Financial Ideas for Entrepreneur Success

This assignment delves into various financial concepts and ideas designed to assist entrepreneurs in making strategic decisions. It examines different financial options available to them, aiming to guide entrepreneurs towards selecting the most feasible and advantageous path for success within their respective markets.

CORPORATE FINANCIAL
MANAGEMENT

EXECUTIVE SUMMARY
This project report is based on the business expansion proposal of Stylised Hotel which
intended to plan for choosing appropriate opportunity to invest in one among the two resorts.
This decision is affected by calculating NPV and IRR in which the profitability and future
efficiency are identified which helps business enterprise to take the best decisions. Higher ratio
of NPV and IRR is helpful for an enterprise to choose appropriate project. An entrepreneur will
consider not only profit and loss from that project but also focus on attaining profit from the
investment. The generated positive returns are not important but the thing which is important is
its time period in which these returns are produced.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
Key financial ideas.................................................................................................................4
Analysis..................................................................................................................................5
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Corporate finance focuses on identifying varied sources of fund and the capital structure
of corporation so that overall value of organization can be enhanced. It is one of the effective
tools that can be used for analysing the financial ability of an enterprise to allocate its financial
resources in an optimum manner. Stylised Hotel has been selected for this project report which is
analysing two different options in order to expand their business. This project report is all about
using different capital budgeting techniques to assess the viability of two business projects.
Key financial ideas
Financial management is efficiently used in an enterprise for planning and directing the
use of company's financial resources (Harjoto and Laksmana, 2016). It generates cash through
various operations and the capital is obtained by inviting investors and sponsors to assist an
enterprise financially.
There are different aspects of financial management used by Stylised hotel who are
intended to expand its existing business by choosing one project from the available two, that is,
Cliff Top and Rain Forest Resorts which are explained as given below:
Cash management- The primary aim of an enterprise is to manage its cash in order
increase their cash inflow by eliminating all its unnecessary costs. Preparation of cash flow
statement and cash budget is helpful for stylised hotel to improve their cash balance by
controlling all its costs by setting priorities. The current cash inflow of two resorts is higher as it
shows the total cash inflow of 20 villas of Cliff Top and 30 villas of Rain Forest.
Planning and forecasting- Another important part of financial management is that it
helps in financial planning which involves accurately forecasting the company's revenues,
expenses and net income (Su, Peng and Cheung, 2016). Different budgets have been prepared to
forecast all kinds of cash flows and unnecessary costs by adjusting within the same period. The
control is imposed on an enterprise to eliminate all negative variances occurred in an enterprise
by converting them into positive one. All the expenses of current case study are further
bifurcated into Cliff Top and Rain Forest Resorts.
Financial reporting- A management is required to timely report to the owner by forming
accurate reports in order to make future decisions (What is financial planning, 2016). The
workers of business are responsible for financial management to determine the key pieces of
information which is relevant for an organisation. Key financial matters are reported to the

business to take business decisions that will affect its existing performance in alignment with the
future.
Analysis
Table 1: Calculation of cash inflow
Particulars Cliff Top Resort
Rain Forest
Resort
Income(W.N.1) 122754480 244535760
Total income 122754480 244535760
Expenses
Initial refurbishment 750000 900000
Renovation of building(W.N.6) 8181550 10947132
Fixed cost 2500000 4500000
Variable cost(W.N.7) 260000 366000
New Refurbishments(W.N.8) 1500000 2700000
Interest paid(W.N.9) 29054476 41389035
Feasibility study 50000 50000
Food and beverage services 28340 44472
Depreciation 790000 905000
Total expenses 43114366 61801639
Income before tax 79640114 182734121
-Tax Expenses(W.N.10) 9385353 13335591
Income after tax 70254761 169398530
+Depreciation(W.N.4) 790000 905000
Net Cash inflow 71044761 170303530

Interpretation
From the above calculation, it has been observed that cash inflow of both options include
earning from entire villa (Zhao and Murrell, 2016). Cliff Top Resort has 20 villas and Rain
Forest is having 30 villas. It has been seen that, Rain Forest has higher amount of cash inflow
than Cliff Top Resort. It is assumed that all net cash flows remain same for their whole span of
life that is 12 years in case of Cliff Top Resort and 15 years in the case of Rain Forest Resort.
Consistent cash flow is assumed as all the costs and other incomes are taken into consideration
for all years.
Working notes
1.
Table 2: Total income
Particulars Cliff Top Resort Rain Forest Resort
Income HD MD LD HD MD LD
Commission 108.8 144 131.2 204 270 246
Food and beverage
service income 9100 9490 9750 14280 14892 15300
maximum
accommodation
(W.N.2) 1270000 3159000 1680000 1792500 4153500 2160000
Total income 1279208.8 3168634 1689881.2 1806984 4168662 2175546
Assumption
It is assumed that all incomes are calculated according to the nature of demand and
number of villas held by two resorts (Jayasinghe, 2016). Food and beverage service income has
been identified as per the occupancy rate which is given above as per the case study.
2.

Table 3: Accommodation income
Working notes 2 Cliff Top Resort Rain Forest Resort
Maximum accommodation HD MD LD HD MD LD
Per villa and weekend session 430000 1079000 560000 622500 1462500 720000
Per Villa and weekday 840000 2080000 1120000 1170000 2691000 1440000
Total accommodation charge 1270000 3159000 1680000 1792500 4153500 2160000
3.
Table 4: Managerial remuneration
Managerial salary HD MD LD
Full-time on-site manager
857142.85714
2857
2228571.428571
43
1371428.57
142857
Full-time deputy manager
642857.14285
7143
1671428.571428
57
1028571.42
857143
Full-time evening manager
714285.71428
5714
1857142.857142
86
1142857.14
285714
Part-time manager
114285.71428
5714
297142.8571428
57
182857.142
857143
Agency staff 960 600
369.230769
2308
Total salary 2329531.42 6054885.71 3726083.51
Interpretation
The above mentioned schedule of managerial salary has been prepared by taking into
consideration complete working days of all managers (Mersni and Ben Othman, 2016). The
working days of managers are like Full-time on-site manager, Full-time deputy manager, Full-
time evening manager who works five days a week and Part-time manager for 2 Nights per
week. All other staffs are on leave for 4 weeks and to compensate the same, agency staff have
been appointed for short term and paid on hourly basis.
4.

Table 5: Depreciation
Depreciation
Cliff Top
Resort
Rain Forest
Resort
Buildings 240000 280000
Furniture and equipment 550000 625000
Total depreciation 790000 905000
Interpretations
Depreciation is calculated on Straight line method which is calculated on the basis of
number of years the assets are held by business (Jayasinghe, 2016). The building is held for 25
years and furniture and equipment is for 8 years. This depreciation is deducted from the income
and also, added in net income to calculate cash inflows.
5.
Table 6: Total expenses
Expenses
Cliff Top
Resort
Rain Forest
Resort
Initial refurbishment 750000 900000
Renovation of
building(W.N.6) 8181550 10947132
Fixed cost 2500000 4500000
Variable cost(W.N.7) 260000 366600
New Refurbishments(W.N.8) 1500000 2700000
Interest paid(W.N.9) 29054476 41389035
Feasibility study 50000 50000
Food and beverage services 28340 44472
Total expenses 42324366 60897239
6.
Table 7: Renovation cost
Particulars Cliff Top Rain Forest

Resort Resort
Buildings renovation 8181550 10947132
Total 8181550 10947132
Renovation cost is capitalised at the rate of 12% as it is clearly mentioned in the case
study given above.
7.
Table 8: Variable cost
Variable cost(W.N.6) Cliff Top Resort Rain Forest Resort
Particulars HD MD LD HD MD LD
Per villa weekend
session 16000 41600 25600 22500 58500 36000
Per Villa and weekday 34000 88400 54400 48000 124800 76800
Total variable cost 50000 130000 80000 70500 183300 112800
The variable cost is bifurcated into two different categories that is one which is divided
into per villa and weekend session and per villa and weekday (Acharya and Xu, 2016). Variable
cost has calculated as per the nature of different demands as they are changed as per the
production and activity level.
8.
Table 9: New refurbishments
Particulars
Cliff Top
Resort
Rain Forest
Resort
new soft furnishings 1500000 2700000
Total 1500000 2700000
9.
Table 10: Interest paid
Interest paid(W.N.12) Cliff Top Rain Forest

Resort Resort
Interest for 12 years 29054476
Interest for 15 years 41389035
Total 29054476 41389035
Interest amount is calculated at the rate of 7.5% which is compounded monthly on the
amount borrowed by an individual that is 20 million (Harjoto and Laksmana, 2016). Rates are
same for both the resorts however, time period is different.
10.
Table 11: Tax Expenses
Tax Expenses (W.N.10)
Cliff Top
Resort
Rain Forest
Resort
Inflation rate (W.N.11) 123200 140000
Index rate (W.N.12) 1502324.79 2140501.361
Property Index(W.N.13) 364500 325000
Corporate tax@20% 7395328.4 10730089.4
Total 9385353.19 13335590.761
11.
Table 12: Inflation rate
Inflation rate(W.N.11)
Particulars
Cliff Top
Resort
Rain Forest
Resort
Furniture and equipment 123200 140000
Total 123200 140000

This inflation rate is differentiated which is imposed on the household items held by an
enterprise as being a resort owner, it needs to pay inflation rate as it is the burden on business.
12.
Table 13: Index rate
Index rate(W.N.12)
Particulars
Cliff Top
Resort
Rain Forest
Resort
Total revenue 190269.444 252686.952
Total costs 1312055.346 1887814.409
Total tax 1502324.79 2140501.361
This index rate is 3.1% which is imposed on hospitality sector which covers all revenue
and costs.
13.
Property
Index(W.N.13) Cliff Top Resort Rain Forest Resort
Particulars Urban area Non-urban area
Land 202500 150000
Buildings 162000 175000
Total property index 364500 325000
The property index rates are different for both the resorts as Cliff Top comes under urban
area that is the reason it is charged with 2.7% rate and another resort that is Rain Fiorest is liable
to pay tax at 2.5% being situated in no-urban area.
Calculation of NPV
Cliff Top Resort PV@12% Present value

Initial
investment 20000000
1 71044761 0.8928571429 63432822.32
2 71044761 0.7971938776 56636448.5
3 71044761 0.7117802478 50568257.59
4 71044761 0.6355180784 45150229.99
5 71044761 0.5674268557 40312705.34
6 71044761 0.5066311212 35993486.91
7 71044761 0.4523492153 32137041.89
8 71044761 0.403883228 28693787.4
9 71044761 0.360610025 25619453.03
10 71044761 0.3219732366 22874511.64
11 71044761 0.2874761041 20423671.1
12 71044761 0.2566750929 18235420.63
Total 440077836.39
NPV 420077836.39
NPV= Total present value- initial investment
=440077836.39-20000000
=420077836.39
Net present value method is one of the techniques of capital budgeting to measure future
profitability of an undertaking that is calculated by subtracting initial investment from total
present cash flow (Acharya and Xu, 2016). If the present cash flow is high, initial investment
will generate positive NPV.
Table 14: NPV of Rain Forest Resort
Rain Forest Resort PV@12% Present value
20000000
170303530 0.8928571429 152056723.21
170303530 0.7971938776 135764931.44

170303530 0.7117802478 121218688.78
170303530 0.6355180784 108230972.13
170303530 0.5674268557 96634796.54
170303530 0.5066311212 86281068.34
170303530 0.4523492153 77036668.16
170303530 0.403883228 68782739.43
170303530 0.360610025 61413160.2
170303530 0.3219732366 54833178.75
170303530 0.2874761041 48958195.31
170303530 0.2566750929 43712674.39
170303530 0.2291741901 39029173.56
170303530 0.2046198126 34847476.39
170303530 0.1826962613 31113818.21
Total 1159914264.9
NPV 1139914264.9
NPV= Total present value- initial investment
= 1159914264.9-20000000
=1139914264.9
NPV is that technique which is commonly used by an enterprise in order to judge its
future efficiency over a time period in which money is invested in a business project. In the
above project, Present cash inflow is higher than the initial investment held by an individual.
Calculation of IRR
Table 15: Calculation of IRR for Cliff Top Resort
Cliff Top Resort PV@12% Present value
Initial investment 20000000
1 71044761 0.8928571429 63432822.32
2 71044761 0.7971938776 56636448.5

3 71044761 0.7117802478 50568257.59
4 71044761 0.6355180784 45150229.99
5 71044761 0.5674268557 40312705.34
6 71044761 0.5066311212 35993486.91
7 71044761 0.4523492153 32137041.89
8 71044761 0.403883228 28693787.4
9 71044761 0.360610025 25619453.03
10 71044761 0.3219732366 22874511.64
11 71044761 0.2874761041 20423671.1
12 71044761 0.2566750929 18235420.63
Total 440077836.39
NPV 420077836.39
Cliff Top Resort PV@15% Present value
71044761 0.8695652174 61778053.04
71044761 0.7561436673 53720046.12
71044761 0.6575162324 46713083.58
71044761 0.5717532456 40620072.68
71044761 0.4971767353 35321802.33
71044761 0.4323275959 30714610.72
71044761 0.3759370399 26708357.15
71044761 0.3269017738 23224658.39
71044761 0.284262412 20195355.12
71044761 0.2471847061 17561178.36

71044761 0.2149432227 15270589.88
71044761 0.1869071502 13278773.81
Total 385106581.23
NPV 365106581.23
IRR= NPV @12 %/( NPV@12%-NPV@15%)*(15%-12%)
=IRR
=420077836.39/ (420077836.39-365106581.23)*(15-12) %
=12.22%
IRR stands for internal rate of return or it can be said that economic rate of return. It is
that effective rate at which NPV and initial investment will be equal (Hasan, Kobeissi, Liu and
Wang, 2016). It is used in business to compare the profitability of investment or business
projects. In the current project, two rates are taken such as cost of capital and other discounting
rate.
Table 16: IRR calculation of Rain Forest Resort
Rain Forest Resort PV@12% Present value
Initial investment 20000000
1 170303530 0.8928571429 152056723.21
2 170303530 0.7971938776 135764931.44
3 170303530 0.7117802478 121218688.78
4 170303530 0.6355180784 108230972.13
5 170303530 0.5674268557 96634796.54
6 170303530 0.5066311212 86281068.34
7 170303530 0.4523492153 77036668.16

8 170303530 0.403883228 68782739.43
9 170303530 0.360610025 61413160.2
10 170303530 0.3219732366 54833178.75
11 170303530 0.2874761041 48958195.31
12 170303530 0.2566750929 43712674.39
13 170303530 0.2291741901 39029173.56
14 170303530 0.2046198126 34847476.39
15 170303530 0.1826962613 31113818.21
Total 1159914264.9
NPV 1139914264.9
Rain Forest Resort PV@15% Present value
20000000
170303530 0.8695652174 148090026.08
170303530 0.7561436673 128773935.72
170303530 0.6575162324 111977335.41
170303530 0.5717532456 97371596.01
170303530 0.4971767353 84670953.05
170303530 0.4323275959 73626915.7
170303530 0.3759370399 64023404.95
170303530 0.3269017738 55672526.04
170303530 0.284262412 48410892.21
170303530 0.2471847061 42096428.01
170303530 0.2149432227 36605589.57

170303530 0.1869071502 31830947.45
170303530 0.1625279567 27679084.74
170303530 0.141328658 24068769.34
170303530 0.1228944852 20929364.64
Total 995827769.01
NPV 975827769.01
IRR= NPV @12 %/( NPV@12%-NPV@15%)*(15%-12%)
=IRR
=1139914264.9/ (1139914264.9-975827769.01)*(15-12) %
=12.02%
It is used in capital budgeting to measure and compare the profitability of investments in
the venture (Mersni and Ben Othman, 2016). An investment is considered acceptable if its IRR is
greater than the cost of capital of an enterprise. Higher IRR will reflect the efficiency of a
business to generate higher returns which can be used to attract wide number of shareholders in
an enterprise.
Recommendations
From the above analysis of two business options that is Cliff Top and Rain Forest Resort,
analysis is done in order to select the most appropriate project. Assessment of two options is
properly evaluated on the basis of applying two capital budgeting techniques i.e. NPV and IRR.
NPV is an indicator of how much value an investment or project creates to the existing
business. Higher the NPV is, there will be more chances to select it by owner (Tahir, Sohail,
Qayyam and Mumtaz, 2016). It is the common method used in every business for decision
making regarding selecting or rejecting a proposal. On the basis of these criteria, both project’s
efficiency are judged by comparing their NPV. It has been observed that project of Cliff Top
Resort has higher amount of NPV as compared to another project which has positive NPV but