MBA-FPX5010_VitosGarciaJavierAndres_Assessment4_1
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Expansion Recommendation
(Javier A Vitos Garcia)
Capella University
Daniela Pavel
Nov 12, 2023
MBA-FPX5010
Expansion Recommendation
2
Instruction – Evaluation Scenario
Ambitious food company ZXY is putting its green thumbs to work, aiming to sprout a
new plant and expand its delicious empire. Get ready to dig deep into those pockets, as this
expansion invites you to splash out $7,000,000 on some shiny new gear. Don't worry, though,
because these trusty machines will serve you faithfully for a solid decade, and if luck is on your
side, you'll be able to get a whopping $1,000,000 back when it's time to say goodbye to them.
They intend to rent the premises. ZXY wants a titanic 12% ROI, as if they were trying to squeeze
blood from a stone! Provide a recommendation on the investment decision.
Financial Information’s Analysis
By estimating ten times the expected useful life of the equipment, ZYX generates an
expected profit and loss account and an expected overflow account. From the revised statements,
the figures have been recorded gradually, but they are insufficient to finance the desired
expansion expenses. A new product may be produced until a fourth substitute is made because
the expected return does not reach the 12% required for the success of the investment. The
annual profit from the first three investments, which had a 12% return on the initial $7 million,
remained constant at $840,000. An example: A product with the new product has a projected
cash flow deficit of $73,357. The company expects $615,998 in positive cash flow under the
fourth option but remains in debt due to lost wages. Whether that revenue portal is still active for
the company, the company may remain in the red until halfway through the device's projected
lifespan, specifically the fourth round of the fifth day. After Wednesday, the net profit increased
steadily. Product B must be produced four times for the company to achieve positive net income.
Expansion Recommendation
3
Your net income for this period will be $615,998, as shown below. The company forecast growth
for the fourth consecutive year: product growth.
If the company is unsuccessful initially, it will probably be successful in 4 or 5 years. The
cash flows of $6,947,667.83, resulting from a rate of 12% and a useful life of ten years, are less
than the initial investment of $7,000,000. The expansion currently has a negative NPV of -
$52,332.17. With a 10% discount percentage, the NPV would be $8,023,305.91, exceeding the
initial investment and producing a profit. After ten years of production, the approximate financial
value of products A and B, as assessed by the company's financial statements, would exceed $56
million—projected gross profit: $33,164,007; net profit: $17,339,027.
Screenshot from Company’s Financial Statement:
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