MBA 640 Final Project Milestone Two Guidelines and Rubric Overview: The final project for this course is the creation of an external capital funding proposal.
Milestone Three: Financial Impacts of the project
Matthew Bogdanowicz
Southern New Hampshire University
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MBA 640
Project financial implications and benefits
Keurig Green Mountain (KGM) Cooperation intends to use it project expansion as value accelerator to its company finance. The company intends s to grow it sales by 8% annually due to large market increased due to international growth and market entry in India. Hence the projects will increase to net income due to increase in sales thus this first benefit the Cooperation intends to achieve under its projection (Treadway, 2015). The Kerurig Green Mountain Cooperation will diversify their revenue stream due to its new project. This will increase the total revenue generated internationally i.e. outside the United State. This will improve by almost 4% thus this will contribute to overall increase of total sales and net income of the company. Another financial benefit of this project to company is that the return of capital will improve (Treadway, 2015). The company return of capital will improve as result of the company expansion projects. Also, the project will increase the company market share globally hence increased their re-investment. The company capital will increase as result of their intended project.
Keurig Green Mountain (KGM) Company costs of goods as well as overall total cost will increase. Due to increase number of workers in the organization will increase the wage bill of the company. Also, through acquiring new assets i.e. lands and machines and equipments of the production will contribute to the cost increase of the company. Also, the license acquisition for new project will increase the company total costs.
Keurig Green Mountain (KGM) Company Incremental Cash flow
Cost of new production equipment and machinery including setup cost = $20,000,000
Expenses of hiring and training new employees = $1,250,000
Pre-start up advertisement costs and license acquisition = $ 200,000
Additional operating costs = $1,000,000
Unit sale forecast
Year 1 = 2,000,000
Year 2= 6,000,000
Year 3 = 12,000,000
Year 4 = 18,000,000
Year 5 = 21,000,000
Year 6 = 21,000,000
Year 7 = 21,000,000
Year 8 =21,000,000
Year 9 = 21,000,000
Year 10 = 21,000,000
Unit price per year = $60
Unit cost of manufacturing = (60% of the unit price)
The assumption is that from year 6 the production of unit remains the same.
Income and Expenditure Budget for the Next 10 years of the Keurig Green Mountain (KGM) Cooperation due to new Project Installation
Keurig Green Mountain (KGM) Company
Estimated Cash Flow
Global Expansion projects (000,000s)
| Revenue and Gross Margin | Year 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Units | 2 | 6 | 12 | 15 | 18 | 21 | 21 | 21 | 21 | 21 |
| Revenue (sales) | $120 | $360 | $480 | $720 | $1080 | $1,260 | $1,260 | $1,260 | $1,260 | $1,260 |
| Costs | $72 | $216 | $432 | $640 | $900 | $1,080 | $1080 | $1,080 | $1,080 | $1,080 |
| Gross margin | $48 | $144 | $48 | $80 | $108 | $180 | $180 | $180 | $180 | $180 |
| Tax deductible expenses | ||||||||||
| Fixed Costs | $90 | $90 | 90 | 90 | 90 | 90 | 90 | 90 | 90 | 90 |
| Depreciation | $20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 |
| General overhead | $2.4 | $4.4 | $6.3 | $7.2 | $8 | $9 | 9 | 9 | 9 | 9 |
| Total | $122.4 | 124.4 | 126.3 | 127.4 | 128 | 129 | 129 | 129 | 129 | 129 |
| Working capital | ||||||||||
| Accounts receivable | $14 | 15 | 20 | 25 | 26 | 26 | 26 | 26 | 26 | 26 |
| Inventory | $1 | 2 | 2 | 2 | 3 | 3 | 3 | 3 | 3 | 3 |
| Payables | Nil | |||||||||
| Working capital | $2 | $3 | $5 | $6 | $6 | $6 | $6 | $6 | $6 | $6 |
| Total | ($16) | (20) | (27) | (33) | (35) | (35) | (35) | (35) | (35) | (35) |
| Total tax | $10 | $12 | $12.5 | $13 | $14 | $14 | $14 | 14 | 14 | 14 |
| Net cash flow | ||||||||||
| Net cash | ($28.4) | ($34,4) | ($30.7) | ($30) | $36 | 36 | 36 | 36 | 36 | 36 |
The assumption is that the cash flow doesn’t change flow year 6. The price per unit does change over the same period.
The Project Revenue Generation Estimation and the Cost Estimation
Method
Cash flow statement methods: under this the estimation of the Keurig Green Mountain (KGM) Company financial returns will be included in this statement. The assumption is that due to they will be increased demand of the company products due to its expansion in India but the prices of these products will be the same compared t prices in United States. Also the product sales will increase globally hence resulting to higher margin of income. Furthermore, another assumption is that the capital purchase costs will be incurred in the only first year of the project expansion. Also, the wages of the employees are the same in different countries.
The net cash of the business without the project is equal
| Net cash flow | Year 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| $18 | $17 | $16 | $20 | $21 | $24 | $25 | $24 | $22 | $30 |
The net cash for the Company with the project
| Net cash flow | |||||||||
| Net cash | ($28.4) | ($34,4) | ($30.7) | ($30) | $36 | 36 | 36 | 36 | 36 |
Alternative financing of the project
Internal financing
Internal financing refers to use of the net income of the organization to finance it is project.
Advantages of using internal financing
The shareholders of the Kaurig Green Mountain will retain their ownership i.e. more ownership of the company. Hence less external sources funding, the more shareholders retains their company ownership.
Also, the company shareholders retain the control of the company. Less interest compared to equity and loan financing. Moreover, the company is better valued due to lack of external debts.
Disadvantages of internal financing
Lack of tax benefit associated with external funding. Also, difficult to manage daily operation of the company due to the use of the capital might is already budgeted. External funding increases financial management discipline in the organizationwhich might not be the case when using internal funding.
Combination of project financing funding
The company should use internal funding and external funding in project finding. This will increase discipline in the financial projects as well as reduce interest paid associated with the external funding. The benefit of Kaurig Green Mountain using both internal funding and external funding is gives the company advantages of both sources of funding. There is no reasonable option for the company to use since all optional are viable.
Kaurig Green Mountain Creditability
Financial Ratios of the Kaurig Green Mountain
Equity Ratio = total equity/ total assets
Total equity = $2,709,358
Total assets = $4,001,577
Equity Ratio = 2,709,358/4001577
=0.68
Debt Ratio = total liabilities/ total assets
=1,400,000/4001577
=0.35
Asset turnover ratio = 0.32
The Kaurig Green Mountain Company it is financial health status is intact.
Also, lack of court cases and business ethical standard of the employees have increased the company name branding. The company is credible on its dealing whether to supplier or to customers.The company offers quality beverage products and the company objective is to serve the coffee on the world.
References
Keurig Green Mountain: Can A Positive Guidance Pull The Company Out Of Its Misery? (2015, November 17). Retrieved from http://www.forbes.com/sites/greatspeculations/2015/11/17/keurig-green-mountain-can-a-positive-guidance-pull-the-company-out-of-its-misery/#4fe4f97b7c74
Steady rise in India’s coffee, tea consumption. (2011, June 4). Economic Times. Retrieved from http://ezproxy.snhu.edu/login?url=http://go.galegroup.com.ezproxy.snhu.edu/ps/i.do?p=ITBC&sw=w&u=nhc_main&v=2.1&it=r&id=GALE%7CA258005333&asid=cbb7a1e3aba548a82b2910ff41063101
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