In 2019, 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. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2019 and were estimated at $1.2 million in 2020.
Since Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3. The cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Jen and Larry’s salary and expenses for an accountant and two other administrative staff, were estimated at $180,000 in 2020. 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 2020.
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) of $450,000 occurred at the beginning of 2019 along with $50,000 being invested in inventories. An additional equipment investment of $100,000 was estimated to be needed at the beginning of 2020 to make the amount of yogurt forecasted to be sold in 2020. Depreciation expenses were expected to be $50,000 in 2020 and interest expenses were estimated at $15,000. The tax rate was expected to be 25 percent of taxable income.
1. How might the venture acquire and finance the new equipment that is needed?
2. Identify potential government credit resources for the venture.
3. Prepare a summary of the benefits and risks of Jen and Larry’s continued use of credit card financing.
4. Prepare a summary of how the venture might benefit from receivables financing if commercial customers are extended credit for thirty days on their purchases.
5. Discuss the impact of potential loan restrictions should the venture seek commercial loan financing.
Parameters:
1. Your assignment should be 3 – 4 pages in length and written in APA style format.
2. Separate title and reference page (minimum of 3 or 4 reference)
3. Double spaced with 12 point Times Roman font and 1” by 1.5” margins.
4. Paraphrasing of content – Demonstrate that you understand the case by summarizing the case in your own words. Direct quotes should be used minimally
