Ivan Petrov Apparel Manufacturing







Ivan Petrov is searching for BGN 25,000 to purchase a Buttonhole Sewing machine.  The machine is the final production-line piece of equipment necessary for the successful start-up of the sewing factory established by Petrov.  The machine is a vital piece of professional equipment for the production of sports coats in which Petrov will specialize. The machine guarantees quality workmanship along with decreased production times, which are essential preconditions for receiving “Cut, Make, and Trim” (CMT) orders for export.


Petrov lives in Ruse, Bulgaria. Bulgaria is a small country with 8,000,000 people located in Southeastern Europe. Ruse is in the northeastern part of the country 300 km from the Sofia and 200 km from the Black Sea Coast. Ruse has the most significant Bulgarian river port feeding into the Black Sea. As a port city Ruse enjoys a long history as a trading center and textile manufacturing base. However, the transition to a market-driven economy has not been easy with the unemployment rate hovering around 22 percent and banks charging upwards of 18 percent for business loans.


Petrov began his entrepreneurial career in 1993 trading buttons and sewing related products. He expanded rapidly and in 1996 began trading in more expensive items such as sewing machines and related equipment. Petrov’s sales for 1998 were roughly BGN 200,000, but declined to BGN 100,000 in 1999 primarily due to the scarcity of loans to SMEs for new equipment and because industrial sewing equipment is not frequently replaced. At this point Petrov started looking for other opportunities that led him to establishing his most recent venture – the sewing facility.  Some of the new machines from his unsold inventory make up part of his current production line


To date, Petrov has tentative agreements with Marisa Textile LTD, Elina Jsc. and Magic LTD for CMT orders that will be exported to the USA, Holland and GermanyPetrov will solidify these agreements once the buttonhole sewing machine is installed in his production line.


Customers provide all the necessary materials needed for CMT orders. The manufacturer’s inputs are thus limited to the sewing equipment and the personnel capable of completing the orders on time at the level of quality desired by the client.


Ivan Petrov has verbal agreements with representatives of CMT suppliers to provide approximately 3,100 sports coats starting in August this year. Prices of CMT sports coats produced in Bulgaria range from BGN 5.50 to BGN 8, depending on the complexity of the model. Petrov bases his financial projections on earning BGN 7.50 per coat.


Petrov is requesting a loan of BGN 25,000 to purchase the necessary machine. He believes an appropriate interest rate is 9% per year with a 5-year payback on the loan.



Financial Projections


The Balance Sheet


Petrov presents you with the following balance sheet (assuming the loan is made):


Ivan Petrov

Balance Sheet


Notes – Cash represents what his friends have promised him if he can get the plant opened. Ivan insists he can pay this money back whenever he wants and it carries a zero interest rate.


Plant and equipment consists of BGN 10,000 in improvements (he painted the facility and added some lights), BGN 47,000 in equipment he had in inventory.


The BGN 47,000 represents the “sales price” of the equipment, Petrov’s actual cost was BGN 30,000 and the equipment could probably be sold quickly for half of his actual cost


The buttonhole machine for BGN 25,000 is also included in Plant & Equipment.


The “know-how” represents what Ivan believes his experience is worth.


Liabilities – the BGN 25,000 is the amount borrowed on the new machine. Paid in Capital is a plug figure.

























Petrov’s projected first-year income statement wasbased on the following assumptions:

Sport coat production of 3100 pieces per month earning BGN 7.5 per coat, Note – Petrov signed contracts for 1 000 pieces per month at BGN 5.5 per piece, the remaining 2100 units represents what Petrov “hopes” to get.


Total capacity 3100 pieces per month. Employee salaries are 30 employees with an average monthly salary of BGN 205 each. Administrative salaries do not depend on the level of production


Every July the facility closes down for maintenance and vacations. No revenue will be earned during this period but the firm will continue to incur operating costs. Assume the first month of operation with the new machine is August.


Employee transportation to and from the facility of BGN 750 per month


Electricity consumption based on producing 3100 pieces per month.


Telephone bills based on expected use. Approximately BGN 200/month


Depreciation = 5 year straight line method


Security includes payments for a security system and guards


Interest rate on the loan = 9% per year, this is what Petrov believes is reasonable – banks are currently charging 18% per year for lending to small firms.


Loan term = 5 year payoff, monthly payments


Tax Rate 35%,













Loan Amortization Schedule





Questions –


1)       What do you think of Petrov’s pro forma financial statements? Do you see any unintended consequences in presenting this set of projections to a bank?

2)       Recalculate the current balance sheet to reflect the additional information.

3)       What errors/omissions do you find in the above projected income statement?

4)       Develop monthly projections (income statement & cash flow) for the first year of operations based on the existing forecast (use the format in the attached spreadsheet).

5)       Develop monthly projections for the first year of operations based on the additional data.

6)       Develop a projected balance sheet for the end of the first year assuming the existing projections & the revised projections.

7)       Based on the available information would you grant the loan? If not, please come up with an alternative proposal.

Sourced from homework help site

Cost Volume Profit


Cost-volume-profit (CVP) analysis is an accounting technique used to study the effect of changes in costs and volume on the operating income and net income of an organization. It deals with the effects on the operating profit caused by changes in variable costs, fixed costs, and selling price per unit (Caplan, 2007).

The Basic Profit Equation is used to facilitate the analysis of CVP and is derived as follows:

Profit = Sales – Costs

Profit = Sales – (variable costs + fixed costs)

Profit = Sales – variable costs – variable costs

Profit + fixed costs = sales – variable costs

Profit + Fixed costs = Units sold * (Unit sales price – unit variable cost)

P + FC = Q * (SP – VC) this formula is called Basic Profit Equation

In analyzing CVP, there are several assumptions that have to be made:

  1. The sale price for every unit is fixed
  2. The variable costs for every unit is fixed
  3. The total fixed costs are fixed
  4. The total production is taken by the market
  5. Only changes in activity have an effect on costs
  6. If more than one product is sold, then the products are sold in the same mix

In CVP analysis, all the costs incurred in manufacturing, selling and administrative are treated as variable or fixed. The analysis of CVP includes the calculation of contribution margin, contribution margin ration, break-even point, and targeted income. A CVP graph can also be drawn to graphically show the CVP analysis for easier illustration (Caplan, 2007).

An entrepreneur starting a new business will find a CVP analysis to be a very important tool for his business. This is because of its predictive power which will enable the entrepreneur to have a good idea of the growth of the growth of the business especially when it is likely to break even. Using the Basic Profit Equation, an entrepreneur can plan for different volumes of operations. This gives flexibility of choosing the volume of operation that one is comfortable with. The volume of operation using CVP analysis can be done by using either units of products sold or revenue (Caplan, 2007).

From the Basic Profit Equation q = (F + Profit)/(P-V) ……………eqn. i

While Revenue = (F +Profit)/(P-V)/p………eqn. ii

From the eqn. i and eqn. ii above, the entrepreneur may decide to either adopt the quantity equation and go for the production of a certain quantity of goods or he/she may set a revenue that is desired and work out the volume of goods that will be required to attain that revenue. The CVP analysis can be used to identify the breakeven point. Breakeven point can be calculated either in terms of the units or revenue thus the entrepreneur will either know at what volume of goods produced or revenue earned he/she will break-even. Still further, CVP graph can be drawn to show the intersection of the cost and revenue line which would be an indication of the breakeven point. It is worth noting that the CVP analysis can also be used to calculate the after-tax profit (Warren, Reeve & Duchac, 2013).

The CVP analysis is a very important technique to an entrepreneur starting a new business because of the predictions it offers. An entrepreneur can use this analysis to determine the volume of operation either in terms of goods to be produced or revenue to be earned. Furthermore, this analysis makes it possible to identify breakeven point either in terms of the units or revenue. The CVP analysis therefore is a vital tool for an entrepreneur particularly for a new business.



Caplan, D. (2007). Management Accounting: Concepts and Techniques. Oregon State University. Retrieved from http://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%207.htm

Warren, C., Reeve, J & Duchac, J. (2013). Financial & Managerial Accounting. New York, NY: Cengage Learning.

Statement of Purpose


I am fortunate to belong to a business savvy Chinese family; being a part of my inheritance I gained exposure to the world of business and commerce at an early age. This exposure gave me an opportunity to explore the business world from the perspective of an insider along with the realization that by being engaged in the business activity people not just enrich their own lives but they are also yielding benefits to everyone around them. Since then I have been driven by an intrinsic motive to look for avenues or activities through which I can attain the dual goal of self and social enrichment simultaneously. I have developed the complimentary and competing goal that I would live my life in a way that fulfills both personal enrichment and social responsibilities.

When I was young, I was skeptical of the potential of the finance industry and its ability to provide value to the economy. But as my knowledge grew, so did my appreciation of the industry. In the summer of 2012, I had the opportunity to intern as a performance analyst at Noah Private Wealth Management which serves an intermediary between the buy and sell sides. At Noah my role was to evaluate the quality of sell side funds and explore their suitability for the buy side clients. The experience gave me a broad range of exposure to the financial industry and noticing the interest pursued by others in the financial activities as well as the associated rewards gave me a deeper appreciation for financial markets. For example, I analyzed one fund dealing with the opening and operating convenience stores in rural areas. It was able to achieve a double-digit annual return by leveraging its network of logistics and suppliers and in the process it created jobs in rural areas, brought modern conveniences to rural residents which could not be accessed otherwise. I realized that finance has the potential to create win-win situations for everyone though it is not possible for finance people to invent new technologies or create NGOs but they direct resources to support these developments though their financial knowledge and expertise yielding economically and socially positive outcomes. I could sense that the finance industry would allow me to reconcile my competing goals.

Another defining experience dawned this past summer while working as an analyst intern at the Investment Banking branch of China Investment Securities. During my research engagement in asset securitization in China a case study of the commercial property management company securitizing its future rent was studied. CICC usually used to practice a rather arbitrary estimation of future cash flows and discount rate for structuring the deal. I embarked on some deeper research as I believed that this practice undermined good risk management. My research suggested that the more developed financial markets, such as the United States employ financial engineers to build complex models for structuring deals. This was my first exposure to modern financial engineering and I began to see the field as a revolutionary force in financial markets. I was fascinated by the ability of financial engineers to exponentially increase liquidity and efficiency while reducing risk simultaneously. I believe that financial engineers are empowering traditional finance in the creation of win-win situations more efficiently and effectively.

Backed by my background in mathematics and computer science I envision myself in the role of a financial engineer in the future years. I sincerely believe that a career in the financial industry would allow me to achieve my competing goals besides an opportunity to work in an exciting and challenging field. The extensive coursework which I undertook at University of Virginia will be an added advantage for me as it is essential to financial engineering. My studies involving linear algebra, multivariate calculus, stochastic calculus, real analysis, software development, and programming will also be handy. The experience that I have procured in the finance industry will give me an assistance in my future career wherein I intend to apply financial engineering techniques in Chinese financial markets. Last but not the least; I have adapted myself to the high energy culture of the United States unlike most college students from China. I have displayed continuous balance between my school, work and other social obligations as exemplified by simultaneously management of  the work as a DJ and responsibility of being the vice president of my fraternity while attending school full-time.

I am deeply interested in the Quantitative & Mathematical Finance program at NYU for the prestigious reputation it enjoys and its geographical and social proximity to Wall Street. My interaction with the past graduates of the program have communicated positively of the program’s ability to prepare students for a career in financial engineering both academically and professionally as they speak very highly about it. I intend to secure a job on the Street that will apply my skills and experiences acquired from this program after graduation. I have often visualized myself working for a fund that employs statistical arbitrage or algorithmic trading techniques and in the long term I would like to return to my homeland China and start my own quantitative fund creating value for myself and society both by bringing Western knowledge to Eastern markets. I sincerely believe that attending NYU Stern would be the best way to leverage my passion and experience along with accomplishing my long term goals.