The attached spreadsheet is a model for the California based company known as Gustin. Gustin specializes in high quality denim jeans sold at wholesale prices. Our model contains a pro forma income statement as well as a balance sheet along with WACC, IRR, free cash flows, and a risk assessment. Our inputs are based on market assumptions in the area, as well as the cost of capital in California, tax rate, and current sales trends the company is experiencing. All of the inputs can be altered to yield alternate outputs if desired and includes links and citations to the assumed values.
Based on our calculations, Gustin has a weighted average cost of capital of 12.59%. By comparing this number with their forecasted internal rate of return of 19.15%, we can see that their return on investment outweighs the potential cost of capital. Therefore, it’s worth it for the company to invest in expanding their company as it is showing a strong chance of growth in the future. As far as financing goes, Gustin has accumulated an impressive $449,654 from the website www.KickStarter.com. With this money, they would be able to expand their product line and sell their jeans at a competitive price of $81.
With their popularity growing, along with their unique business model, we are forecasting a 10% growth of sales each year as well as positive free cash flows for the next 10 years. After analyzing the risk assessment, we forecasted a 70-30 probability of future investments and sales going good or bad. Under the good scenario, the company would have a positive NPV of $336,454. On the bad side, they’d have a negative NPV of $117,303. Since the 70% probability is in our favor, we think that there is potential added profit to be made by investing in expansion of the company. Also, it shows us that the company is on the right track of continuing to be a successful company for years to come.