Business Venture Planning - Analysis of Market Conditions in Australia

This assessment analyzes the market conditions in Australia for starting a business of supplying smart watches. It includes economic analysis, literature review, financial model, and sensitivity analysis. The scope of smart watch business, factors affecting the price of the product, and funding issues for new businesses in Australia are also discussed.

Running head: BUSINESS VENTURE PLANNING
Business Venture Planning
Name of the Student:
Name of the University:
Author’s Note

1BUSINESS VENTURE PLANNING
Table of Contents
1. Overview..................................................................................................................................3
1.1 Project Title..........................................................................................................................3
1.2 Project Background..............................................................................................................3
2. Objectives and Scope...............................................................................................................3
2.1 Objective of the Assignment.....................................................................................................4
2.2 Expected Outcome.....................................................................................................................4
3. Literature Review.....................................................................................................................4
3.1 Literature review on project economic analysis........................................................................4
3.2 Special topic assigned to each team by the lecturer................................................................11
3.3 Developed methodology for the case project..........................................................................13
4. Financial model of the case project...........................................................................................13
4.1 Assumptions Made for this Project......................................................................................13
4.2 Constraints...............................................................................................................................15
4.3 Risks associated with the Business......................................................................................15
4.4. Cash inflows and outflows..................................................................................................16
5. Financial and sensitivity analyses of the case project............................................................18
5.1 Financial analysis of the case project.................................................................................18
5.2 Sensitivity analysis of the case project...........................................................................21
5.3 Non-financial decision-making factors...........................................................................21

2BUSINESS VENTURE PLANNING
5.4 Selection of best alternative............................................................................................22
6. Conclusion..............................................................................................................................25
Reference.......................................................................................................................................26

3BUSINESS VENTURE PLANNING
1. Overview
The main purpose of this assessment is to analyze the market conditions in Australia so that
the team members can choose a business and make plans for establishing the same. The case
needs to be analyzed effectively by conducting an economic analysis and therefore would be
including review of literature for the purpose of conducting an economic analysis (McGrath,
2013). The evaluation and viability test of the project is conducted considering the tools of
applying sensitivity analysis and other management accounting tool.
1.1 Project Title
The title of the project is Business Venture planning which is focus on a business of starting
up a new business which would be supplying smart watches in Australia.
1.2 Project Background
The project will be developed considering the market situation in Australian market and
analysis of literature review for the same. The project would also be including a methodology on
the basis of which information will be collected.
2. Objectives and Scope
The objective of the project is to set up a profitable business which would be selling smart
watches to the consumers and the same would be adopting the most modern techniques for
developing an appropriate product which can meet the needs and requirements of modern
consumer (Rubin, Aas & Stead, 2015). The demand for smart watches in Australia has
increased significantly such that the same are preferred more than cell phones.

4BUSINESS VENTURE PLANNING
2.1 Objective of the Assignment
The main objective of the project work is to effectively make the members of the team
aware of the technological advancements which has taken place and how the same has affected
the markets and customer’s preferences in Australia.
2.2 Expected Outcome
The Australia economy is considered to be one of the developed economies and the same
has efficient technological advancements. The market is quite favorable for mobile phones and
also smart watches which are still at its unpopular stage. However, there is a fascination
regarding smart watches in the market which is the main reason why the management has
decided to set up a business which produces smart watches. The analysis also shows breakeven
for the business and the term period which the business needs to consider before earning
consistent profits for the business.
3. Literature Review
3.1 Literature review on project economic analysis
The project which is considered literature review and the same is relating to innovation
and business viability analysis. The literature review considers the various risks and different
framework for establishing a business of smart watches in Australian (Sztar, 2015). The analysis
of viability of the project is done on the basis of sensitivity analysis which can be used as
statistical, mathematical and graphical method for presenting the viability of the planned project
of the business. The analysis effectively directs the management regarding the sensitivity of

5BUSINESS VENTURE PLANNING
profit element due to slight change in any one factor. The method measures the degree of change
and the method is also ready to measure two or more methods.
Background of Economic Scenario in Australia
Australia is considered to be one of the developed countries in the world and has an
effective market situation. The economy in Australia is considered to be a free and democratic
economic whose technological advancement level is also superior to some other countries. The
country has enjoyed a period of continuous market growth in most of the business sectors and
has not faced any recession in past couple of years (Spelman et al., 2013). The governmental
policies and an economy which is heavily dependent on industrial performance is doing
extremely well in terms of entrepreneurial development. The involvement of the government is
rare in the economy which has flourished new business set ups in the economy. The financing of
such new businesses have not been a problem for the countries as a lot of foreign investors are
interested in companies set up in Australia. The income tax provisions which are set out by
Australian Tax Office (ATO) is followed which charges income tax at the rate of 45% while the
corporate tax in the country is set out to be flat 30% on the income.
The economy is technologically advanced and therefore a lot of businesses are coming up
which are closely related to technology. An analysis of the past information and current market
situation in Australia suggest that the start-up costs are particularly high in the economy. This
effectively contributes to employment requirements of the country and also growth in the
business in Australia. An example can be given of a technological knowledge business which is
“Technocrat limited and the business is performing significantly well which attracts new
entrepreneur in the economy. The new business after its one year of operations is likely to

6BUSINESS VENTURE PLANNING
improve goods provided and leads to increase in innovation. The owner of the business should
study the market and a better option is to study the performance of a newly established business.
The innovation activities in a business has a constant demand for smart watches for fulfilling the
needs of the customers.
Funding issues for new businesses in Australia
The funding sources for a new business is very important as the same can be effectively
used for financing different activities of the business. As per the analysis of the market, new
businesses which are being established in Australia mostly rely on the funds which are taken on
credits and not much on raising capital from equity sources. This is because success rate in case
equity financing is low as debt capital allows the business to effectively take advantage of
leverage effect in a business and also there is an advantage of the tax as deductions. The
economy of Australia has been ranked as tenth in terms of business management and new
enterprise coming up.
Economic Scenario in Australia
In recent years the economy has experienced certain shocks and the country is also trying
to make improvements from the same. There seems to be significant recovery for the business
after considering the 2017 and this would give entrepreneurs necessary confirmation about the
viability of the economic. The economy can be considered to be a strong one irrespective of the
fact that the economy has faced several financial crises in 2016-2017.
The economy of Australia is technological wise far more developed and one of the
reasons for the superb growth to which different businesses can be attributed to. The demand in
Australia is more for smart watches than smart phones which is the main reason why the

7BUSINESS VENTURE PLANNING
economy is considered to be favorable for the business. A recent study shows that the digital
products are more in demand in Australia which shows the customer zeal for the products. The
fluctuation in currency and fall in the deposable income of the consumers have impacted the
business slightly. The growth in the technology-based business has drawn attention of the
government who have slightly reduced the tax rate of the business and thereby further promoting
the technical products of the business.
The rate of inflation in the economy of Australia has also impacted economy which has
slightly weakened the condition of the economy and the same has also allowed the head bank to
cut interest rates of the country. As per the results which was presented in 2016, the inflation rate
in the country was around 1.5% while on the same time, the customer price index was showing
0.5. The country is able to achieve economic growth and the same is shown to be 3.1%. The
government has decided to formulate policies which can effectively control the inflation rate in
the economy and also at the same time engage in research and development for the benefit of the
entire nation (Khan, Ahmad & Abdollahian, 2013). The year 2007 also shows there are new
trends in electronics market and the same is expected to create more demand in the market.
Scope of Smart Watch Business in Australia
As per the analysis of the market, technological development and electronic goods are
emerging in the market. The demand for smart watches has significantly increased and the same
are nowadays preferred more than a smart phone (Bruno, 2015). The smart watches are the
future and in some time it has the capability of replacing smart phones (Chaparro et al., 2015).
Some of the gadgets of smart watches has already caught the imagination of the consumers by
providing good graphics game, portability, calling features. In addition to this, the demand for

8BUSINESS VENTURE PLANNING
smart watches is also increasing mainly because fashion trends in the country (Jin et al., 2014).
The numerous reasons due to which the demand for smart watches in the market has grown are
listed below in details:
 The demand for smart watches has increased significantly due to increase in demands for
the same and cheap availability of the product. The carrier costs are low and there is also
a replacement plan. This makes the replacement plans more affordable and easier.
 Smart Watches has motion sensors and can tell exactly how much calories are either gain
or reduced. Therefore, this can effectively be used as a fitness tool and examples can be
given of Garmin and Fitbit which has its focus on health and fitness (Lu et al., 2016).
 Smart Watches have GPS trackers and it is regarded to be excellent for navigation and
moreover the watches also appeal to the styles senses of the generation.
 There is a provision for internet services in a smart watches and therefore contactless
payments can be make cashless payments much easier (Shen et al., 2014).
There are many electronic businesses which are coming up which are developing their own
smart watches and also trying to make the same unique. The high level of investments in the
country has facilitated the development of more capital goods in the economy. The economy is
also importing certain electronic technologies for the purpose of making more development in
electronic fields. There are large established brands in the consumer electronics market and it has
remained highly competitive. The local consumers in Australia prefer international brands in
case of electronic products.
The plan of the management is to open a business which can effectively produce smart
watches which can meet effectively all the expectations of the customers. The management

9BUSINESS VENTURE PLANNING
wants to take advantage of the lucrative market which is available for electronic goods. The
overall level of competition in the market is also high due to the presence of international
dealers. The market for smart watches is one which is developing and the same can a great
prospect for future.
Factors Affecting the Price of the Product
Pricing strategies of the business in Australia are affected by different factors. The factors
which affect the standard and local regulations, wage and labor costs, wholesale and distribution
costs, government tax, insurance cost, occupancy and rent costs. There are certain costs which
are related to different areas of Australia. The prices of the smart watches affect the nature of the
markets in Australia. The product of smart watches has not started in mass production in
Australia. The prices of the products of the business is depended on a variety of factors and the
same needs to be considered.
The compliance and regulation costs of the business can affect the prices of the business.
The compliance cost in Australia in the past three years has risen and 75% of compliance
expenditure expected to rise in the next three years. The product which is being developed by the
business is considered to be safe and also environmental friendly. The prices of smart watches is
affected by regulations and standards which are set by the government. There will be regulations
as the smart watches are a product of IT and therefore requires various regulations from
authorities.
In order to bring about a uniqueness in the product which is to be developed by the
business, the management plans to add certain new features such as remote for any electronic
device and some other new features. The management plans to make the product more stylish

10BUSINESS VENTURE PLANNING
and also incorporate the existing technologies which are present in such smart watches. A recent
estimate suggests that there has been significant increase in the productivity of the business and
the same contributes around 16%. The investment decisions of the business are depended on the
technological level which is to be incorporated in the smart watches. Australian government can
relieve the pricing pressure by minimising the costs of the business and also thereby reduce the
overall costs of production of the business. The start up costs of the business would be consisting
of the liquid funds which are required by business and also non-current assets of the business is
also contributed from such sources. The below table shows economic significance of the project
and also start up costs of the business.
Particulars Amount Residual Value
Non-Current Assets:
Trademark 400000 0
Patent 500000 0
Property,Plant & Equipment 2000000 600000
Furniture & Fittings 800000 120000
Motor Vehicle 1000000 400000
Computer Equipment 1200000 0
Preliminary Expenses:
Business Registration 120000
License Fees 100000
Deposit for Electricity 70000 70000
Deposit for Telephone &
Internet 50000 50000
Recruitment Cost 30000
Share Issuance Cost 35000
Bond Issuance Cost 20000
Other Miscellaneous Expenses 75000
Working Capital:
Purchase of Raw Material 37500000
Wages & Salaries 25000000

11BUSINESS VENTURE PLANNING
Manufacturing Overhead 16250000
Selling & Marketing Expenses 791250
General Administrative
Expenses 263250 79804500
TOTAL START UP COST 86204500
Capital Funding:
Equity Capital 38792025
5 yrs. Bond 28447485
Loan From Bank 18964990
TOTAL CAPITAL
EMPLOYED 86204500
Figure 1: (Table showing start up costs of the business)
Sources: (Created by the Author)
3.2 Special topic assigned to each team by the lecturer
Assignment Start date Submission Duration
Start up 10/12/2018 17/12/2018 1 week
Activity 1-
Researching the
Australian markets
and its economic
scenario
12/12/2018 17/12/2018 5 days
Activity 2- Financial
evaluation of project
15/12/2018 04/01/2019 3 weeks
Activity 3- 25/12/2018 12/01/2019 2.5weeks

12BUSINESS VENTURE PLANNING
Determining the
financial viability of
project by selecting
the best alternative
Figure 2: (Table showing activities assigned to different members)
Sources: (Created by the Author)
The above assigned task is done on the basis of the allocation of performance role. The
above role plays would be supported by some other members. The assistance would be provided
in terms of quality control, proofreading and incorporation.
Roles and responsibilities allocation matrix
Assignment/ Roles Quality manager Coordinator manager Research manager
Work plan of startup ABC XYZ LMN
Activity 1- Literature
review
Team member 1 Team member 2 Team member 3
Activity 2- Initiation
plan
Team member 4 Team member 5 Team member 6
Activity 3- Detailed
plan
Team member 7 Team member 8 Team member 9

13BUSINESS VENTURE PLANNING
Figure 3: (Table showing different roles of team members)
Sources: (Created by the Author)
3.3 Developed methodology for the case project
There are several methodologies which can be followed for the purpose of this project.
The project would be following investment appraisal techniques as well as applying the
techniques of capital budgeting for the purpose of ensuring that the project is worthy of being
carried on. In addition to this, a breakeven analysis is also to be conducted so that the minimum
sales which the business requires to make can be done so that the operations of the business can
continue. In order to assess the viability of the project, certain assumptions are undertaken by the
management of the company in terms of costs and fund requirements. The evaluation of the
viability of the project requires businesses to effectively establish the cost of capital, rate of
return which is expected by the business and also the necessary cash flow which the business
needs to achieve. The profit and revenue generation estimation of the business is done on the
basis of market situation and the demand for the product in the market.
4. Financial model of the case project
4.1 Assumptions Made for this Project
BASIC ASSUMPTIONS:
Type of Business: Company
Nature of Project: Manufacturing
Estimate Life of Project: 5 years
Capital Structure:
Equity 45%
Non-Current Debts 55%
Types of Debts:

14BUSINESS VENTURE PLANNING
5 yr. Bonds at Par 60%
5 years Loan from Bank 40%
Required Rate of Return on
Equity 12.50%
Interest Rate on Loan:
Bonds 7.00%
Loan from Bank 9.50%
Tax Rate 30%
Inflation Rate 2.50%
Mode of Sales:
Cash 40%
Credit 60%
Cash Collection Period 30 days
Mode of Purchase:
Cash 30%
Credit 70%
Cash Payment Period 60 days
Wages & Salary Payment 7th day on the following month
Electricity,Telephone & Internet
payment
10th day on the following
month
Other Operating Payments Last day of the month
Insurance 12 months' Advance
Dividend Payment Rate 35% of Net Profit
Dividend Payment Period 3rd Month of the Next Year
Depreciation Method:
Property,Plant & Equipment Straight Line Method
Furniture & Fittings 10% - Reducing Balance Method
Vehicle 12% - Reducing Balance Method
Computer Equipment 20% - Reducing Balance Method
Amortization Method Straight Line Method
Figure 4: (Table showing Assumptions made for the Project))
Sources: (Created by the Author)
The above table shows various assumptions which are undertaken by the management of
the company for the purpose of effectively analyzing the project which is to be undertaken
(Palia, 2014). The depreciation which is charged on the assets of the business is done by
following both diminishing value method and straight-line depreciation method on different

15BUSINESS VENTURE PLANNING
assets of the business. The initial expenses which are to be undertaken by the business are also
shown in the start up costs of the business and the same is done on the basis of anticipation of the
management of the company.
4.2 Constraints
The benefits of opening a smart watch business which would be producing and supplying
the same is sufficient enough for the business to carry out the operations. However, the business
also faces certain limitations which are discussed below in details:
 The technology which the management plans to incorporate in the new smart watches
which the business is planning to sell is changing continuously and therefore there is
always a risk that technological advancements would make the products of the business
obsolete.
 The level of experience of the employees is also a crucial part of the business as the same
is related to technological advancement in a business. The overall skills and efficiency of
the employees also plays a vital role in the performance measurement of the business.
 The level of competition from the existing business would also be immense as the
business would be required to compete against products of Apple and Windows.
4.3 Risks associated with the Business
There are certain risks which are faced by the business which needs to be considered by
the business before taking any decisions. The risks which can be identified are listed below:
 Market Risks: The market conditions and trends which are serious risks for the business.
The market condition depends on the different region of Australia market. The new

16BUSINESS VENTURE PLANNING
business needs to identify the target markets of the business and also ensure that the
needs of the business are covered. Financial Risks: The financial problems are faced by most of the newly established
businesses and also has impacts on setting the budgets of the business (Covello &
Merkhoher, 2013). The financing requirements of the business is an important risk which
the business needs to manage. Management Risks: The organizational structure is a major risk and therefore the
management needs to formulate appropriate strategies. Thus, the new Australian business
needs to appoint experienced and competent managers to oversee the daily operations of
the organisation.
4.4. Cash inflows and outflows
CASH FLOW STATEMENT:
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flow from
Operating Activities:
Cash Sales
$70,000,0
00
$76,772,5
00
$84,200,2
39
$92,346,6
13
$101,281,
147
Collection from Debtors
$96,250,0
00
$114,312,
188
$125,371,
892
$137,501,
622
$150,804,
904
Cash Purchase
($30,000,0
00)
($32,902,5
00)
($36,085,8
17)
($39,577,1
20)
($43,406,2
06)
Payment to Suppliers
($37,500,0
00)
($48,628,1
25)
($53,332,8
96)
($58,492,8
54)
($64,152,0
37)
Direct Labor Cost
($45,833,3
33)
($54,434,3
75)
($59,700,9
01)
($65,476,9
63)
($71,811,8
59)
Manufacturing Expenses
($32,500,0
00)
($35,644,3
75)
($39,092,9
68)
($42,875,2
13)
($47,023,3
90)
Insurance ($12,000) ($12,300) ($12,608) ($12,923) ($13,246)
Rates & Taxes ($6,500) ($6,663) ($6,829) ($7,000) ($7,175)

17BUSINESS VENTURE PLANNING
Salary of Office Staffs ($91,667) ($102,292) ($104,849) ($107,470) ($110,157)
Cleaning Charges ($5,000) ($5,125) ($5,253) ($5,384) ($5,519)
Electricity for Office ($13,750) ($15,344) ($15,727) ($16,121) ($16,524)
Telephone & Internet ($7,333) ($8,183) ($8,388) ($8,598) ($8,813)
Salary of Marketing Staffs ($137,500) ($153,438) ($157,273) ($161,205) ($165,235)
Sales Commissions @1.5%
on Sales ($875,000) ($959,656)
($1,052,50
3)
($1,154,33
3)
($1,266,01
4)
Travelling charges @2% on
Sales ($437,500) ($479,828) ($526,251) ($577,166) ($633,007)
Income Tax Expenses
($3,395,40
1)
($3,874,05
9)
($4,396,84
2)
($4,968,29
5)
($5,593,37
2)
Cash Inflow/(Outflow)
from Operating Activities
$15,435,0
16
$13,858,4
25
$15,073,0
25
$16,407,5
90
$17,873,4
98
Cash Flow from Investing
Activities:
Purchase of Non-Current
Assets
($5,900,00
0)
Preliminary Expenses ($500,000)
Sale of Assets
$1,120,00
0
Return on Deposits $120,000
Cash Inflow/(Outflow)
from Investing Activities
($6,400,00
0) $0 $0 $0
$1,240,00
0
Cash Flow from Financing
Activities:
Share Issue
$38,792,0
25
Bonds Issue
$28,447,4
85
Loan From Bank
$18,964,9
90
Interest Payment
($3,792,99
8)
($3,792,99
8)
($3,792,99
8)
($3,792,99
8)
($3,792,99
8)
Dividend Payment
($2,772,91
0)
($3,163,81
5)
($3,590,75
5)
($4,057,44
1)
($4,567,92
0)
Repayment of Bond ($28,447,4

18BUSINESS VENTURE PLANNING
85)
Repayment of Loan from
Bank
($18,964,9
90)
Cash Inflow/(Outflow)
from Financing Activities
$79,638,5
92
($6,956,81
3)
($7,383,75
3)
($7,850,43
9)
($55,773,3
93)
Net Cash
Increase/(Decrease) for
the period
$88,673,6
08
$6,901,61
2
$7,689,27
2
$8,557,15
1
($36,659,8
95)
Add: Opening Cash Balance $0
$88,673,6
08
$95,575,2
20
$103,264,
492
$111,821,
643
Closing Cash Balance
$88,673,6
08
$95,575,2
20
$103,264,
492
$111,821,
643
$75,161,7
48
Figure 5: (Table showing Cash flow Statement of the business)
Sources: (Created by the Author)
5. Financial and sensitivity analyses of the case project
5.1 Financial analysis of the case project
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Inflation Rate 2.50% 2.50% 2.50% 2.50%
Sales Growth Rate 7% 7% 7% 7%
Sales Volume 50000 53500 57245 61252 65540
Selling Price Per Unit $3,500 $3,588 $3,677 $3,769 $3,863
Total Sales Revenue
$175,000,
000
$191,931,
250
$210,500,
598
$230,866,
531
$253,202,
868
Cost of Good Sold per unit:
Raw Material Consumed ($1,500) ($1,538) ($1,576) ($1,615) ($1,656)
Direct Labor Cost ($1,000) ($1,025) ($1,051) ($1,077) ($1,104)

19BUSINESS VENTURE PLANNING
Total Cost of Goods Sold
p.u. ($2,500) ($2,563) ($2,627) ($2,692) ($2,760)
Total Cost of Goods Sold
($125,000
,000)
($137,093
,750)
($150,357
,570)
($164,904
,665)
($180,859
,192)
GROSS PROFIT
$50,000,0
00
$54,837,5
00
$60,143,0
28
$65,961,8
66
$72,343,6
77
Variable Manufacturing
Overhead p.u ($650) ($666) ($683) ($700) ($717)
Total Variable
Manufacturing Overhead
($32,500,
000)
($35,644,
375)
($39,092,
968)
($42,875,
213)
($47,023,
390)
Depreciation on Property,Plant
& Equipment
($280,000
)
($280,000
)
($280,000
)
($280,000
)
($280,000
)
Total Manufacturing
Overhead
($32,780,
000)
($35,924,
375)
($39,372,
968)
($43,155,
213)
($47,303,
390)
General Administrative
Expenses:
Depreciation on Furniture &
Fixtures ($80,000) ($72,000) ($64,800) ($58,320) ($52,488)
Depreciation on Computer
Equipment
($120,000
)
($105,600
) ($92,928) ($81,777) ($71,963)
Amortization of Patent ($80,000) ($80,000) ($80,000) ($80,000) ($80,000)
Amortization of Trademark
($100,000
)
($100,000
)
($100,000
)
($100,000
)
($100,000
)
Insurance ($12,000) ($12,300) ($12,608) ($12,923) ($13,246)
Rates & Taxes ($6,500) ($6,663) ($6,829) ($7,000) ($7,175)
Salary of Office Staffs
($100,000
)
($102,500
)
($105,063
)
($107,689
)
($110,381
)
Cleaning Charges ($5,000) ($5,125) ($5,253) ($5,384) ($5,519)
Electricity for Office ($15,000) ($15,375) ($15,759) ($16,153) ($16,557)
Telephone & Internet ($8,000) ($8,200) ($8,405) ($8,615) ($8,831)
Total General
Administrative Expenses
($526,500
)
($507,763
)
($491,645
)
($477,861
)
($466,160
)
Selling & Marketing
Expenses:
Depreciation on Motor
Vehicle
($120,000
)
($105,600
) ($92,928) ($81,777) ($71,963)

20BUSINESS VENTURE PLANNING
Salary of Marketing Staffs
($150,000
)
($153,750
)
($157,594
)
($161,534
)
($165,572
)
Sales Commissions @0.5% on
Sales
($875,000
)
($959,656
)
($1,052,5
03)
($1,154,3
33)
($1,266,0
14)
Travelling charges @0.25%
on Sales
($437,500
)
($479,828
)
($526,251
)
($577,166
)
($633,007
)
Total Selling & Marketing
Expenses
($1,582,5
00)
($1,698,8
34)
($1,829,2
76)
($1,974,8
09)
($2,136,5
57)
Net Operating Profit/(Loss)
$15,111,0
00
$16,706,5
28
$18,449,1
39
$20,353,9
83
$22,437,5
70
Interest Expenses:
Interest on Bond
($1,991,3
24)
($1,991,3
24)
($1,991,3
24)
($1,991,3
24)
($1,991,3
24)
Interest on Loan From Bank
($1,801,6
74)
($1,801,6
74)
($1,801,6
74)
($1,801,6
74)
($1,801,6
74)
Total Interest Expenses
($3,792,9
98)
($3,792,9
98)
($3,792,9
98)
($3,792,9
98)
($3,792,9
98)
Net Profit before Tax
$11,318,0
02
$12,913,5
30
$14,656,1
41
$16,560,9
85
$18,644,5
72
Income Tax Expenses
($3,395,4
01)
($3,874,0
59)
($4,396,8
42)
($4,968,2
95)
($5,593,3
72)
Net Profit after Tax
$7,922,60
1
$9,039,47
1
$10,259,2
99
$11,592,6
89
$13,051,2
00
Gross Profit Margin 28.57% 28.57% 28.57% 28.57% 28.57%
Net Profit Margin 4.53% 4.71% 4.87% 5.02% 5.15%
Return on Equity 20.42% 23.30% 26.45% 29.88% 33.64%
Figure 6: (Table showing Income Statement of the business)
Sources: (Created by the Author)
5.2 Sensitivity analysis of the case project
SENSITIVITY ANALYSIS:-
Inflation Rate Growth Rate (Average) WACC

21BUSINESS VENTURE PLANNING
Particulars 2%
2.50
%
3.50
% 5% 7% 9%
6.50
%
8.71
%
10.50
%
Av.Gross
Profit Margin
28.57
%
28.57
%
28.57
%
28.57
%
28.57
%
28.57
%
28.57
%
28.57
%
28.57
%
Av.Net Profit
Margin
3.61
%
4.86
%
3.68
%
3.54
%
4.86
%
3.73
%
3.64
%
4.86
%
3.64
%
Av.Return on
Equity
16.11
%
26.74
%
17.02
%
15.26
%
26.74
%
17.61
%
16.41
%
26.74
%
16.41
%
NPV
3418
8644
6435
1920
3648
4023
3202
8539
6435
1920
3797
5672
4465
7992
6435
1920
2778
4904
IRR
9.64
%
16.99
%
10.22
%
9.10
%
16.99
%
10.58
%
12.11
%
16.99
%
8.05
%
ARR
7.25
%
12.03
%
7.66
%
6.87
%
12.03
%
7.92
%
7.38
%
12.03
%
7.38
%
Protability
Index
40.30
%
74.65
%
43.00
%
37.75
%
74.65
%
44.76
%
52.64
%
74.65
%
32.75
%
Figure 7: (Table showing Sensitivity Analysis of the business)
Sources: (Created by the Author)
5.3 Non-financial decision-making factors
The Australian economy are also affected by non-financial decisions-making process and the
same is stated below:
 The business needs to meet the existing and future regulations which can affect the
business.
 Complying with the standard which is followed in the industry.
 Providing motivation to the employees of the business for further enhancing the morale
of the staff and also enhancing productions.
 Maintaining a friendly relationship with the customers of the business.
 Developing a reputation of the business in the market and building a brand image for the
product.

22BUSINESS VENTURE PLANNING
5.4 Selection of best alternative
Break-even analysis:
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Selling Price per unit $3,500 $3,588 $3,677 $3,769 $3,863
Variable Expenses per unit:
Raw Material ($1,500) ($1,538) ($1,576) ($1,615) ($1,656)
Direct Labor Cost ($1,000) ($1,025) ($1,051) ($1,077) ($1,104)
Variable Manufacturing Overhead ($650) ($666) ($683) ($700) ($717)
Sales Commission ($18) ($18) ($18) ($19) ($19)
Travelling Expenses ($26) ($27) ($28) ($28) ($29)
Toatl Variable Costs per Unit ($3,194) ($3,274) ($3,355) ($3,439) ($3,525)
Contribution Margin $306 $314 $322 $330 $338
Fixed Costs:
Depreciation on Property,Plant &
Equipment $280,000 $280,000 $280,000 $280,000 $280,000
Depreciation on Furniture & Fixtures $80,000 $72,000 $64,800 $58,320 $52,488
Depreciation on Computer
Equipment $120,000 $105,600 $92,928 $81,777 $71,963
Amortization of Patent $80,000 $80,000 $80,000 $80,000 $80,000
Amortization of Trademark $100,000 $100,000 $100,000 $100,000 $100,000
Insurance $12,000 $12,300 $12,608 $12,923 $13,246
Rates & Taxes $6,500 $6,663 $6,829 $7,000 $7,175
Salary of Office Staffs $100,000 $102,500 $105,063 $107,689 $110,381
Cleaning Charges $5,000 $5,125 $5,253 $5,384 $5,519
Electricity for Office $15,000 $15,375 $15,759 $16,153 $16,557
Telephone & Internet $8,000 $8,200 $8,405 $8,615 $8,831
Interest on Bond
$1,991,32
4
$1,991,32
4
$1,991,32
4
$1,991,32
4
$1,991,32
4
Interest on Loan From Bank
$1,801,67
4
$1,801,67
4
$1,801,67
4
$1,801,67
4
$1,801,67
4
Depreciation on Motor Vehicle
$1,991,32
4
$1,991,32
4
$1,991,32
4
$1,991,32
4
$1,991,32
4
Salary of Marketing Staffs
$1,801,67
4
$1,801,67
4
$1,801,67
4
$1,801,67
4
$1,801,67
4

23BUSINESS VENTURE PLANNING
Total Fixed Costs
$8,392,49
6
$8,373,75
9
$8,357,64
1
$8,343,85
7
$8,332,15
6
Break-Even in Units 27404 26676 25975 25300 24648
Break-Even in Dollars
$95,914,2
40
$95,700,0
97
$95,515,8
92
$95,358,3
67
$95,224,6
40
Figure 8: (Table showing Breakeven Analysis of the business)
Sources: (Created by the Author)
Capital Budgeting Techniques
Particulars
Year
0 1 2 3 4 5
Initial Investment:
Purchase of Non-Current
Assets
-
590000
0
Prelinimary Expenses
-
500000
Working Capital
-
798045
00
Total Initial Investment
-
862045
00 0 0 0 0 0
Net Opearting Profit
before Tax 0
1511100
0
1670652
8.13
1844913
9.04
2035398
2.8
2243756
9.9
Less: Income Tax 0 4533300
5011958.
437
5534741.
713
6106194.
839
6731270.
971
Net Operating Profit
after Tax 0
1964430
0
2171848
6.56
2398388
0.76
2646017
7.64
2916884
0.88
Add: Depreciation &
Amortization 0 780000 743200 710656
681873.2
8
656414.8
864
Net Operating Cash
Flow 0
2042430
0
2246168
6.56
2469453
6.76
2714205
0.92
2982525
5.76

24BUSINESS VENTURE PLANNING
Terminal Value:
Sale of Non-Current
Assets 1120000
Recovery of Preliminary
Expenses 120000
Recovery of Working
Capital
7980450
0
Total Terminal Value 0 0 0 0 0
8104450
0
Net Annual Cash Flow
-
862045
00
2042430
0
2246168
6.56
2469453
6.76
2714205
0.92
1108697
55.8
Discount Rate (WACC) 8.50% 8.50% 8.50% 8.50% 8.50% 8.50%
Discounted Cash Flow
-
862045
00
1882423
9.63
1908019
8.4
1933355
2.81
1958500
5.96
7373342
3.65
Net Present Value
643519
20
IRR 16.99%
Average Accounting Profit
103730
52
ARR 12.03%
Profitability Index 0.75
Figure 9: (Table showing Capital Budgeting Application for the business)
Sources: (Created by the Author)
The NPV of the project which is shown in the above table is positive which suggest that
the business is worth making investment in and the management should move forward with the
plan (Eva et al., 2014). The IRR of the project is also shown to be favorable and therefore the
management needs to undertake the project immediately.

25BUSINESS VENTURE PLANNING
6. Conclusion
The analysis which is discussed above shows a project plan which is to open a business
which would be supplying smart watches to the customers. The analysis is done considering the
market of Australia for which a market analysis is conducted in order to ensure that the market is
favorable for establishing such a business. The analysis also shows application of several tools of
management such as capital budgeting techniques, breakeven analysis, use of projected financial
statement for the purpose of assessing the viability of the project. The conclusion which can be
drawn from the analysis is that the management should move forward with the project.
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26BUSINESS VENTURE PLANNING
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