general battery company gbc is formulating plans

Question

General Battery Company (GBC) is formulating plans to open Battery Exchange Centers throughout the U.S. where All-Electric car owners can exchange batteries in one minute.

GBC has developed and tested a few prototype centers in the past year at a total cost of $10,000,000. They now are seeking investors to open these throughout the U.S. over the next few years by selling franchises. This project is to prepare a proposal for one of these centers that can be presented to perspective investors. The proposal will be a five year plan to encourage readers to invest in a franchise.

• Capital Investment will be initially needed for each center as follows:  

 Batteries: 100 * $5,000 each

Chargers: 25 at $2500 each

Transfer machines: 5 at $75,000 each

Installation: $200,000

• Depreciation on the capital investment is five year MACRS. 
• Each recharging facility is expected to generate revenue of $3,000,000 annually in the first year.  This revenue per center is expected to grow by the following percentages each year.

Year	0	1	2	3	4	5
Revenue		$3,000,000
Revenue growth %			10%	25%	30%	20%

• Variable costs including utilities, labor and material costs, but excluding batteries, is estimated at 70% of the revenue.
• The Land and building for each center will be leased at an annual cost of $100,000 annually.
• Local administrative expense for each center is estimated at $150,000 annually.
• Local Marketing is planned at $36,000 annually.
• Starting in year 2, batteries and equipment will have to be refurbished at a cost of $100,000 per year.
• GBC will assess each local center for its nation-wide activities.  This includes such things as Corporate Administration, product research, national marketing, relationships with automakers, etc.  This corporate assessment is $250,000 annually that should a line item in the S.G.&A. of each center.
• Working capital of $500,000 is needed for Inventory, Accounts Payable, and Accounts Receivable.  It will be increased to $500,000 in year 0, maintained at that level for years 1 through 4, and returned to zero at the end of year 5.
• The value of each center if sold at the end of five years is forecasted to be $1,000,000.  Consider this as the salvage value in year 5.
• All tax rates are 35%
• The prime evaluation measure is the internal rate of return.

Investment Proposal.

The requirements are to prepare a proposal for potential investors.

1. Prepare a five-year Income Statements and Cash Flow Analysis
2. Prepare alternative scenarios that help potential investors understand the financial opportunities that the situation offers.
3. Prepare a MS Word document that could be distributed to potential investors that introduces the investment and presents information that an investor would likely need to seriously consider it.  Include any recommendations, opportunities, or concerns.  It should contain the following (the page indications are guidelines, not absolute requirements):
   1. Cover page
   2. Executive summary that would  encourage the reader to investigate the proposal
   3. An discussion of the  investment situation
   4. Financial analyses important  to an investor.  These financial statements can be  included in the Word document or submitted in a separate spreadsheet.
   5. Conclusion/summary
4. Submit the final report.