Isle Marine Boat Company

In: Business and Management

Submitted By nickff99
Words 969
Pages 4
TO: Potential Investors for IsleMarine Boat Company

FROM: Nick Valdez

DATE: 9/25/2015

SUBJECT: Plan of Production and Cost of Debt Analysis

Overview: The start-up company “IsleMarine Boat Company” is looking to raise capital in order to develop a new product in the boating market. I will present two plans for production and our optimal cost of capital based on the amount of capital needed to start this company.

Problem: Chris Waterson has been involved in the boating business for the majority of his career. He is now looking to enter into the existing market with a brand new product. The challenge in entering this new market is the amount of capital needed. Our first production process (Plan A) we will discuss needs 40 million in capital. Our second production process (Plan B) will need 45 million in capital. Also we must take into consideration is the cost of capital. In our analysis we have calculated our optimal cost of capital.

EBIT and ROI: Plan A is a labor-intensive process that requires less capital but also has higher variable costs. As shown in the appendix, the capital needed for Plan A is 40 million dollars. The advantage of this plan is there is less risk than Plan B and there is less capital required. Through our research we found that there is a 25% probability that unit sales will be 1,800, 50% that unit sales will be 7,000 and 25% probability that the unit sales will be 12,000. By calculating the expected ROI (28.23%) we can predict that Plan A is a viable option and would be favorable over Plan B because it would need less capital and have a favorable expected ROI. In addition to expected ROI we compared the expected ROI’s standard deviation against the two plans. Plan A’s standard deviation was 19.84% versus Plan B’s standard deviation of 20.04%. A startup company must take into account

Breakeven and Indifference Analysis:…...

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