Financial Analysis of Customization Services

This assignment analyzes the financial viability of various business scenarios for a company offering customization services. Students evaluate different pricing models and service expansions, calculating key financial metrics like Net Present Value (NPV), Internal Rate of Return (IRR), and Accounting Rate of Return to determine the most profitable investment options. The analysis considers factors such as revenue projections, operating costs, and the required rate of return for successful investments.

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A Financial Analysis Report for For-U Jeans
Project: Customization Lab
[Pick the date]
tABC

Contents
1. Project Back ground............................................................................................................................4
2. Assumptions Made for Financial Analysis..........................................................................................5
3. Preliminary Risk Analysis...................................................................................................................6
a) Supply Chain Risks: (Martino, Fera, RafaeleIannone, & Miranda, 2017).......................................7
a) 1) Demand Risk: (Martino, Fera, RafaeleIannone, & Miranda, 2017).........................................7
a) 2) Supply risks.............................................................................................................................7
a) 3) Process Risk..........................................................................................................................8
a) 4) Control Risks...............................................................................................................................9
b) Financial Risks................................................................................................................................9
c) Marketing Risks.............................................................................................................................10
d) Exogenous Risks........................................................................................................................10
4. Cash Flows Over the Life of the Project............................................................................................11
5 Financial Analysis.................................................................................................................................12
5.1 Costs of Goods Sold........................................................................................................................12
5.2 Profits and Profits After Tax............................................................................................................13
5.3 Annual Rate of Return (ARR).........................................................................................................14
5.4 Net Present Value............................................................................................................................14
5.5 Internal Rate of Return....................................................................................................................14
6 Sensitivity Analysis...............................................................................................................................15
6.1 Calculations For Sensitivity Analysis..............................................................................................16
a) Analysis for Freedom Jeans as a complimentary Good to the customization................................16
b)Customization Services are Priced Differently................................................................................17
7 Other Considerations For Analysis: Business Sustainability............................................................19
8 Decision Analysis..............................................................................................................................20
9 Recommendations for Financial Sustainability.......................................................................................21
Bibliography...............................................................................................................................................21

Executive Summary
This project report is a financial analysis for the Customization Lab for Jeans Project pitched at
the For- U Company. Managers of the firm wish to establish a Customization Lan. The Project
Report Analyses the proposed investment from a variety of financial parameters such as profits,
rates of return etc. The report provides some recommendations too.

1. Project Back ground
For-U Jeans is looking to target the increasing base of young customers who seek adventurous,
fun clothes that they can identify with. The product department and the marketing department
have come up with an idea to include customize the jeans that are sold, in order to make the jeans
more personal and unique for their customers. It is hoped that once customers like the idea of
customizing jeans, they would develop some brand loyalty and the idea of customization would
hopefully lead them to purchase more jeans.
This report is a financial report on the case. A Financial Report helps understand the total
investment required during the life of a project, the total direct and direct costs associated with it
and the total income that may be accrued over the life of the project. A financial case report
gives an insight into the possibility of profits or losses that may be expected from a project so
that managers can make better decisions. The Financial case project also contains the various
alternatives available to managers to helps them make the right decisions. This report provides a
brief analysis of the total costs associated with the project over the life of the project. The report
also lists the various sources of revenue over the life of the project and the expected revenues
from each of these sources. ( Public Sector Accounting Standards Board, 2001)
Additionally, the report also provides an analysis of the financial possibilities on some key
parameters like payback period, Net Present value, Internal Rate of Return and more. ( Public
Sector Accounting Standards Board, 2001) Hopefully, managers will be able to use this report as
a guide to making financial decisions regarding investment in the project. The Customization
Lab has very high investment costs and it is important to understand the future cash flows (and
discounted cash flows) are worth the heavy investment made in the present year.
The purpose of this appraisal is to evaluate whether the Customization Lab would be a good
investment and add value to the line of products that For- U Jeans has on offer. The
Customization Lab is being proposed as completely a digital venture. Customers will be able to
select from various options online to personalize their jeans. Some of these customizations

include a range of finishing touches such as scrape wash, blast wash, faded, rugged wash and
scuffed. Once customers choose their favorite pair of jeans from the products on offer by For-U,
they will able to customize it by selecting from a range of customizations. The Lab will
exclusively focus on online sales at the moment. There will be no plans to introduce the custom
labs in brick and mortar shops or other retail avenues. The value of this lab may include
monetary and non-monetary benefits. Customization of Jeans will be a unique way to connect
with new customers and offer variety to existing customers. It is expected that the new service on
offer will help build some customer loyalty towards the brand by helping to portray the brand as
fun, relatable brand. Additionally, it is hoped that sales of jeans offered by For-U Jeans currently
will pick up due to the new services
To complement this new line, the product department has also thought of introducing a new cost-
effective line of jeans for consumers. It is hoped that the as customers visit the customization
Lab, they will have an additional option of purchasing Freesom Jeans. The total cost of
introducing this new line is $100,000. This will be a limited edition line called “Freedom” with
only 2000 jeans for sale, each pair of jeans to be sold at $75. It is hoped that the jeans would be
sold out within the first six months of the date of sale. The new line, even if the custom lab is not
approved could still be an independent option to add to the existing line of products. The brand
will not spend on advertisement or promotion of this new line, given that it is a cost effective and
limited edition collection available only online. It is being introduced simply to attract new
customers and provide some variety in price to the existing customers.
2. Assumptions Made for Financial Analysis
 The expected demand has been projected based on market survey. This survey was done
considering specifically targeting the demographic of 16- 32 years old male and female
residents all over Australia. The survey showed that there is indeed a market for
customized jeans. While making demand projections, consumer taste and preferences
have been assumed to be constant.
 The charges for shipping the product to the consumer have been excluded as shipping
charges will be counted at actual.

 Inflation analysis has not been included as the size of the project is currently not large
enough and inflation is not expected to be a big factor. Inflations has been captured as the
costs are increasing, in spite of the increasing number of customers.
 The costs of Jeans include the total costs including the costs of purchasing raw materials,
costs of transport and warehousing, producing and packaging jeans etc. There are no
additional costs to procurement of jeans.
 All costs have been converted into Australia Dollar and no currency exchange is required.
 This analysis gives a seven year return analysis for the project. The internal norms of the
Company require, that for any venture to get approved , it must show returns greater than
14% per annum. This is the discount rate for the investment of the project.
 It is assumed that the customized lab will be able to meet the increased demand over the
period of seven years.
 Diminishing returns are not taken into consideration while making this analysis.
 Depreciation is assumed to be straight line depreciation.
3. Preliminary Risk Analysis
A simple “risk analysis” exercise helps understand the basic risks that could possibly be related
to the project and management. The method used here is the Preliminary Risk Analysis. Given
below are the some of the key parameter on which the risks have been analysed. (Vesper, 2014)
 Risk Elements: These are the possible people or activities that could pose a threat to the
project
 Consequence: Consequence refers to the chain of events that could occur , sh
 Likelihood: Likelihood refers to the chances of the occurrence of any risk event or risk
element. In this analysis, likelihood can take the following values: Low,(1) medium (2),
high (3)
 Severity of consequence: This refers to the potential for a negative impact. Severity can
take four values: Insignificant (1), Low (2), Medium (3) High (4)
 Risk Score: This is the scale of risk. Risk Score = Likelihood X Severity.
 Risk Score can take values between 1 and 12, 1 symbolizing lower risks while 12
symbolizes high risks.
(Vesper, 2014)

a) Supply Chain Risks: (Martino, Fera, RafaeleIannone, & Miranda, 2017)
These are risks related to the supply chain i.e the procurement of the goods from the market.
a) 1) Demand Risk: (Martino, Fera, RafaeleIannone, & Miranda, 2017)
Risk Element
These typically relate to estimating demand wrongly and not preparing the supply chain
accordingly
Consequence: Underestimation of demand will lead to placing fewer orders. In, this may lead
to inability to fulfill demand. In turn, that may lead to customers loss of potential revenues
directly.
Potential Causes: Lack of correct market information or analysis, Poor Decision making
Likelihood: 2
Severity: 3
Risk Score: 6
a) 2) Supply risks
(Martino, Fera, RafaeleIannone, & Miranda, 2017)
These risks depend on the supply structure and are mostly related to sourcing and outsourcing
issues.
Risk Elements
Elements that could threaten the supply of products either from the raw material market to For-
U jeans. The lack of regular supply could be due to a variety of factors such as unreliable
suppliers, problems in transportation etc.
Consequences
Disturbances in supply can
I. Raise the cost of goods

II. Delay delivery to the customer which in turn would disrupt the fulfillment in
demand. This in turn could affect revenues in monetary terms and brand value in
non monetary terms.
Likelihood: 2
Severity:2
Risk score:4
a) 3) Process Risk
(Martino, Fera, RafaeleIannone, & Miranda, 2017)
These risks relate to the internal operation of the Company. The company should be able to
handle the addition of a new department , new processes etc. There are several procedures
that must be adjusted to the new addition to the Company’s assets. For example, there would
be issues relating to warehousing, transfer pricing and more.
Risk Elements
I. Lack of communication between managers.
II. Time Lag to adjustment of all Company processes to the new addition
Consequences
I. Lack of communication could disturb the operations of the Company and affect
efficiency in the given year.
II. General Inefficiency
Likelihood: 3
Severity: 3
Risk Scale: 9

a) 4) Control Risks
(Martino, Fera, RafaeleIannone, & Miranda, 2017)
These risks relate to the moving parts of the network i.e the other network actors. This could
lead to non-standardization of product as well as processes.
Risk Elements
I. Supplier risks would imply the provision of non-standard product.
II. Operations risk would imply ht enon standardization of processes such as non-standard
invoicing, non-standard merchandising and packaging etc.
Risk Consequences
I. This could increase the chance of consumer complaints, product returns etc.
II. Operations Risk: This could lead to operational inefficiency
Likelihood: 3
Severity: 3
Risk Scale: 9
b) Financial Risks
(Martino, Fera, RafaeleIannone, & Miranda, 2017)
These risks relate to the financial aspect of project management
Risk Elements:
I. Excess Costs: The actual costs could be greater than the projected costs
II. Lower Revenues: The actual revenues could be lower than the projected revenues.
Consequences
I. Profit Margins could be hurt, leading to potential losses.
II. Total Cash inflows could be lower, leading to potential losses
Likelihood: 2

Severity: 3
Risk Scale: 6
c) Marketing Risks
(Martino, Fera, RafaeleIannone, & Miranda, 2017)
These risks relate to the marketing and advertising of products.
Risk Elements
I. Lack of clarity in marketing
II. Increase in budget of marketing costs
Consequences
I. The consumer may not receive the message of the brand clearly and it would directly
affect revenues.
II. The cost benefit balance would be overthrown. There may also, temporary liquidity
issues in the marketing expenditure overshoots the budget.
Likelihood: 2
Severity:2
Risk Scale: 4
d) Exogenous Risks
Exogenous Risks are those risks that are a result of elements that are not within the network
actors of the project. The likelihood and severity of these risks cannot be determined. Hence,
they are not included in this analysis.
1) Environmental: These risks relate to the environmental factors such as natural disasters
etc.
Risk Element: Disasters such as hurricanes, earthquakes can disturb business as usual

Consequence: Natural disasters can affect the supply chain, damage inventory, reduce demand
temporarily
2) Market Risks
These are the risks related to the nature of the markets and are not a result of the actions of the
firm or any of the network actors of the firm.
a) Changes in tastes and Preferences of Consumers:
Risk Element:
Changing tastes and preferences may lead to declining demand of the products. The young group
is especially prone to giving up on a fashion trend after a period of time.
Consequences:
If demand lowers, it could directly affect revenues. The investment could result in losses.
b) Changes in consumer spending
Changes in consumer habits are a significant risk category over the period of seven years.
Risk Element
Consumer spending may decline. Australia has one of the highest levels of household
debts in the world, due to the availability of easy credit. The lack of availability of easy
credit or the changes in spending habits of consumers may reduce demand for the product
(Martino, Fera, RafaeleIannone, & Miranda, 2017)
Consequence
Changes in spending habits may overthrow all projections and lead to an overall decline in
revenues.
4. Cash Flows Over the Life of the Project
The lab will require an initial investment of $1,550,000 to establish the lab with a straight line
basis depreciation for 10 years. As mentioned before, the cost of adding the “Freedom” line is
$100,000. It is important to note here that the line will be introduced whether or not the

Customization Lab is approved. It is expected that all the units of the “Freedom” jeans will be
sold out during the first six months of introduction, at the price of AUD75.
As service charges, every customer will be charged $40.00 as subscription for every year
maximum up to three jeans.
It is expected that, in the opening years, 36,000 customers from Australia will use the service.
Based on some market research, the usage of services by customers is expected to increase by
10% per annum over the life of the lab. The firm does not expect to increase the price of the
service over the seven years. It expects that there will be no change in the yearly subscription
costs and subscription fee will remain at $40.00 per customer over the life of the lab. The custom
lab is expected to increase the total sales of For-U Jeans by $600,000 in its first year of
operation. The total amount of growth in sales is expected to increase at the rate of 12% p.er
annum over the seven years. The total final costs of these jeans are 60% of the total revenue. No
other costs are applicable:
The fixed and variable costs for the lab are as follows:
 Personnel costs = AUD 800,000 Per Annum
 Cost of materials = AUD 200,000 Per Annum
 Other costs – AUD 25000 per annum
 Marketing and Advertising Expenditure = AUD 46000 per annum.
These costs will increase by 6% per annum over the life of the project.
5 Financial Analysis
Using the information above the cash flows can be calculated as follows:
 Depreciation has been included in costs and divided uniformly over the period of seven
years
5.1 Costs of Goods Sold
‘Costs of Goods Sold’ is essential the total costs of manufacturing the product, from the factory
to the outlet. (Seigel & Shim, 2000). Costs of goods sold are all the Total Costs that are expected

to be accrued over the period of the analysis. Here, the total costs for the project are added. The
initial investment has been taken in to account by way of depreciation.
Table 1 Total Cost of Goods Sold for the Project Per Year (in AUD)
Year
Total Costs of
Customization per
year (in AUD)
Total Costs of
Jeans
Per Year (in
AUD)
Depreciation
Per year (in
AUD)
Total Costs of Goods
Sold Per Year (in
AUD)
1 1071000 403200
221428.57142857
1 1695628.57142857
2 1135260 451584
221428.57142857
1 1808272.57142857
3 1203375.6 505774.08
221428.57142857
1 1930578.25142857
4 1275578.14 566466.972
221428.57142857
1 2063473.68342857
5 1352112.82 634443.006
221428.57142857
1 2207984.39742857
6 1433239.59 710576.166
221428.57142857
1 2365244.32742857
7 1433239.59 795845.304
221428.57142857
1 2450513.46542857
5.2 Profits and Profits After Tax
Profits are takes as Revenues-Costs. However, given the effects of taxation, profits may not be a
good measure to understand the value of investment. Hence, profits after tax are analysed. Profits
after tax reflect the profits that would be accrued after the taxes would be paid.
Table 2 Total Profits and Profit After Tax Per Year
Year Total Revenues per Total Costs per year Total Profits per Profit After Tax per

year (in AUD) (in AUD) year (in AUD) year (in AUD)
1 2112000 1695628.57142857 416371.42857143 291460.000000001
2 2336640 1808272.57142857 528367.42857143 369857.200000001
3 2585356.8 1930578.25142857 654778.54857143 458344.984000001
4 2860751.62 2063473.68342857 797277.93657143 558094.555600001
5 3165709.01 2207984.39742857 957724.61257143 670407.228800001
6 3503428.01 2365244.32742857
1138183.6825714
3 796728.577800001
7 3877456.84 2450513.46542857
1426943.3745714
3 998860.362200001
5.3 Annual Rate of Return (ARR)
Accounting Rate of Return is a simple measure that depicts the rate of return without discounting
for the discount rate i.e without taking into consideration the time value of the investment.
Accounting Rate of Return (ARR) was calculated as Average Return over 7 years / Average
Investment over 7 years (Seigel & Shim, 2000) The Average Return was takes as the total
Revenues over the period of seven years divided by 7. The Average Investment was taken as the
total costs (Total Initial Investment + Total Costs Over Seven Years) and divided by 7.
ARR = 0.25%
5.4 Net Present Value
Net Present Value gives an idea about the. Present Value of an Investment for a series of cash
flows that will be accrued in the future. (Frederick, 1999) It takes into consideration the value of
investment discounted at the desired Discount Rate (here taken as 14%). Discount Rate is that
Rate of Return that is the assigned value for forgoing present consumption in favour of future
returns. Here, the assigned value was taken at 14%

5.5 Internal Rate of Return
‘Internal Rate of Return’ is that Rate of Return, where the Net Present Value is reduced to Zero.
It provides an idea about the idea of the attractiveness of a project. The Internal Rate of Return
was calculated from a series of trial and error to observe at which percentage does the value of
NPV come the nearest to zero.
In order to calculate the Net Present Value, I used MSEcel and the NPV function. The cash
flows were taken from the total Profits After Tax (Seigel & Shim, 2000) in the corresponding
year in MSExcel.
Table 3 Net Present Value and Internal Rate of Return When Customization services are
priced at $40
Parameter Value
Net Present Value $103,333.33
XIRR 10
6 Sensitivity Analysis
Sensitivity Analysis is used to measure the changes that would occur to the financial returns
when some variables in the analysis are changed. For example, the addition of the new line of
jeans, the Freedom Jeans will serve as an additional source of income for the Customization Lab.
Similarly, changing the Annual subscription charged for Customization Services may change the
Revenues. Hence, Sensitivity Analysis is performed in order to understand how given changes in
some variables would change the financial outlook of the project.
Here we have taken two analyses:
a) Analysis for Freedom Jeans as a complimentary Good to the customization: The
availability of cost effective jeans may attract customers. If Freedom Jeans are sold as a
product as Customization Services are sold as as add –on, it may spur the customers to
try the services. However, the costs of the new line of products must be weighed against
its benefits. Hence, the analysis given below is performed.
b) Changing the prices of Customization Services: Customization Services are priced at
AUD 40 , keeping in line the general trend in the market for such services. However, it is

possible that customers may not find it attractive to pay an upfront charge of subscription
of $40 . Additionally, if the price of customization Services is slightly lower than the
general , prevalent price in the market, the firm may have a cost advantage. Hence, the
financial analysis of the customization services is analysed at AUD35 per year. On the
other hand, it is possible that For- U is under pricing the product and raising the prices
may increase the revenue. Hence, an analysis is also conducted with the price of
customization services at AUD 50 as subscription charges
The results for both these analyses are given below.
6.1 Calculations For Sensitivity Analysis
a) Analysis for Freedom Jeans as a complimentary Good to the customization
 In this case, there is an additional costs of AUD 100,000. The additional expenditure of
AUD 100,000 is depreciated over the period of 7 years.
 The revenues of AUD 75 X 2000 were added to the total revenues of the first year. The
Revenue projections for the rest of the period of the remain unchanged.
 Same Taxes are applicable. All calculation methods are same as previously used.
Table 4 The Revenues, Costs and Profit After Tax for the Addition of Line
Total
Revenues
Total Costs of
Goods Sold Total Profits
Total Profits After
Tax
2262000
1709914.2857142
9 552085.71428571 386459.999999997
2336640
1822558.2857142
9 514081.71428571 359857.199999997
2585356.8
1944863.9657142
9 640492.83428571 448344.983999997
2860751.6
2
2077759.3977142
9 782992.22228571 548094.555599997
3165709.0
1
2222270.1117142
9 943438.89828571 660407.228799997
3503428.0 2379530.0417142 1123897.9682857 786728.577799997

1 9 1
3877456.8
4
2550793.5597142
9
1326663.2802857
1 928664.296199997
Table 5 Net Present Value , Internal Rate of Return, Accounting Rate of Return with the
Addition of Freedom Line
Parameter Values
Net Present Value 0 AUD
Internal Rate of Return 14
ARR 0.113485171616551
The Net Present Value of the Investment is zero. It is possibly because the Rate of 14% per
annum is the Internal Return Rate. Hence, 14% per annum was taken as Internal Return Rate.
b)Customization Services are Priced Differently
Table 5: Total Revenues When Customization Services are prices at $35 per Year
Year
Number
of
Customer
s
Revenue
s From
Sales in
Jeans
Revenues
From
Customizatio
n
Total
Revenues
1 36000 672,000 1260000 1932000
2 39600 752640 1386000 2138640
3 43560
842956.
8 1524600 2367556.8
4 47916
944111.
6 1677060
2621171.6
2
5 52,707.60 1057405 1844766
2902171.0
1
6 57,978.36 1184294 2029242.6 3213536.2

1
7 63776.2 1326409 2232167
3558575.8
4
Table 6 Total Profits and Profits After Tax for Customization Services at the Rate of $35
Per Year
Total Revenues
Total Costs of
Goods Sold Total Profits
Total Profits After
Tax
1932000
1695628.5714285
7 236371.42857143 165460.000000001
2138640
1808272.5714285
7 330367.42857143 231257.200000001
2367556.8
1930578.2514285
7 436978.54857143 305884.984000001
2621171.62
2063473.6834285
7 557697.93657143 390388.555600001
2902171.01
2207984.3974285
7 694186.61257143 485930.628800001
3213536.21
2365244.3274285
7 848291.88257143 593804.317800001
3558575.84
2536506.8754285
7
1022068.9645714
3 715448.275200001

Table 7 Net Present Value , Internal Rate of Return, Accounting Rate of Return When
Customization services are priced at $35
Parameter Value
Net Present Value $103,333.33
XIRR 12
ARR 1.25124441575158
Table 8 Total Revenues when Customization Services are priced at $50 per year
Year
Number
of
Customer
s
Revenue
s From
Sales in
Jeans
Revenues
From
Customizatio
n
Total
Revenues
1 36000 672,000 1800000 2472000
2 39600 752640 1980000 2732640
3 43560
842956.
8 2178000 3020956.8
4 47916
944111.
6 2395800
3339911.6
2
5 52,707.60 1057405 2635380
3692785.0
1
6 57,978.36 1184294 2898918
4083211.6
1
7 63776.2 1326409 3188810
4515218.8
4
Table 9 Total Profits and Profits After Tax When Customization Services are Priced at $50
Total Revenues Total Costs
Total Profits After
Tax
Total Profits After
Tax
2472000 1695628.57142857 776371.42857143 543460.00000000

1
2732640 1808272.57142857 924367.42857143
647057.20000000
1
3020956.8 1930578.25142857
1090378.5485714
3
763264.98400000
1
3339911.62 2063473.68342857
1276437.9365714
3
893506.55560000
1
3692785.01 2207984.39742857
1484800.6125714
3 1039360.4288
4083211.61 2365244.32742857
1717967.2825714
3 1202577.0978
4515218.84 2536506.87542857
1978711.9645714
3 1385098.3752
Table 10 Net Present Value , Internal Rate of Return, Accounting Rate of Return When
Customization Services are priced at AUD50
Parameter Value
Net Present Value $92,339.89
XIRR 10
ARR 19.6341143681367
7 Other Considerations For Analysis: Business Sustainability
The term business sustainability is very important in this context. Any sustainable business
should be built on three pillars or “Triple Bottom Line”. This was a term introduced by John
Elkington in 1994. (Hindle, 2009) and encompassed three aspects of Financial , Environmental
and Social. Financial sustainability has been discussed above. However, modern firms have an
added responsibility as member of the society and do not only seek financial gain but also seek
to add net value to the society.
The two other important considerations are mentioned below:

 Environmental: This aspect includes creating an environmentally sustainable value
chain. The environmental aspect of the project may relate to reducing the carbon footprint
of all processes in the value chain, making efforts to source environmentally sustainable
products etc.
Recommendations:
o Energy Reduction: For-U Jeans may have to start analysing the amount of energy
input that is used in producing per unit of jeans and try to reduce it. The jeans are
being customized. This implies that each pair of Jeans will be treated individually
or would be treated with a small batch of other jeans This could possibly lead to
an increase in energy use and the Company must try to keep it’s energy footprint
to the minimum. (Bonini & Gorner, 2011)
o Ecologically Sensitive Materials: The Company could also consider ecologically
sensitive materials, organic materials, eco friendly paints etc. The Company could
market these as a level of customization to the product i.e these could be included
as customised options by the Company. Including ecologically sensitive materials
may not necessarily affect the bottom line. Additionally, such an option could
help market the product to the socially and environmentally conscious consumers
by offering them a different modification of the same
 Social: The social aspect relates to the impact that the Company has on the society. Social
sustainability starts with creating a better environment for the employees and can be
extended to having a positive impact on the different members of the society that come in
touch with the business. (Bonini & Gorner, 2011)
Recommendations:
o The firm can consider ethical sourcing by ensuring materials are purchased only
from supplier that are certified by Fair Labour Certification.
o Alternatively, For- U could consider ethical sourcing by ensuring materials are
purchased only from firms that do not employ any form of child labour

8 Decision Analysis
The decision analysis for this project is being done based on the Profits After Tax, Net Present
Value, Internal Rate of Return as well as the accounting Rate of Return
a) Scenario 1: Customization Services without the addition of “Freedom” Line
The Net Present Value is lower that the Present Value. The Investment may make profits but
it does not fulfill the criteria of 14% Required Rate of Return. The Accounting Rate of
Return is 7%. This is not very high. Hence, although the project may make profits, it would
not be a great investment , speaking in strictly monetary terms.
b) Scenario 2: Customization Services with the addition of “Freedom” Line
The Freedom line adds value in the form of profits. Additionally, the NPV was 0, thereby
confirming that the Internal Rate of Return is 14%. This meets the company stated criteria of
14% . Hence, this would be a good investment.
c) Scenario 3: Customization Services Prices at AUD 35
The profits are lower, even if NPV is same. This is not a good investment, even if the price of
services may be attractive to the consumer. The accounting Rate of Return is very poor.
d) Scenario 4: Customization Services Prices at AUD 50
Profits are higher and Internal Rate of Return is lower. Hence, from a point of view of
analysis, this is a good investment. The price point of AUD 50 may not be attractive to
customers and may lead to change in projections even if the accounting rate of return is low.
e) Recommended Decision
From an investment point of view, returns will be maximized if the revenues from the
Freedom Line are added to the profits of Scenario 4 i.e when the customization services are
prices at AUD 50
9 Recommendations for Financial Sustainability
 The firm can look to improve its costs by seeking to reduce its costs, in the operational
and advertising department.
 The firm can seek to expand its consumer base by increasing advertising and marketing
efforts.

 The firm can raise the costs of customization to $50 per year.
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