Generate an income statement for a high tech shoe insert for top of the line
athletic shoes. Income statements usually include line items for at least gross
revenue, cost of goods sold (COGS), sales and marketing (S&M), general
administration (G&A), research and development (R&D), earnings before interest
and taxes (EBIT), interest and taxes, and net profit (or loss). You and a friend
decide to produce a new type of polymer for inserts in athletic shoes. You
estimate that in the first year you will need $750,000 to set up the plant and pay
for R&D costing $300,000. Starting in the second year, you have made
preliminary contractual arrangements to sell the inserts that cost you $1.10 each
for $5.50 to the major shoe manufacturers. About 3% of the US population uses
these athletic shoes can sell and you anticipate capturing 0.05%, 1%, 2%, 4%,
and 5% of the market in years 2 through 6, respectively. Assume that taxes and
interest will consume 50% of EBIT (only if you actually make a gross profit), S&M
will be 15% of gross profit, G&A will consume 10% of gross profit. Neglect the
time value of money and the cost of your salaries. Will you make a profit in year
5?