M3-S4 - Exercise - Cash flow Rigg Instruments
Q: How much money would John require to launce Rigg Instruments? A:\$597024 (largest negative cash flow)
This is assuming that the model is very accurate. Of course in reality you will need margin to compensate for risk.
Q: What is the impact on P&L for outsourcing to Hendrik A:John will be profitable sooner. The reason is that he does not have to invest in a production facility: Hendrik already did this for him.
Q: How does outsource manufacture impact the money required to launch Rigg Instruments? A: \$428104
Q: Are there other potential advantages to outsource production? A: Yes:
- No stock when there's no sale
- No costs when there's no sale
- The outsourced partner has production as its Core competence and can become good at it.
Q: Are there other potential disadvantages to outsource production? Can you address these? A:
- Outsourcing may longer term be more expensive (depends on scale)
- This could be negotiated in volume contracts with Hendrik
Q: What payment terms for customers did John had in mind? 60 and 90 days Different terms will cause John to only need \$256386,-
Q: What else could John consider to improve cash flow?
- Increase revenue
- Depending on the product John may even be able to get upfront payment
Q: How much did John spend on product development for Relix? How does this compare with the total cost of launching Rigg? Why is this? A: \$56000,- There is significant cost in starting up a brand new business from scratch:
- Wages
- Building a sales channel
- Advertisements
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