Your company, Home Maintenance, Inc., has decided to expand into lawn care. The expansion will involve the purchase of a truck, trailer, mowers, edgers and other miscellaneous equipment costing approximately $70,000. This equipment will have no salvage value at the end of three years. They will be depreciated on a straight-line basis over 3 years. The average price per lawn is $50, and you expect to be able to do 300 lawns per week, for 20 weeks of the year. You expect to do the same number of lawns each year. You will have three employees whom you will have to pay $9 each, or $27 total, per lawn. The cost of gas and oil is approximately $4 per lawn. You will spend some of your own additional time managing the business, and value this time at $16,000 per year. You estimate that you will need approximately $2,500 in working capital immediately, which you will get back at the end of the project. You paid $3,000 last year for a business plan and permit for the lawn service. Your company is financed entirely with equity. Assume the appropriate cost of capital for the project is 15%.
Prepare pro-forma income statements for the three years.
Determine whether you should you open this business.