BTMN632-9040
Dr.
Sources of capital
The sources of funds for the company are divided into two categories means that the company is going to collect funds from two sources. These two sources of funds include debt and equity. The company is going to receive total long term debt of $13,000,000 from the financial institutions. This long term debt and capital from equity will be the major sources of the capital to the company. For now, the equity is held by the owners or the founders of the company that are also going to play the major roles within the organization as part of the staff. These equity holders include CEO (Nicholas Hasbrouck), CTO (John Francella) and COO (Sumiko Williams), CSO (Damien Danavall),CFO (Shiraz Penjweeni) and VP of Sales and Marketing (Paula deGuzman).
For now, the major stakeholders of the company include CEO (Nicholas Hasbrouck), CTO (John Francella) and COO (Sumiko Williams) as they hold more than 10% of the equity of the company. All of them hold 11% equity that meansthe major stakeholders hold 33% of the total equity of the company. The remaining stock will be public.
Expenses&Additional Expenses
Premises
The major expenses of the company include the expense of premises, staff salaries, equipment and machines and other purchases mainly. The company is goingto begin with renting the premises. The company is going to pay $28,500 as the office rent per month. Other than the rent of the office, the company has to pay monthly utilities of $2,900 per month.
Salaries
The company with atotal staff of 25 individuals is going to pay $72,500 per month as the salary expenses of 25 employees. The staff includes Senior Application Engineer, Inventory, Technical Support Mgr., Technical Support, Tech. Support Assistant, CTO, System Administration, Project Manager, Programming, Quality Assurance, VP Marketing, Mktg. Manager, VP Sales, Sales Representative, Sales Engineer, VP Business Development, Customer Support, and Marketing Assistant, CEO, CFO, COO, HR Manager, Office Manager and AdministrationAssistant.
Marketing and Promotion
Marketing is one of the major aspects of the business that is very important to promote the products and services among the target audience and customers. In this context, the company will allocate different expense budget for different marketing and promotion activities. These activities will mainly include advertising, promotional material, and trade shows. The monthly expense of advertising will be $500, of thepromotional material will be $300 and for trade shows will be $1,000.
Other than these major expenses, the company is going to pay for some other expenses that include consultancy, insurance, traveling, telephone, taxes and professional services.
The table below shows the total expenses discussed above with the yearly expenses:
Purchases
Apart from these expenses, the company is going to purchase hardware, software, and equipment and machines for its four different departments include manufacturing, engineering, sales and marketing and operations. The list of the major equipment is as follows:
SIEVE SHAKER
Multi Purpose R&D Equipment
CPMDCB
CPM PLZ GMP Lab Model
Computers
Telephones
Office furniture
Other equipment and machines
Five Year Forecast
The table below shows the five year trend of income statement for the Volentix Pharmaceuticals:
Since the product is pending approval by the FDA, the net income of the company is shown as negative because there is no sales and the revenue is shown as 0 due to nil sales from 2015 to 2019;
The graph below shows the growth trend for the period from 2015 to 2019. Since the product is yet to be approved by the FDA, the revenues are nil and the growth projections is negative.
The table below shows the cash flows of the company:
The table shows the sources from where the company will generate cash for its operations. These sources include net income, depreciation, equity in addition to the account payables, salaries payable, taxes payable and additions to long term debt.
Breakeven Analysis
The graph below shows the breakeven analysis of the financials of Volentix Pharmaceuticals:
Cash flows are negative throughout 2015, 2016, 2017, 2018, and 2019. This is because there is no revenue generation, and this trend will continue as long as the product is pending approval by the FDA. Once, the product is approved and sales of the product begins, revenues will rise and the cash flows will become positive.
Cost-Benefit Analysis
As the company is going to provide stocks in the market, it is important to analyze how much the company will benefit to the investors (Layard &Glaister, 1994). Volentix Pharmaceuticals will provide viable returns to its investors on their investments.
The investors are expected to make 40% of the net income from the return on their investments in the preferred stocks while the remaining net income will be distributed as the return on the investment in common stock. The company will only issue stocks at the start up of the business and therefore, the investors are expected to make aprofit from the first month of the first year of the business.
Budgets
The five year budget of the Volentix Pharmaceuticals can be found in the table below:
The table shows that cash from the total sources to the company as well as cash the company will use. It can be seen in the table that the ending cash of the company is increasing over the period of five years from 2015 to 2019. It is the estimate of the budget of five years of the business of Volentix Pharmaceuticals.
Assumptions
The company forecasted its five years trends of financials based on the few major assumptions. First of all, the depreciation of the purchases of the company is assumed as follows:
It is assumed that the depreciation of the hardware going to use in all four departments would be five years, three years of depreciation for software going to use in all four departments and eight years of depreciation for the furniture and fixes.
For the start up business, the company is goingto begin with only one product i.e. antibiotics for Gram-positive bacterial infections treatment. It is assumed that the return on the revenue of the product would be 10%. The sales and cost of the company are assumed as follows:
The company assumes that the cost of the product will remain same. However, the prices will increase as per the demand of the antibiotics will rise in the market. It is also assumed that the total unit sales would also be increases from 980,000 to 2,800,900 from 2015 to 2019.
Financing
The table below shows the balance sheet of the company as the timeline of the financing:
The table shows that the financing of the company will be based on the debt as well as the equity of the company. Although in the beginning, the company will depend on the debt, however, its equity will rise in future. The graph below shows the five years trend of debt to equity ratio:
The lowest debt to equity is essential for the business to ensure to the investors that the business is stable, and they have more control over it. The low debt to equity will attract more investors in future to invest in the company (Bhandari, 1988). However, for the future plan of the financing, the company will receive debt to maintain its debt to equity so that the owners will not lose the complete control of the company by making all financing depending on the investors.
Investors
The company is aimed to target the investors both as debt providers and equity holders. The company is looking to target financial institutions as the debt providers as the institutions such as Banks and insurance companies have more interest to invest in the business. The company will issue the stocks in the market.
Exit strategy
The investors can easily achieve high liquidity as it is expected that the profitability of the company to be high once the FDA grants approval for the product. The removal of the investment will not make the investors face losses, as the high income and profitability of the company will attract more investors to take hold in the company by purchasing its stocks from the existing investors. However, in case there arrives any unforeseen issue related to liquidity, the business has the option to generate cash by acquiring more capital from the market in the form of debt as already planned above.
However, apart from all these expectations and liquidity of the investors, the business has still potentials to make losses. For this purpose, the company has asimple secondary plan to sell out the business on the whole. The business has strong viability for thepharmaceutical industry and companies due to the high quality production of antibiotics to treat a serious disease (Da Cunho, 2007);therefore it can sell rights to others pharmaceutical firms to manufacture the medicine, while paying aroyalty to this business. This will be anadditional source of liquidity. Lastly, abusiness can sell its license on the whole to exist.
References
Bhandari, L. C. (1988). Debt/equity ratio and expected common stock returns: Empirical evidence. The Journal of Finance, 43(2), 507-528.
Da Cunha, U. P. (2007). Study on the viability of high quality drugs manufacturing in Bangladesh. Eschborn, Germany: GTZ.
Layard, R., &Glaister, S. (1994). Cost-benefit analysis. Cambridge University Press.
Singh, S. P., & Deshpande, J. V. (1982). Break-Even Point. Economic and Political Weekly, M123-M128.
