Financial Management

This assessment analyzes the viability of a business plan for a chocolate retail store in Norway. It includes breakeven analysis, income statement analysis, balance sheet analysis, cash flow statement analysis, discounted cash flow analysis, and sensitivity analysis.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note

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FINANCIAL MANAGEMENT
Executive Summary
The main purpose of this assessment is to analyze the case study which is provided stating a plan
to open a Chocolate retail business in Norway. The assessment shows detail analysis of the
various estimations which are considered in this assessment along with other statements which
are prepared. The assessment shows analysis of investment capabilities of the owner along with
evaluation of income statement, balance sheet and cash flow statement. In addition to this, a
discounted cash flow statement and Sensitivity analysis is also included in the discussion part of
the report. The assessment aims to establish whether the owner should proceed with the plan and
also establish the financial viability of the project.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
Initial Investment Requirement...................................................................................................4
Assumptions................................................................................................................................5
Breakeven Analysis.....................................................................................................................7
Income Statement Analysis for the Period..................................................................................9
Balance Sheet for the Period......................................................................................................11
Cash Flow Statement Analysis of the Business.........................................................................14
Discounted Cash Flow Analysis for the Proposed Business.....................................................15
Capital Requirement of the Proposed Business.........................................................................17
Sensitivity Analysis for the Proposed Business.........................................................................18
Conclusion and Recommendation.................................................................................................20
Bibliography..................................................................................................................................22
Appendix..........................................................................................................................................0

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Introduction
The main purpose of this assessment is to analyze the viability of a business plan which
as per the case study which is provided. As per the case study provided, Uncle Benjamin who
wants to open a chocolate retail store which would be supplying gourmet chocolates for which
the financial viability would be checked. The business would be getting supplies of chocolates
from Zurich and also Switzerland. The business aims to get trading license from Zurich for a
period of five years and also get trade license from Switzerland. The analysis for viability of the
project would be including breakeven analysis which would be estimating the minimum sales
which the business needs to achieve in order to continue operations of the business (King 2013).
The analysis is conducted for the purpose of helping Uncle Benjamin in estimating the sales and
profit which can be generated from the retail business (Hammond and Berman 2013). The
owners of the business also anticipate that the importing of Chocolate materials from
Switzerland would also allow certain portion of discount to the business which will further
reduce the overall costs of the business.
In addition to Breakeven analysis, a forecasted financial statement of the business is to be
prepared and analyzed in order to identify the performance areas and the capacity of the business
to generate profits. The report would also be showing various assumptions and justifications
which are considered by the business in the analysis of the viability of the project and would also
help in the decision-making process of the business (Jary and Wileman 2016). The analysis also
includes Sensitivity analysis which would allow Uncle Benjamin to compare between different
scenarios. In addition to this, time value of the estimated profitability of the business will be
evaluated with the help of Discounted Cash Flow Model.

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Discussion
Initial Investment Requirement
In order to effectively establish the business, Uncle Benjamin would be requiring
significant amount of fund for procuring the chocolates from Switzerland and Zurich and also
managing the day to day activities of the business. The initial capital requirement of the business
is estimated and shown in the table below:
Initial Investment:-
Particulars Unit Cost per Unit Total
Purchase for 1 month's Sales 75 kg CHF 51.66 CHF 3,874.50
Air Freight 75 kg CHF 9.50 CHF 712.50
Total Cost of Material in CHF 75 kg CHF 61.16 CHF 4,587.00
Matreial cost in NOK 75 kg NOK 511.30 NOK 38,347.32
Packaging & Shipping Cost 75 kg NOK 45.00 NOK 3,375.00
Packaging Cost for Fixed Sales 25 kg NOK 160.00 NOK 4,000.00
Special Refrigerator NOK 55,000.00
Deposit for Industrial room NOK 14,400.00
First month of rent NOK 7,200.00
Website Design NOK 75,000.00
Market Research NOK 50,000.00
Employee's Salary NOK 13,333.33
Labor Cost NOK 4,200.00
Wrapping Machine NOK 15,000.00
Marketing & Distribution Right NOK 100,000.00
TOTAL INTIAL INVESTMENT NOK 379,856
Available Fund NOK 1,700,000
Cash Balance NOK 1,320,144
Figure 1: (Table Showing Initial Investment Requirement of the Business)
Source: (Created by the Author)

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The above table shows the initial investment which is estimated by the owner of the
business. The main selling products which is chocolate gourmet are being imported from
Switzerland and Zurich therefore the business needs to incur air fare for importing the
chocolates. In addition to this, the initial supply advance also needs to be paid by the owner of
the business. In addition to this, the business also needs to incur the following costs which are
shown in the table above in order to make the product of the business marketable (Popov and
Roosenboom 2013). There are certain assumptions which are considered while arriving at the
total initial investment which is required by the business. The marketing and distribution rights
for the products are assumed to be NOK 100,000 and the same is shown in the table above. The
initial requirement as per the table which is shown above is estimated to be NOK 3,79,856
considering all the initial expenses and maintenance requirements of the business. Uncle
Benjamin has the option of taking a loan for financing the initial expenses and meeting the initial
investment requirement of the business. However, the owner does not require to do so as it is
anticipated that all the initial investment would be met effectively with the lumpsum payment
which Uncle Benjamin received from retirement. This would enable the management of the
business to effectively finance all activities of the business smoothly (Laffy and Walters 2016).
The table which is shown above demonstrates that the business has appropriate funds to meet the
initial investment of the business and also would be left with a closing cash balance of NOK
1,320,144 which can be further invested in the activities of the business.
Assumptions
In order to estimate the profitability and breakeven analysis of the business, various
assumptions are considered for the analysis. The initial investment of the business shows the
marketing and distribution rights of the products is considered on an assumption basis judging

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from the tenure of such rights and the quantity of order placed per consignment. In addition to
this, assumptions have been made regarding the exchange rate of currency. As the business is
importing chocolate products from Zurich and Switzerland, the business would have to pay such
expenses in foreign currency and therefore conversion of domestic currency must be done to
foreign currency. In breakeven analysis, the business needs to consider the prevailing conversion
rate and the same is considered to be 8.36 which is the conversion rate prevailing on the date
when the analysis is undertaken by the owners. The conversion rate can change and such needs
to be considered appropriately by Uncle Benjamin. In the estimation of the sales volume which
can be achieved by the business in terms of variable sales is also considered on estimation basis
considering the local chocolate retail competitors (Coleman, Cotei and Farhat 2013). The sales
volume of the business is shown to increase which suggest that the management anticipates
growth which suggest that the product would be popular in the market.
The machinery and assets of the business is shown to have a useful life of 5 years and the
same is shown in the income statement which is prepared on estimation basis. The depreciation
and amortization expenses which is shown in the income statement is done on the basis of the
assumption which is undertaken by the owner of the business. In addition to this, the salary of
the employees who will be managing the stores of the business is also done on an estimation
basis. The labour costs and salary of the employees would be dependent on the number of
employees and support staff which is to be employed in the business (Wu et al. 2016). The
discount rate which is considered in the discounted cash flow computation on the interest rate
which is based on the interest rate on loans which is available from financial institutions and the
sane is considered to be 7%. In addition to this, the computation of Discounted cash flow also
considers that the sales of the business would grow in the initial three years and then there would

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a decline in sales. This is considered after evaluating the retail markets for chocolate gourmets in
Norway.
Breakeven Analysis
The breakeven analysis of the business is undertaken by the owner in order to estimate
the number of units which the business needs to sell in order to cover up the costs of the
business. The breakeven analysis for the business is shown in the table below:
Break-Even Analysis:
Particulars Fixed Variable TOTAL
Sales Volume 300 2140 2440
Estimated Sales Revenue NOK 264,000
NOK
1,605,000 NOK 1,869,000
Variable Expenses:
Cost of Material NOK 153,389 NOK 1,094,177 NOK 1,247,566
Packaging & Shipping Cost NOK 13,500 NOK 96,300 NOK 109,800
Credit Card Charges NOK 3,300 NOK 20,063 NOK 23,363
Packaging Cost for Boxes NOK 48,000 NOK 48,000
Total Variable Expenses NOK 218,189
NOK
1,210,539 NOK 1,428,729
Contribution Margin NOK 45,811 NOK 394,461 NOK 440,271
Average Contribution Margin p.u. NOK 180.44
Fixed Expenses:
Rent for Industrial Room NOK 86,400
Employee's Salary NOK 160,000
Labor Cost for Packaging NOK 50,400
Depreciation of Refrigerator NOK 11,000
Depreciation of Wrapping Machine NOK 3,000
Deferred Revenue Expenditure- Market Research NOK 10,000
Ammortization of Website Designing NOK 15,000
Ammortization of Distribution Right NOK 20,000
Total Fixed Expenses NOK 355,800
Break Even Sales in Unit 205 1767 1972

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Break Even Sales in NOK NOK 180,553
NOK
1,325,012 NOK 1,505,565
Figure 2: (Table Showing Breakeven Analysis for the Business)
Source: (Created by the Author)
The table which is shown above portrays the breakeven point for the business both in
terms of unit sold and the amount collected from the same. The number of units which the
business requires to sell is evaluated by determining the selling and cost price of the business.
The breakeven analysis allows the business to anticipate the sale volume required by the business
to at least cover up the costs of the business and concede no losses (Palia 2014). The estimated
sales volume which the business needs to make in total is shown to be 2440 units. The estimated
sales revenue which is shown in the table is NOK 1,869,000 in total and the contribution margin
is computed considering all the expenses of the business and the same is shown to be NOK
440,271.
The breakeven sales in units is shown to be 1972 units which signifies that the business
needs to sell this much units in order to cover the costs of the business. The breakeven sales in
term of NOK is shown to be NOK 1,505,565 in total which the business needs to achieve. The
above table and computation would help Uncle Benjamin to under the revenue requirement and
the concept of breakeven sales in overall operations of the business (Al-Kahtani et al. 2014). The
breakeven analysis which is conducted above would help Uncle Benjamin to effectively adjust to
the market conditions and also formulate effective strategies for the purpose of increasing the
market share of the business. In addition to this, the business would be able to concentrate on the
sales unit which will enable them to cover the breakeven point and then further enhance the
profitability of the business (Tipagornwong and Figliozzi 2014). Breakeven analysis also plays

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an important role in enhancing the market shares of the business and also determine the
appropriate number of units which is to be produced by the business. This will also help the
business in formulating an appropriate pricing strategy would help the business to become more
profitable in nature. In addition to this, the liquidity and growth perspective in the business
would help the owner to make future growth strategy and continuity for the same.
Income Statement Analysis for the Period
The income statement is prepared for the purpose of presenting the financial viability of
the Chocolate retail business which Uncle Benjamin wants to open. The income statement is
prepared on the basis of forecasted information and the same is useful for presenting whether the
business which Uncle Benjamin wants to open is profitable from a long-term perspective. The
table which is portrayed below shows the income statement which is prepared for the period:
Income Statement
Particulars Amount Amount
Income:
Fixed Sales Revenue NOK 264,000
Variable Sales Revenue NOK 1,605,000
Total Sales Revenue NOK 1,869,000
Opening Stock of Inventory NOK 0
Add: Total Purchase inclg. Freight (NOK 1,604,919)
Less: Closing Inventory Value inclg. Freight (NOK 247,552)
Cost of Goods Sold (NOK 1,357,366)
GROSS PROFIT NOK 511,634
Operating Expenses:
Packaging Cost for Boxes (NOK 48,000)
Credit Card Charges (NOK 16,050)
Rent for Industrial Room (NOK 86,400)
Employee's Salary (NOK 160,000)
Labor Cost for Packaging (NOK 50,400)
Depreciation of Refrigerator (NOK 11,000)

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Depreciation of Wrapping Machine (NOK 3,000)
Deferred Revenue Expenditure- Market Research (NOK 10,000)
Ammortization of Website Designing (NOK 15,000)
Ammortization of Distribution Right (NOK 20,000)
Total Operating Expenses (NOK 419,850)
NET PROFIT BEFORE TAX NOK 91,784
Income Tax @ 35% (NOK 32,124)
NET PROFIT FOR THE YEAR NOK 59,660
Figure 3: (Table Showing Projected Income Statement Analysis for the Business)
Source: (Created by the Author)
The above table shows income statement which is presented considering the forecasted
information which is available to the business. The income statement analysis is conducted for
the purpose of computing the estimate profit generating capacity of a business. The main source
of revenue for the business is from the fixed and variable sales which is achieved by the
business. The major revenue generated by the business is shown to be NOK 1,869,000 which is
shown in the table above. The profitability of the business is shown in the income statement of
the business which also shows all the estimated costs of the business (Noreen, Brewer and
Garrison 2014). After considering the costs of the business, the gross profit for the business is
computed and the same is shown to be NOK 511,634. The cost of good sold for the business is
shown to be high which affects the profitability of the business.
The other major costs of the business are related to labour costs which are incurred by the
business and also packaging and promotion costs of the business. The business also incurs
significant amount of expenses as tax expense which is charged at the rate of 35%. The tax
expenses are slightly higher which may be due to fact that Uncle Benjamin intends to invests his
own capital in the business and not take loans and therefore would not be able to take deductions
from the same. The business needs to examine the market situation of the market and also judge

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FINANCIAL MANAGEMENT
the preference pattern of the consumers in order to understand their taste and preferences. Uncle
Benjamin also needs to consider the market which might be economic crisis. The profit
generating ability of the business depends on the investment made by the business.
The income statement allows Uncle Benjamin to estimate the profit generating capacity
of the venture. However, before estimating the profit, the owner needs to invest significantly on
promoting the product with the help of an appropriate advertisement program (Hofmann and
Lampe 2013). However, in order to achieve better results the costs of production needs to be
reduced so that the business can offer better price to the customers. This will be further
enhancing the demand for the product in the market and also contribute to profitability of the
business.
Balance Sheet for the Period
The balance sheet of the business shows all the assets and liabilities which the business
has in a particular period. The balance sheet of the chocolate retail business would be showing
assets used by the business, inventory of the business and also available cash balance of the
business. The balance sheet would help Uncle Benjamin to not only analyze what the assets and
liabilities of the business would be but also help in making estimations regarding the total
investment which would be required in the business. The table which is shown below depicts all
the assets and liabilities which Uncle Benjamin anticipates to be associated with the business.
Balance Sheet
Particulars Amount Amount
Current Assets:
Closing Inventory NOK 247,552
Deposit for Industrial Room NOK 14,400
Prepaid Rent NOK 7,200

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Cash NOK 1,272,040
Total Current Assets NOK 1,541,193
Fixed Assets:
Special Refrigerator NOK 55,000
Less : Accum. Depreciation (NOK 11,000) NOK 44,000
Wrapping Machine NOK 15,000
Less : Accum. Depreciation (NOK 3,000) NOK 12,000
Marketing & Distribution Right NOK 100,000
Less : Accum. Ammortization (NOK 20,000) NOK 80,000
Market Research NOK 50,000
Less : Deferred Revenue Expenditure (NOK 10,000) NOK 40,000
Website Designing NOK 75,000
Less : Accum. Ammortaization (NOK 15,000) NOK 60,000
Total Fixed Assets NOK 236,000
TOTAL ASSETS NOK 1,777,193
Current Liabilities :
Accrued Employee's Salary NOK 13,333
Accrued Labor Cost for Packaging NOK 4,200
Total Current Liabilities NOK 17,533
Non-Current Liabilities NOK 0
TOTAL LIABILITIES NOK 17,533
Equity:
Owner's Capital NOK 1,700,000
Add: Retained Earnings NOK 59,660 NOK 1,759,660
TOTAL EQUITY NOK 1,759,660
TOTAL EQUITY & LIABILITIES NOK 1,777,193
Figure 4: (Table Showing Projected Balance Sheet for the Business)
Source: (Created by the Author)
The above table shows various assets and liabilities on an estimation basis which the
business would have if the project is accepted. The current assets of the business show the

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FINANCIAL MANAGEMENT
closing value of inventory of chocolates which were imported by the business, prepaid rent paid
by the business, available cash which is in hand and deposit from industrial room. The fixed
assets which are shown in the table above comprise of Refrigerator, wrapping machines for
proper packaging, marketing and distribution rights from proprietors in Zurich and Switzerland.
The total assets of the business is shown to be NOK 1,777,193
On the other hand, the liabilities of the business show that a significant part of the labour
expenses and costs are shown in arrears which is considered on an assumption basis that the
business pays salaries in a month arrear. This is the only liability which the business expects as
per the estimation process. The equity of the business is solely made up of the contribution
which is made by the owner and the same is shown to be NOK 1,759,660. The business has not
taken any debt capital and the whole of the capital requirement is met from the retirement fund
which was received by Uncle Benjamin as per the forecasted in figure 4.
The above analysis is conducted on the basis of estimation and market research for
similar businesses operating in the market. However, it is also to be remembered that if the
research of market is not conducted in a proper manner than the projected balance sheet would
not be showing accurate assumptions (Schmidlin 2014). With the help of the projected balance
sheet, the owner can compute ratios relating to efficiency and also liquidity of the business. In
addition to this, the business can effectively judge the working capital requirement of the
business. The projected balance sheet of the business is shown to be favorable as the current
assets of the business is more which also signifies that the owner expects to have a favorable
working capital. This is appropriate as in such a case the business can invest in any sort of
project they want. Therefore, on the basis of the estimated information, the financial position of
the business would be stable if the owner moves forward with the project.

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Cash Flow Statement Analysis of the Business
The cash flow statement is prepared for the purpose of estimating the liquidity and
solvency of the business. The statement would help Uncle Benjamin the various cash inflows
and outflows of the business on the basis of estimation. The table which depicts the cash flow
statement is shown in figure 5 in the appendix section. The cash flow statement is presented on a
monthly basis estimation for a year. The cash flow statement shows that the primary activity
from the business anticipates to generate cash inflows is through sales of goods in the business
and the same is shown to be increasing every month due to growth which the business is
anticipated to have. The cash flow statement effectively shows different components which the
business needs to consider as they are important to the liquidity of the business (Jain, Singh and
Yadav 2013).
The cash from operating of the business as per the projected cash flow statement is
shown to be in negative and the same is shown to be NOK 118,560. This shows that the liquidity
of the business has significantly low. This shows that the operational efficiency of the business is
not anticipated to be favorable in the first year. However, Uncle Benjamin needs to consider this
as this directly affects the liquidity of the business and thereby also endangers the going concern
principle of the business. The cash flow from investing activity is shown to be in negative which
is because the business had purchased machinery and also invested significant amount of capital
on acquiring manufacturing and distribution rights of products (Jiang, Zhu and Huang 2013).
This is estimated to be incurred by the business at the starting stage of the business. The cash
from investing activities of the business is shown to be in negative and the same is shown to be
NOK 309,400. The cash from financing activity of the business is mainly made up of owner’s
capital fund as it is estimated that the business would not be requiring any other source of capital

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to meet the day to day business requirements. The cash from financing activities of the business
is shown to be NOK 1,700,000 which is the contribution which is made by owner towards
meeting the business requirements. The closing cash balance is shown to be positive due to the
high contributions which is made by the owner of the business.
The cash flow from operational activity is an important indicator for the liquidity position
of the business and the same is shown to be in negative which should be considered by Uncle
Benjamin in decision making process. The closing cash balance which is shown in figure 5 in
appendix can be considered to be appropriate which is done on an estimation basis. The project
can be said to be favorable however, the market can change which should also be considered in
the decision-making process. The cash flow analysis technique is also said to be favorable for
taking major decisions regarding finances and investments which are to be made by the business.
Discounted Cash Flow Analysis for the Proposed Business
The discounted cash flow analysis is conducted considering the discounting rate which is
required for the purpose of computing a present value of a project. The analysis for discounted
cash flow analysis is done considering a period of five years. Discounted cash flow is regarded
as the methodology that help in assessing the investment in consideration for accumulated
interest rate (Chauhan and Singh 2014). The discounted cash flow also provides a basis for
estimating the revenue in terms of present value which is very much helpful in taking important
decisions relating to the future of the business (Chen and Teng 2015). The discounted cash flow
analysis is shown in the table which is depicted below along with the computation which is done
for return of equity of the business.
Net Income 59660
Owner's Capital 1700000

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Return on Equity 3.51%
Year
Particulars 0 1 2 3 4 5
Discount Rate 7.00% 7.00% 7.00% 7.00% 7.00%
Sales Growth Rate 17.28% 17.28% 17.28% 10.00% 5.00%
Net Profit for the period
NOK
59,660
NOK
69,970
NOK
82,062
NOK
96,245
NOK
105,869
NOK
111,163
Add:
Depreciation of Refrigerator
NOK
11,000
NOK
11,000
NOK
11,000
NOK
11,000
NOK
11,000
NOK
11,000
Depreciation of Wrapping
Machine
NOK
3,000
NOK
3,000
NOK
3,000
NOK
3,000
NOK
3,000
NOK
3,000
Deferred Revenue Expenditure-
Market Research
NOK
10,000
NOK
10,000
NOK
10,000
NOK
10,000
NOK
10,000
NOK
10,000
Ammortization of Website
Designing
NOK
15,000
NOK
15,000
NOK
15,000
NOK
15,000
NOK
15,000
NOK
15,000
Ammortization of Distribution
Right
NOK
20,000
NOK
20,000
NOK
20,000
NOK
20,000
NOK
20,000
NOK
20,000
Net Operating Cash Flow
NOK
118,660
NOK
128,970
NOK
141,062
NOK
155,245
NOK
164,869
NOK
170,163
Free Cash Flow
NOK
10,311
NOK
12,092
NOK
14,182
NOK
9,624
NOK
5,293
Terminal Value NOK 0 NOK 0 NOK 0 NOK 0
NOK
264,673
Total Free Cash Flow
NOK
10,311
NOK
12,092
NOK
14,182
NOK
9,624
NOK
269,966
Discounted Cash Flow
NOK
9,636
NOK
10,562
NOK
11,577
NOK
7,342
NOK
192,482
Fair Value of Business NOK 231,600
Figure 6: (Table Showing Discounted Cash flow Analysis for the Proposed Business)
Source: (Created by the Author)
The above table effectively shows the discounted cash flow analysis which is computed
considering the net cash from operating activities of the business. The return on equity balance is

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FINANCIAL MANAGEMENT
also computed considering the owner’s projected investment in the business and the same is
shown to be 3.51%. The discounted cash flow analysis considers growth rate which is shown in
the table above that there is constant growth in the first three years which is shown to be 17.28%
and then is a fall in growth to 10%. In the fifth year, the growth rate further falls to 5% as per the
table which is shown above. The computation is also done on the basis of the assumption that the
discounting rate is 7% which is actually the interest rate prevailing in the country for taking a
loan.
The free cash flow is computed by adding back the expenses which are of non-cash
nature to the net profit of the business and the highest free cash flow is shown in the third year as
per the table shown above. The discounted cash flow of the business is also shown to be positive
which is a favorable sign for the business (Mousavi et al. 2013). On the basis of the discounted
cash flow statement, the valuation of the business is done on forecasted and estimated data. The
method is very useful as the sane is bot dependent on historical costs view but is dependent on
future view for the business and therefore is an excellent tool for decision-making process
(Christersson, Vimpari and Junnila 2015). The discounted cash flow analysis reveals that the
business has the potential to make a successful investment for future for the business as the value
which is computed are shown in positive. Therefore, the discounted cash flow approach reveals
that the project which Uncle Benjamin wants to undertake is favorable and financially viable.
Capital Requirement of the Proposed Business
The project which Uncle Benjamin wants to undertake would be requiring significant
amount of capital which the owner wants to raise from his own funds which was received at the
time of his retirement. The business would be needing to meet the costs of materials which are to
be imported from abroad and also purchase certain necessary fixed assets which are required by

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FINANCIAL MANAGEMENT
the business. In addition to this, there is also the cost to acquire marketing and distribution rights
for the business along with the labour costs which the business needs to incur for carrying out the
manufacturing process. The assets and liabilities of the business are effectively shown in the
projected Balance Sheet of the business.
The owner has the option to take loans for the purpose of financing the project but the
owner intends to use own funds for financing the activities of the business. The decision
regarding the fund requirements of the business are influenced by several factors. One of the
important factor which influences the decisions is the inventory turnover period which the
business would like to be low so that there is no locking up of funds of the business. Thus, it can
be said that Uncle Benjamin has the requirement amount for making initial investment in the
business without any assistance from debt capital.
Sensitivity Analysis for the Proposed Business
Sensitivity analysis helps the business to effectively analyze the different situations
which can affect the profitability of the business. The technique is very useful in pointing out the
different situations that can take place and their respective impact on the business. Sensitivity
analysis is the learning of determing the uncertainty concerning the outputs of mathematic
system or model and thereby can be allocated to uncertain inputs. The method is functional with
the help of assumptions and predictions which is made by the business. Uncertainty in the
analysis of cost benefits can be analyzed with the sensitivity analysis implementation. The cost
benefit analysis is one area where sensitivity analysis is predominantly used. The table which is
shown below shows sensitivity analysis for the proposed business considering all the
possibilities.

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Sensitivity
Analysis:
Scenario
Summary
Current
Values:
Lower
Sales
Price
Higher
Sales
Price
Lower
Conversion
Rate
Higher
Conersion
Rate
Higher
Distribution
Right
Lower
Distribution
Right
Changing
Cells:
Variable
Sales Price
p.u.
NOK
750.00
NOK
550.00
NOK
1,000.0
0
NOK
750.00
NOK
750.00
NOK
750.00
NOK
750.00
Conversion
Rate 8.36 8.36 8.36 6.36 9.36 8.36 8.36
Distribution
Right
NOK
100,000
.00
NOK
100,000
.00
NOK
100,000
.00
NOK
100,000.0
0
NOK
100,000.0
0
NOK
500,000.00
NOK
50,000.00
Result Cells:
Net Profit
NOK
59,660
(NOK
331,936
)
NOK
403,932
NOK
253,659
(NOK
57,447) NOK 7,660
NOK
66,160
Cash
Balance
NOK
1,272,0
40
NOK
880,445
NOK
1,616,3
13
NOK
1,520,472
NOK
1,127,718
NOK
900,040
NOK
1,318,540
Return on
Equity 3.509%
-
19.526
%
23.761
% 14.921% -3.379% 0.451% 3.892%
Fair Value of
Business
NOK
231,600
(NOK
1,244,3
36)
NOK
1,611,4
63
NOK
984,711
(NOK
223,009)
NOK
29,734
NOK
256,833
Break-Even
Sales in
Units 1972 49267 896 1175 2983 2415 1916
Figure 7: (Table Showing Sensitivity Analysis for the Proposed Business)
Source: (Created by the Author)
The above table recognizes three separate scenarios which can affect the profitability and
liquidity of the business which are high/ low sales considerations, high/low conversion rate of
foreign currency of the business and high/ low distribution system for the business. The
breakeven units are also computed in the above table showing different situations and their

20
FINANCIAL MANAGEMENT
respective impact on breakeven point of the business and also on the profitability of the business.
The analysis is very useful as the same allows the owner to consider every favorable and
unfavorable situation which may arise and can have an impact on the profitability of the
business.
Conclusion and Recommendation
The case study which is given in the question shows that there is wide spread opportunity
for a retail business and the idea which is derived by Uncle Benjamin is also appropriate plus he
also has the necessary funds for starting the business. Uncle Benjamin needs to properly research
the market in order to gather all the information relating to the taste and preference pattern of the
consumers and target customers. The above discussion part shows analysis on the basis of the
projected statement which is prepared by the business and the results which are obtained from
such statements are shown to be favorable and if the business can deliver as per the plan than the
profitability of the business would increase significantly. The sensitivity analysis conducted
above educates Uncle Benjamin regarding the different scenarios which can arise and which can
affect the revenue and profitability of the business. Some recommendations which can be
suggested to the owner of the business for bringing about further improvement in the profitability
of the business are listed below:
 The costs of the business need to be reduced as the cost affect the profitability of the
business severely and also affects the prices of the business. The costs of the business can
be controlled effectively by adopting an appropriate management accounting technique.

21
FINANCIAL MANAGEMENT
 The management needs to follow aggressive sale strategy to enhance sales of the business
and the same can also be done with proper discounting facility allowing the business to
earn more revenues.
 The owner needs to add a small mix of debt capital in capital structure of the business so
that the business can take advantage of leverage effect and also get advantage of tax
benefits.

22
FINANCIAL MANAGEMENT
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FINANCIAL MANAGEMENT
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Running head: FINANCIAL MANAGEMENT
Appendix
Cash Flow Statement:-
Particulars
0
mont
h
1st
Mont
h
2nd
Mont
h
3rd
Mont
h
4th
Mont
h
5th
Mont
h
6th
Mont
h
7th
Mont
h
8th
Mont
h
9th
Mont
h
10th
Mont
h
11th
Mont
h
12th
Mont
h TOTAL
Cash flow from
Operating
Activities:
Sales :
Fixed
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
22,00
0
NOK
264,00
0
Variable
NOK
37,50
0
NOK
45,00
0
NOK
45,00
0
NOK
56,25
0
NOK
75,00
0
NOK
93,75
0
NOK
112,5
00
NOK
150,0
00
NOK
187,5
00
NOK
225,0
00
NOK
262,5
00
NOK
315,0
00
NOK
1,605,
000
Total Sales
Revenue
NOK
59,50
0
NOK
67,00
0
NOK
67,00
0
NOK
78,25
0
NOK
97,00
0
NOK
115,7
50
NOK
134,5
00
NOK
172,0
00
NOK
209,5
00
NOK
247,0
00
NOK
284,5
00
NOK
337,0
00
NOK
1,869,
000
Cost of
Material
(NOK
38,34
7)
(NOK
43,46
0)
(NOK
43,46
0)
(NOK
51,13
0)
(NOK
63,91
2)
(NOK
76,69
5)
(NOK
89,47
7)
(NOK
115,0
42)
(NOK
140,6
07)
(NOK
166,1
72)
(NOK
191,7
37)
(NOK
227,5
27)
(NOK
227,5
27)
(NOK
1,475,
094)
Packaging &
Shipping Cost
(NOK
3,375)
(NOK
3,825)
(NOK
3,825)
(NOK
4,500)
(NOK
5,625)
(NOK
6,750)
(NOK
7,875)
(NOK
10,12
5)
(NOK
12,37
5)
(NOK
14,62
5)
(NOK
16,87
5)
(NOK
20,02
5)
(NOK
20,02
5)
(NOK
129,82
5)
Packaging Cost
for Boxes
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
4,000)
(NOK
48,000
)

1
FINANCIAL MANAGEMENT
Credit Card
Charges
(NOK
375)
(NOK
450)
(NOK
450)
(NOK
563)
(NOK
750)
(NOK
938)
(NOK
1,125)
(NOK
1,500)
(NOK
1,875)
(NOK
2,250)
(NOK
2,625)
(NOK
3,150)
(NOK
16,050
)
Rent for
Industrial Room
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
7,200)
(NOK
93,600
)
Employee's
Salary
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
13,33
3)
(NOK
146,66
7)
Labor Cost of
Packaging
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
4,200)
(NOK
46,200
)
Tax Payment (NOK
32,12
4)
(NOK
32,124
)
Net Cash
Inflow from
Operating
Activities
(NOK
48,92
2)
NOK
640
(NOK
9,469) (NOK
17,81
3)
(NOK
20,58
3)
(NOK
15,92
8)
(NOK
11,27
3)
(NOK
20,52
5)
(NOK
11,21
5)
(NOK
1,905)
NOK
7,405
NOK
5,589 NOK
25,44
0
(NOK
118,56
0)
Cash flow from
Investing
Activities:
Purchase of
Refrigerator
(NOK
55,00
0)
NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 (NOK
55,000
)
Deposit for
Industrial Room
(NOK
14,40
0)
NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 (NOK
14,400
)
Website
Designing
(NOK
75,00
NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 (NOK
75,000

2
FINANCIAL MANAGEMENT
0) )
Market
Research
(NOK
50,00
0) NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0
(NOK
50,000
)
Purchase of
Wrapping
Machine
(NOK
15,00
0) NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0
(NOK
15,000
)
Marketing &
Distribution
Right
(NOK
100,0
00) NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0
(NOK
100,00
0)
Net Cash
Outflow from
Investing
Activities
(NOK
309,4
00) NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0
(NOK
309,40
0)
Cash flow from
Financing
Activities:
Capital
Invested by
Owner
NOK
1,700,
000 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0
NOK
1,700,
000
Net Cash
Outflow from
Financing
Activities
NOK
1,700,
000 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0 NOK 0
NOK
1,700,
000
Net Cash
Increase/Decre
ase
NOK
1,341,
678
NOK
640
(NOK
9,469)
(NOK
17,81
3)
(NOK
20,58
3)
(NOK
15,92
8)
(NOK
11,27
3)
(NOK
20,52
5)
(NOK
11,21
5)
(NOK
1,905)
NOK
7,405
NOK
5,589
NOK
25,44
0
NOK
1,272,
040
Add : Opening NOK 0 NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK 0

3
FINANCIAL MANAGEMENT
Cash Balance
1,341,
678
1,342,
317
1,332,
849
1,315,
036
1,294,
453
1,278,
525
1,267,
252
1,246,
726
1,235,
511
1,233,
606
1,241,
011
1,246,
601
Closing Cash
Balance
NOK
1,341,
678
NOK
1,342,
317
NOK
1,332,
849
NOK
1,315,
036
NOK
1,294,
453
NOK
1,278,
525
NOK
1,267,
252
NOK
1,246,
726
NOK
1,235,
511
NOK
1,233,
606
NOK
1,241,
011
NOK
1,246,
601
NOK
1,272,
040
NOK
1,272,
040
Figure 5: (Table Showing Projected Cash Flow Statement for the Business)
Source: (Created by the Author)