Financial Management: Chocolate Business Investment Report

This financial management report evaluates an investment project for a chocolate business in the Canadian market, undertaken by an entrepreneur. The report includes a detailed analysis of cash inflows and outflows, such as sales revenue, variable costs, and operational expenses. The analysis is based on a seven-year projection, incorporating initial investments, operational costs, and revenue projections from both retail and business consumers. The Net Present Value (NPV) method is used to assess the project's financial viability, with a discount rate of 3%. The report highlights key assumptions, including initial investment costs, sales prices, and operational details, and provides a Profit and Loss account. The conclusion suggests the project is viable if the assumptions materialize, providing a valuable case study for students studying financial management. The report is available on Desklib, a platform offering AI-based study tools for students.

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

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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Critical Reflection............................................................................................................................8
References......................................................................................................................................10

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Executive Summary
The aim of the report is to prepare an investment evaluation for the project that is undertaken by
a budding entrepreneur who wishes to carry out a business activity in the Canadian Market by
selling chocolates. The analysis for the investment has been well carried out with the help of
whole operational detail that was presented to us in which all the information has been well
incorporated for analysis purpose. All the cash inflows that is from Core Business Activity to
Selling Packaged Boxes of Chocolate to Investment Incomes has well been recorded as cash
inflows. On the other hand, key cash outflows like variable costs, packaging & shipping charges,
monthly rent, credit card remittance fees, salary & wages and other expenses was recorded for
key cash outflows. The analysis of the project has been well done based on the Net Present Value
that was generated for the time period in which relevant net cash flows flowing were recorded.

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Introduction
The analysis has been well done for the investment project that has been well considered
by Mr. Isaac who is evaluating the chocolate business that would be operating in the Canada and
would be having its business operations carried from there. The aim of the business attempts to
explore the Canadian retail market by bringing German fine chocolates from Alpen Choc, which
is an established artisan manufacturer of the fine chocolates that would be offering innovative
flavors to Mr. Isaac who in turn would be selling the same to the retail consumers and as well as
to the business consumers (Levin and Hallgren, 2017). Mr. Isaac would be giving an upfront
payment for the rights that have been specifically given to him for a sum of seven year and
which has also been considered as the time period of project investment. The cash flow analysis
has been done into two parts for the projects whereby the first part include a monthly cash flow
analysis that has been drawn for a sum of two years for the project. On the other hand the cash
flow analysis has finally been done for a sum of seven years whereby the feasibility of the
project has well been assessed. The financial viability of the project was checked with the help of
the net present value method which helped us in checking the financial viability of the overall
project developed.
Discussion
There were various set of assumptions that have been well developed for the project in
order to well complete the financial projections for the project are as follows:
Initial Investment: The initial sum of investment that the company would be investing
comprises the upfront payment that would be would be around 400,000, which in turn would

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allow Mr. Isaac to operates its business in the Canadian Region. Investments related to
Special Refrigerator will be around 15,500, E-commerce development site would costs around
8,500 and table top wrapping machine would cost around 2,200 (Su, et al., 2018). While, the
security deposit for the sum of three months will be around 10,500 and would be well refunded
after a sum of seven years which has been taken into consideration.
Business Operations: The business operations that would be carried out by Mr. Isaac has been
well divided into two key parts. The first part includes the core business activity that is business
cash flow from Core Business in Canada. On the other hand the second part would include
business from selling to business consumer in Toronto. All the associated cash flows have well
been recorded down (Siziba, and Hall, 2019).
Cash Inflows: The key cash inflows from the business would be in the form of sales done by
venture that would be flowing. In the first year of operations the venture would be selling around
50 kg of units in the first month which is well set to increase to a considerable amount to around
750 kg per month and this would be increasing on a linear basis and after that the same is
expected to remain constant to around 750 kg on a per month from year to year seven. The sales
price of the chocolates have been kept at 160 and it is well assumed that the prices of the product
would be remaining the same (Al-Mutairi, Naser, and Saeid, 2018).
On the other hand, the key cash inflow that the venture would be seeing from the
business customer would be in the form of 100 boxes on a monthly basis that would be sold by
the company for a sum of two years for a defined period of time. The selling price associated
with the same will be around 45 for the company for this two year time period.

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Cash Outflows: The key cash outflow that the company would be observing will be primarily in
the form of variable costs incurred that is costs of goods sold for the business will be well
calculated with the amount of units sold by the company in associated with the sales price
determined for each of the units sold (Shaban, Al-Zubi, and Abdallah, 2017). The sales price has
been well calculated with the help of the given set of numbers as follows, the price at which
chocolates are sold in Germany is around Euro 120. The Exchange rate that has been considered
for the purpose of well changing the cash flows of the company has been around 1.46, which is
Euro/CAD. In order to well apply and analyze the effect of the same the exchange rate has been
applied so that the value of the purchase price is in Euro. The purchase price determined in CAD
has been applied with a discount of 40%, the same comes to around 72 and additional costs in
the form of shipping cost was well added to the net purchase price on a per unit basis for the
company.
Particulars Amt in Kg
Chocolate MRP 120
Discount % 40%
Gross Purchase Price 72
Add: Shipping Cost 14
Net Purchase Price 86
The selling price per unit determined has been well multiplied with the units sold in each of the
time period for getting the amount of purchase cost. The packaging and shipping charge would
be around 6 on a per unit basis for the amount of goods sold on a unit basis (Nawaiseh, et al.,
2017). Monthly rent for the company would be around 3,500 on a monthly basis and the same
would be well multiplied with 12 in order to get an annual rent that the company would be
incurring. The credit card remittance fees would be around 1.2% of the sales amount that has

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been made. The key assumption that has been made in this context is that almost 100% of the
sales would be done via credit card and simply 1.2% of the sales amount has been charged as a
remittance expenses for the venture. Salary and Wages on an annual basis would be around
30,000 which would be remaining the same for a sum of seven years. It is important to note that
the costs incurred in specific to marketing cost has been treated as a sunk cost for which no
treatment has been shown in the cash flow statement, however the same has been treated in the
Profit and Loss account for the company as an one-time expense for the company as shown
below:
Profit and Loss Account
Particulars Amount ($)
Revenue Receipts 521,110
Other Income 54,000
Income from Investment 10,899
Total Revenue 586,009
Less: Cost of Goods Sold 423,703
Packaging and Shipping Charge 19,542
Monthly Rent 42,000
Credit Card Remittance Fees 6,253
Salary and Wages 30,000
Market Research Cost 5,000
Boxes and Decorative Paper 9600
Assistant Salary 6000
Total Costs 542,098
Profit Before Tax 43,912
Tax@25% 10978
Net Profit 32,934
On the other hand, it is important to note that the expenses related to boxes and
decorative papers would be around 8 per unit which has been well multiplied by the amount or
units sold. The salary paid to the assistant which would be helping in well packaging and boxing
the chocolates would be around 500 per month making it to a total of 6,000 on an annual basis.

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On the other hand, the variable costs that the company has incurred will be primarily in the form
of per cost of box that includes chocolates (Chadha and Sharma 2019). The purchase price
calculated for the chocolates has been well determined on a per kg basis, however it is important
to note that the boxes would be containing only around 250gms of chocolates so this is why we
have well divided the price by four in order to get the variable costs associated with the box
chocolates.
Net Present Value: The net present value has been well calculated for the project to be around
CAD266,241 which has been well calculated by taking all the cash inflows and cash outflows
that the company has well observed for a sum of seven years whereby relevant changes in the
cash flows has well been taken into consideration.

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0 1 2 3 4 5 6 7
Private Capital Available 800,000
Total Capital Available 800,000
Upfront Fees 400,000
Special Refrigerator 15,500
Security Deposit 10,500 10,500
E-Commerce Site 8,500
Table Top Wrapping Machine 2,200
Initial Investment 436,700
Canada Operations (Core Business)
Units 3257 9000 9000 9000 9000 9000 9000
Sales Price 160 160 160 160 160 160 160
Total Sales Value 521,110 1,440,000 1,440,000 1,440,000 1,440,000 1,440,000 1,440,000
Variable Cost (Total Purchase Cost) 387,967 1,072,080 1,072,080 1,072,080 1,072,080 1,072,080 1,072,080
Packaging and Shipping Charge 19,542 54,000 54,000 54,000 54,000 54,000 54,000
Monthly Rent 42,000 42,000 42,000 42,000 42,000 42,000 42,000
Credit Card Remitance (1.2% of Sale) 17,280 17,280 17,280 17,280 17,280 17,280
Salary and Wages 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Total Costs 479,508 1,215,360 1,215,360 1,215,360 1,215,360 1,215,360 1,215,360
Net Cash Flows from Canada Oper. 41,602 224,640 224,640 224,640 224,640 224,640 235,140
Torronto Operation (Other Oper.)
Units 1200 1200
Sales Price 45 45
Total Sales Value 54,000 54,000
Boxes and Decorative Paper 9600 9600
Assistant Salary 6000 6000
Variable Cost (Purchase Cost) 35,736 35,736
Total Costs 51,336 51,336 0 0 0 0 0
Net Cash Flow from Torronto Oper. 2,664 2,664 0 0 0 0 0
Total Cash Flows 44,266 227,304 224,640 224,640 224,640 224,640 235,140
Tax Rate @ 25% 11067 56826 56160 56160 56160 56160 58785
After Tax Cash Flows -436,700 33,200 170,478 168,480 168,480 168,480 168,480 176,355
Dicount Factor @ 10% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51
Discounted Cash Flow -436700 30181 140891 126582 115074 104613 95103 90498
Net Present Value 266,241
Internal Rate of Return 24.27%
Project Investment Analysis
Particulars Yearly Cash Flow Analysis
The discount factor that has been well charged to the project has been around 3% and this
has been well calculated by taking the 7% return from debt investment which is considered as the
market return and the given cash rate of 3% was considered as the risk free rate, which gave us a
total required return of about 10%. The project investment should well be accepted given the fact
that the above situation and assumptions materializes (Kengatharan 2016).

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Critical Reflection
The report has helped me in better understanding the various concepts of cash flows
analysis including discounting cash flows application and the various application of capital
budgeting tools whereby relevant cash flows has well been recorded according to the given set of
data and time frame. The viability of the project has well assured that Mr. Isaac based on a
calculated set of risk and growth rate assumptions can well start off with his and if the business
conditions and situations well materializes than he would be positively creating wealth.

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References
Al-Mutairi, A., Naser, K. and Saeid, M., 2018. Capital budgeting practices by non-financial
companies listed on Kuwait Stock Exchange (KSE). Cogent Economics & Finance, 6(1),
p.1468232.
Chadha, S. and Sharma, S.K., 2019. Capital budgeting practices: a survey in the selected Indian
manufacturing firms. International Journal of Indian Culture and Business Management, 18(4),
pp.381-390.
Kengatharan, L., 2016. Capital budgeting theory and practice: a review and agenda for future
research. Applied Economics and Finance, 3(2), pp.15-38.
Levin, V. and Hallgren, A., 2017. The choice of capital budgeting techniques: a human capital
approach.
Nawaiseh, M.E., Al-nawaiseh, H., Attar, M.D. and Al-nidawy, A., 2017, September. The Use of
Capital Budgeting Techniques as a Tool for Management Decisions: Evidence from Jordan.
In International Conference on Engineering, Project, and Product Management (pp. 301-309).
Springer, Cham.
Shaban, O.S., Al-Zubi, Z. and Abdallah, A.A., 2017. The Extent of Using Capital Budgeting
Techniques in Evaluating Manager¡¯ s Investments Projects Decisions (A Case Study on
Jordanian Industrial Companies). International Journal of Economics and Finance, 9(12),
pp.175-179.

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Siziba, S. and Hall, J.H., 2019. The evolution of the application of capital budgeting techniques
in enterprises. Global Finance Journal, p.100504.
Su, S.H., Lee, H.L., Chou, J.J., Yeh, J.Y. and Thi, M.H.V., 2018. Application and effects of
capital budgeting among the manufacturing companies in Vietnam. International Journal of
Organizational Innovation (Online), 10(4), pp.111-120.