Analysis of Business Venture: Assignment
Added on - 18 Sep 2019
1AN ANALYSIS OF THE PROPOSED BUSINESS VENTURE OF MRS HELENE
2Table of ContentsBACKGROUND3ASSUMPTIONS AND ESTIMATES3BREAK EVEN ANALYSIS4PROFIT AND LOSS ACCOUNT FOR YEAR 16BALANCE SHEET FOR YEAR 16MONTHLY CASHFLOWS IN THE FIRST YEAR OF OPERATION7ANNUAL CASH FLOWS8INITIAL CASH FLOW REQUIREMENTS9UPFRONT FEE CALCULATIONS10BRIEF ANALYSIS10CONCLUSIONS AND RECOMMENDATIONS11EXHIBITS12
3BACKGROUNDMrs Helene received 5,70,000 Euros on retirement from the company where she wasworking. As Mrs Helene retired from the job, she has two alternatives as follows:1.The first alternative is to enjoy the life being rest assured by investing her retirementsurplus which shall yield 4 per cent per annum post taxes.2.The second alternative is to invest into a business venture of dealing into fine coatedpecans across internet in Italy.Following is the analysis of each of the alternatives:Alternative 1:Investment of Retirement Surplus and yielding Interest Income:5,70,000 Euros, if invested ay 4 per cent per annum shall yield (5,70,000 * 4%) = 22,800Euros per annum = 1,14,000 Euros.Alternative 2:Setting up of venture and dealing into online selling of famous coated pecans from USA:The second alternative requires a detailed analysis which is outlined as belowANALYSIS OF ALTERNATIVE TWOASSUMPTIONS AND ESTIMATES:1.Year starts in January and ends in December.2.Purchases are made from USA which are in pounds. However, the same is sold inkilograms (kgs) in Italy, therefore the pounds are converted into kgs. The conversion istaken as per the standard conversion which is taken at 1 Pound = 0.453592 kgs.3.All the transactions in Italy are made in Euros, however while importing from USA thepurchases are made in US Dollars. The analysis cannot be made using two differentcurrencies, therefore a standard conversion is made from US Dollars to Euros which istaken at 1 US Dollar = 0.95 Euro.4.As all the transactions are made online, it is assumed that no Bad Debts would accrue.
45.Regular Purchase price of the coated pecans is 15 Dollars per pound, However a discountof 60 per cent shall be given on all the purchases made which will result in 6 Dollars perpound.6.It is given that the Online Sale proceeds shall be received in the next month for the CreditCard Sales. Other Sales effected from George is assumed to be received in the month ofSale itself.7.3 Months rent paid as Deposit is expected to be recovered at the end of the lease periodhence it is not considered as an expenditure.8.Sales for Year 1 are considered in the following pattern:First month sales is at 300 kgs per month and every month it shall increase by 50 kgs forthe next six months and shall increase by 100 kgs per month thereafter.9.All the expenses are assumed to be paid in the month of incurring except for Credit CardCharges which shall be deducted from Sales Value in the next month at the time ofremittance.10.Sales is assumed to occur evenly week on week.11.It has been assumed that the funds deficit shall be met out of own funds.12.It has been assumed that the Selling Price and Purchase Costs remains same throughoutthe 5 years period.13.All other expenses is anticipated to increase at 5 percent over previous year’s expenses.14.Depreciation has been ignored for computations purpose. It has been assumed as SunkCost.BREAK EVEN ANALYSISBreak Even Point is termed as that point of sale where a business entity neither makes profitnor incurs losses. The level of Sales required to be achieved to cover all the Fixed Costsirrespective of quantity of sales.The Fixed Costs shall be recovered out of the Margin amount received out of Sales, i.e, to saythe Contribution amount which is Sales – Variable Cost.Note:The expenses shown is per annum basis that is Sales in a year required to meet all theFixed Costs. The break-even analysis is wholly done on basis of Internet Sales. The reasonfor not considering the Sales effected through George is that such Sales would not requireany extra efforts to market the product and is a continuous contract fetching assured cashflows.