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Table of Contents
- Revenue Goal
- Purchase of Apple Press and Revenue Goal
- Budgeted Financial Statements.
- Bibliography.
- Appendix.
The current and budgeted revenue is used to compute the expected percentage change in the revenue of each product. In this regards, the revenue of Prepared Apple Products, Pick Your Own Apples and Community events were expected to increase by 32%, 43% and 18% respectively.
Utilising the revenue of the budgeted period as the basis of calculation of expected revenue for future years and assuming the revenue growth with similar growth rates, the company will be able to achieve its revenue goal of $25m in 2014 only.Apple Revenue Goals
However, a more suitable assumption would be to reduce the computed rates by 5% each year to calculate expected revenue.
This assumption is more appropriate as firstly it is prudent and secondly in her interview, the CFO of the company stated regarding the current time being an important time for decision making and that there was a possibility that the company could not afford to not choose expansion at the moment.
One way this could be interpreted is that the company, in-spite of its long successful time in the industry, may be faced with future challenges and slowing growth and, therefore, it was important that a decision regarding expansion should be taken, the idea of which is highly reinforced when the CFO called it the “fork in the road” (Laureate Education, Inc., 2012a).
Therefore, the company’s revenues for the years 2013, 2014 and 2015 are computed on the decreasing rate basis, where the company nonetheless is able to reach its 25 million dollars revenue target by 2015. Hence, the revenue goal of $25 million seems realistic.
Purchase of Apple Press and Revenue Goal
Apple Revenue Goals. As we have seen above thateven where a decreasing rate to that of the past results is used, the revenue goal of $25m can be met. As a matter of fact, the company is able to achieve higher than this amount by 2015.
Therefore, any additions by the apple press are simply over and above the requirements and, therefore, it contributes only marginally to this goal.
Also, financially considering, the potential revenue that can be contributed by the apple press is around $188492 annually, where this figure has been obtained by working backwards from net income and by assuming that there are no additional administration or interest costs but only depreciation resulting from the usage of apple press.
This figure forms a trivial 1%, 0.8% and 0.7% of the total expected revenue of the years 2013, 2014 and 2015 from other products. Therefore, the apple press should not be purchased as the need for doing so is not present,neither is it financially appealing.
In support of this, it can be said that when this investment opportunity is appraised using the tools stated in Atrill and McLaney (2011), it has a huge negative net present value of $481426.6947, implying its inability to meet the required return of 8% being a drain on existing resources.
Also, there is no payback as the company will only be able to recoup partially its investment by the end of seven years. However, when looked at the accounting rate of return, the project provides a return on investment of 10% when initial investment is used as the denominator, which implies that the target set by the company is met by the project.
Nevertheless, this is where the drawbacks of accounting rate of return become ever more prominent as profits instead of cash-flow are used and no consideration to discount rate or the reinvestment potential is given, which results in a wrong option being selected (Khan, 2004)……..
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