Reference no: EM132813754

Question - In 2008, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry's Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. [The involved reader may recall that we first introduced this yogurt venture in the problems section at the end of Chapter 2.] Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2008 and were estimated at $1.2 million in 2009.

Since Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3 and the cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Brandie's salary and expenses for an accountant and two other administrative staff, were estimated at $180,000 in year 2009. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in year 2009.

An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in Lower Downtown (known as LoDo) occurred at the beginning of 2008 and additional equipment needed to make the amount of yogurt forecasted to be sold in year 2009 was purchased at the beginning of 2009. As a result, depreciation expenses were expected to be $50,000 in year 2009. Interest expenses were estimated at $15,000 in 2009. The average tax rate was expected to be 25 percent of taxable income.

A. How many cups of frozen yogurt would have to be sold in order for the firm to reach its projected revenues of $1.2 million?

B. Calculate the dollar amount of EBDAT if Jen and Larry's Micro-Batch Frozen Yogurt Company achieves the forecasted $1.2 million in sales for year 2009. What would EBDAT be as a percent of revenues?

C. Calculate the dollar amount of NOPAT if Jen and Larry's venture achieves her forecasted $1.2 million in sales in year 2006. What would NOPAT be as a percent of sales?

D. Jen and Larry believe that under a worst-case scenario yogurt revenues would be at the 2008 level of $600,000 even after plans and expenditures were put in place to ramp up revenues in year 2009. What would happen to the venture's EBDAT and NOPAT?

E. Jen and Larry also believe that under very optimistic conditions that yogurt revenues could reach $1.5 million in year 2009. Show what would happen to the venture's EBDAT and NOPAT.

F. Calculate the EBDAT breakeven point for year 2009 in terms of survival revenues for Jen and Larry's Frozen Yogurt Company. How many cups of frozen yogurt would have to G. Calculate the NOPAT breakeven point for year 2009 in terms of NOPAT breakeven revenues for Jen and Larry's venture. How many cups of frozen yogurt would have to be sold to reach NOPAT breakeven?

H. Show what would happen to the EBDAT breakeven in terms of survival revenues if the cost of producing a cup of yogurt increased to $1.60 but the selling price remained at $3.00 per cup. How would the EBDAT breakeven change if production costs declined to $1.40 per cup while the yogurt selling price remained at $3.00 per cup?

I. Show what would happen to the EBDAT breakeven point in terms of survival sales if an additional $30,000 was spent on advertising in year 2009 while the other fixed costs remained the same, production costs remained at $1.50 per cup, and the selling price at $3.00 per cup. Also show what would happen to the NOPAT breakeven point in terms of NOPAT breakeven revenues under the just described situation be sold to reach EBDAT breakeven?