
468,664
478,037
4,379,888

Plant Equip. – Fklf – Scrb/Lease
40,000
64,000
64,000
64,000
64,000
64,000
64,000
64,000
64,000
64,000
616,000

Plant Equip. – Ongoing maintenance
50,000
70,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
720,000

Plant Equip. – Parts
40,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
490,000

Miscellaneous – Equipment
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
150,000

Building repairs
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
250,000

Plant supplies
100,000
120,000
144,000
109,808
120,789
132,868
146,154
160,770
176,847
194,532
1,405,767

Plant Utilities
120,000
210,000
240,000
240,000
240,000
240,000
240,000
240,000
240,000
240,000
2,250,000

Garbage removal/Janitorial
30,000
45,626
52,470
52,470
52,470
52,470
52,470
52,470
52,470
52,470
495,388

Plant telephone
7,200
7,200
7,200
7,200
7,200
7,200
7,200
7,200
7,200
7,200
72,000

Plant payroll expense
495,000
675,000
825,000
885,000
915,000
975,000
1,005,000
1,065,000
1,095,000
1,125,000
9,060,000

Health Benefits
45,360
97,200
105,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
947,560

WC & P/R Expense
59,400
81,000
99,000
106,200
109,800
117,000
120,600
127,800
131,400
135,000
1,087,200

Installation/Additional Equipment
250,000
– 0
200,000
– 0
– 0
– 0
– 0
– 0
– 0
– 0
450,000

Total COGS
1,816,960
2,024,576
2,481,035
2,317,366
2,370,437
2,398,375
2,454,095
2,544,919
2,603,786
2,664,444
23,675,993

Gross Profit
583,040
775,424
318,965
1,822,634
2,879,563
4,001,625
4,445,905
5,355,081
6,246,214
6,735,556
33,164,007

Expenses Other than GOGS

Liability Insurance
60,000
91,253
104,940
104,940
104,940
104,940
104,940
104,940
104,940
104,940
990,776

Bank Service Charges
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
15,000

Interest on debt
90,627
187,626
232,323
206,766
166,740
122,959
75,071
31,993
7,539
111
1,121,754

Incentive Plan

13,200
16,500
16,500
16,500
16,500
16,500
16,500
16,500
16,500
145,200

Management
180,000
180,000
180,000
180,000
180,000
190,000
190,000
190,000
190,000
190,000
1,850,000

Workers Comp./P/R Taxes
21,600
21,600
21,600
21,600
21,600
22,800
22,800
22,800
22,800
22,800
222,000

Health Insurance Benefit
4,200
5,082
5,590
5,590
5,590
5,590
5,590
5,590
5,590
5,590
54,004

Office/Administrative Expenses
12,000
15,972
17,569
17,569
17,569
17,569
17,569
17,569
17,569
17,569
168,526

Legal and Professional – Tax
30,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
120,000

Cellular phones
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
50,000

Internet Services
4,400
5,856
6,442
6,442
6,442
6,442
6,442
6,442
6,442
6,442
61,793

Postage & Delivery
1,100
1,464
1,611
1,611
1,611
1,611
1,611
1,611
1,611
1,611
15,448

Office supplies
11,000
9,983
10,981
10,981
10,981
10,981
10,981
10,981
10,981
10,981
108,829

Employee Food & Beverage
1,100
1,464
1,611
1,611
1,611
1,611
1,611
1,611
1,611
1,611
15,448

Local/Business Taxes
1,100
1,464
1,611
1,611
1,611
1,611
1,611
1,611
1,611
1,611
15,448

Property Taxes
12,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
147,000

Travel – Equip. Consultants
25,000
16,500
16,500
16,500
16,500
16,500
16,500
16,500
16,500
16,500
173,500

Licenses and Permits
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
100,000

Total Expense
470,627
592,964
658,777
633,220
593,194
560,613
512,725
469,647
445,193
437,765
5,374,724

Net Income before Depreciation
112,413
182,460
(339,812)
1,189,413
2,286,369
3,441,012
3,933,181
4,885,434
5,801,021
6,297,791
27,789,282

Depreciation Expense (
185,770
504,140
652,915
573,415
409,635
325,725
299,025
240,970
124,955
33,450
3,350,000

Tax Expense
– 0
– 0
– 0
– 0
99,961
934,586
1,090,247
1,393,339
1,702,820
1,879,302
7,100,255

Net Income
(73,357)
(321,680)
(992,727)
615,998
1,776,773
2,180,701
2,543,909
3,251,125
3,973,246
4,385,039
17,339,027

Forecast of Cash Flows

Net Income before Depreciation
112,413
182,460
(339,812)
1,189,413
2,286,369
3,441,012
3,933,181
4,885,434
5,801,021
6,297,791
27,789,282

Deduct startup costs
– 0
– 0
– 0
– 0
– 0
– 0
– 0
– 0
– 0
– 0
– 0

Cash flow before income taxes
112,413
182,460
(339,812)
1,189,413
2,286,369
3,441,012
3,933,181
4,885,434
5,801,021
6,297,791
27,789,282

Working Capital
– 0
– 0
– 0
– 0
– 0
– 0
– 0
– 0
– 0
– 0
– 0

Lease Payments – Principal
155,146
303,919
401,132
426,689
466,715
510,496
558,384
370,759
149,371
7,389
3,350,001

Pre-Tax Cash Flow
(42,733)
(121,460)
(740,944)
762,725
1,819,654
2,930,516
3,374,796
4,514,674
5,651,651
6,290,402
24,439,282

Taxes
– 0
– 0
– 0
– 0
99,961
934,586
1,090,247
1,393,339
1,702,820
1,879,302
7,100,255

After tax – Cash Flow
(42,733)
(121,460)
(740,944)
762,725
1,719,693
1,995,930
2,284,549
3,121,335
3,948,831
4,411,100
17,339,027

CSTX Forecast Forecast 11

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