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Flash Memory Essay

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The CFO of Flash Memory, Inc. prepares the company's investing and financing plans for the next three years. Flash Memory is a small firm that specializes in the design and manufacture of solid state drives (SSDs) and memory modules for the computer and electronics industries. The company invests aggressively in research and development of new products to stay ahead of the competition. Increased working capital requirements force the CFO to consider alternatives for additional financing. In addition, he must also consider an investment opportunity in a new product line that has the potential to be extremely profitable. Students must prepare financial forecasts, calculate the weighted average cost of capital (WACC), estimate cash flows, and …show more content…

a.Any decision to invest in the new product line will require an estimate of the discount rate (i.e., WACC). When estimating a WACC you should be clear on the inputs you used to calculate the cost of equity, cost of debt, and the relative weights of equity and debt. For this analysis use the target debt-to-equity ratio that is sought by the board of directors. 3.Estimate the pro-forma financial statements (i.e., income statement and balance sheet) for the years 2010, 2011, and 2012 assuming that Flash takes the new investment project and finances the project with debt. What issues might arise if Flash only uses debt financing? If debt financing turns out to have problems what are Flash’s alternatives?

As sales of Flash Memory Inc. (Flash) increases rapidly in the first few months of 2010, additional working capital is required to ensure smooth operations and maintain their current growth rate. However, Flash currently has almost reached its notes payable limit of 70% accounts receivables with its current commercial bank and thus, need to look for various alternative financing means to provide the required amount of funds it needs to finance its forecasted sales for year 2010 onwards. This report is written to provide an insight to Flash’s financial position for the following 3 years (2010 till 2012) through the use of pro-forma income statement and balance sheet. For Flash to be able to keep up with the

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