3 Year Financial Model to Demonstrate Level of Incremental Revenue
Question
We are assembling a top team across the company to look at the feasibility of adding a daily section of the newspaper and website devoted to national sports coverage. This would entail a significant expansion upon our current coverage with highlights of key games, sports scores, standings, etc. We have been asked to build a basic financial analysis to demonstrate what level of incremental revenue we have to assume to target acceptable levels of return.
Key assumptions for the business case:
- Assume the incremental revenue is all advertising related
- This initiative should improve circulation retention and drive new subscriptions, but for the purpose of this analysis, assume no incremental impact here
- Capital Investment of $2m for enhancements to existing website (assume 3 year useful life for book and tax basis accounting)
- Incremental staffing costs of 12 heads at $100k per year
- Incremental production costs of $0.02 per copy (assume 1.4 million daily copies and 304 annual pub days)
- Assume advertising commissions expense at 5% of incremental revenue
- Assume a corporate tax rate of 30%
- Assume a discount rate of 10%
Please prepare a 3 year financial model that you will present to the management team. The analysis needs to demonstrate what level of incremental revenue is needed over a 3 year time horizon to meet our 10% hurdle rate. In addition, the analysis should touch on other key metrics such as NPV, IRR, and annual EBITDA impact.
Summary
This question belongs to finance and discusses about financial model to demonstrate level of incremental revenue to meet 10% hurdle rate.
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