Problem:
Uncle Sal, our intrepid accountant, has recommended the purchase of a small business to his mother, Granny. The small business has the following sales projections:
Year Sales in Thousands
1 100
2 150
3 250
4 500
5 1000
Variable costs are as follows:
COGS 35% of sales figure
Selling Expenses 10% of sales
Taxes 35% of net Income
Fixed Expenses include:
Accountant $10,000 per year
Guido's Fee $12,000 per year
Rent $15,000 per year
Interest $6,000 per year
Depreciation $3,500 per year
Semi-fixed costs include:
Labor $5000 plus 10% of sales
A. Create a pro-forma income statement based on this information for the five year timeframe.
B. Should Granny take Sal's advise for this opportunity?