Reference no: EM133184012

Question - Phil Young, founder of Pedal Pushers, expects to spend the next one-half year developing and testing prototypes for a pedal replacement for children's bicycles. Phil anticipates paying monthly rent of Ksh.70,000 for space in a local warehouse where the Pedal Pusher product will be designed, developed, and tested. Utility expenses for power and heat are estimated at Ksh.15,000 per month. Phil plans to "draw down" a salary of Ksh.100,000 per month. Materials needed to build and test an initial prototype product are expected to cost Ksh.950,000. In addition, each redesign and new prototype will require an additional Ksh.450,000 investment. Phil anticipates that before the final Pedal Pusher is ready for market at the end of six months, the initial plus two more prototypes will need to be built and tested. Costs associated with test marketing the Pedal Pusher are estimated at Ksh.700,000.

Required -

1. Determine the amount of financial capital that Phil Young will need during the six-months it will take to develop and test market the Pedal Pusher.

2. What type of financial capital is needed and what are the likely sources of that capital for Phil Young?

3. What would be your estimate of the amount of financial capital needed if the product development period lasted nine months?

4. What compensation arrangements would you recommend as he hires additional members of the management team?