Flash Memory Essay

4992 Words Sep 18th, 2012 20 Pages

Case 1: Flash Memory, Inc.

Section B1 Group 1A

Executive Summary
As sales of Flash Memory Inc. (Flash) increases rapidly in the first few months of 2010, additional working capital is required to ensure smooth operations and maintain their current growth rate. However, Flash currently has almost reached its notes payable limit of 70% accounts receivables with its current commercial bank and thus, need to look for various alternative financing means to provide the required amount of funds it needs to finance its forecasted sales for year 2010 onwards.
This report is written to provide an insight to Flash’s financial position for the following 3 years (2010 till 2012) through the use of pro-forma income
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Note that the notes payable in the above pro-forma balance sheet has already included the additional financing needed for each of the 3 years.

| Figures are in $000s | | 2010 | 2011 | 2012 | Additional financing needed | $4,044 | $2,608 | ($3,596) |

The current projections require Flash to acquire additional financing of $4.04Million and $2.61Million in 2010 and 2011 respectively to support its projected sales of $120 million and $144 million respectively. Flash will have excess funds in 2012 as a result of an increase in retained earnings in that year. Flash will need to negotiate with the factoring division of the bank to acquire additional Notes Payable, which will exceed the pre-agreed amount of 70% Accounts Receivables and hence, incur a greater interest rate of prime + 6% from the previous prime +4%, effectively increasing interest rate to 9.25%. (Prime rate is taken to be 3.25%, based on May 2010)
Key Assumptions made in forecast: 1) All additional financing required is financed by Notes Payable 2) Flash will convert and increase its debt leverage of Notes Payable to a maximum of 90% of Accounts Receivables once the pre-agreed limit of 70% is exceeded 3) All other assumptions stated in Exhibit 3 of the case
2. Evaluation of Investment into New Product Line (2010-2015)
Operating Cash flow is calculated based on Net Operating Profit After Taxes + Depreciation, assuming there is no

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