Flash Memory Inc. Strategy Paper

To prepare forecasts of income statements and balance sheet one must uses growth rates and key assumptions to determine future values. Since 2007, we have measured a compound growth rate of 7.6 percent for sales each year. This percent increase will be reflected in 2010, 2011, and 2012. For the rest of the items of the income statement, we forecast the numbers based on our key assumptions. We also have key assumptions for our balance sheet that will be used to compute forecasted assets and liabilities. The forecasted income statements will help us determine our future gross margins. We can determine if our gross margins can cover our expenses. If not, external financing is needed. We can determine if our gross margins can cover our expenses. If not, external financing is needed. Our bank loan officer can offer us seventy percent of our accounts receivable in the form of a short term loan. If that is not enough, the bank loan officer suggested using the factoring division of the bank. We can receive ninety percent of our accounts receivables, but must be more aggressively monitored.
In regards to our investment in new product lines, a full project analysis must be conducted. Flash memory has already spent money developing the product line from concept to an item that can be tested in the public. In addition to development costs, we must also add new plant, new equipment, and advertising costs to our initial investment. Since we have forecasted cash flows during the products useful life, I would recommend using the internal rate of return (IRR) method to determine if we should accept or reject the project. We must compare the IRR to the cost of capital. If IRR is greater than cost of capital, the project will add value and should be accepted. If IRR is less than cost of capital, it project will likely have a negative net present