6.7 KNOWLEDGE REQUIRED FOR THE FINANCIAL PLAN

From the marketing and the production studies comes information on the costs, prices, quantities and investment needed to launch the product and to continue producing and marketing the product in the future. There are predictions on the relationship between production outputs and costs, the fixed costs and variable costs, the price range and the relationship between price and demand, the capital investment for new plant, the investment needed for launching both by production and marketing, and the working capital needed during the launching and post-launch.

From this information the finance team, with its knowledge of loans, interest rates, taxes, subsidies, import duties and exchange rates, can determine inward and outward cash flows (sales revenue and costs) for future years and the investment costs during the same periods. From this, they can determine the profits and the total investment, and then determine the return on the investment.

The cash flows are usually discounted so that future cash flows are brought to present-day values.

These predictions are compared with the company's financial targets and constraints. As these are predictions, it is important that the probabilities of achieving them are estimated.