University Project: Financial Analysis of Chocolate Import Venture

This project report provides a comprehensive financial analysis of a proposed business venture involving the import of chocolates from Germany. The analysis spans a 7-year period and includes a detailed examination of monthly cash flows for the first year, alongside the creation of an income statement and balance sheet for the initial year of operations. The report utilizes discounted cash flow (DCF) analysis to determine the project's net present value (NPV) and employs sensitivity analysis to assess the impact of varying discount rates. Key assumptions, such as exchange rates and growth rates, are explicitly stated. The findings suggest that while the project generates a positive NPV, it is subject to a high degree of risk due to factors such as exchange rate fluctuations and potential changes in sales volume and costs. The report concludes with recommendations for mitigating risks, including hedging exchange rate risk and adjusting pricing strategies. The analysis suggests the project's feasibility depends on careful management of these critical factors.

Running head: PROJECT SUMMARY
Project summary
Name of the Student:
Name of the University:
Author Note:

1PROJECT SUMMARY
Executive Summary:
Analysis of a project is an important aspect which needs to be considered before undertaking
a project. The expected returns which can be determined from the project along with the cash
flows from the project provide a better decision making ability. Thus the following report
consists of analysis of a project which requires importing chocolates from Germany. Thus the
project which has a period of 7 years is analysed. Also the cash flows for the 1st year of
operations is analysed on a monthly basis which is followed by the presentation of the 1st year
income statement and balance sheet of the company.

2PROJECT SUMMARY
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Assumptions used in the Analysis:........................................................................................3
Monthly Cash Flow:...............................................................................................................3
Discounted Cash flow analysis:.............................................................................................4
Sensitivity Analysis:...............................................................................................................6
Income statement and Balance Sheet:....................................................................................7
Critical Analysis and Conclusion:..............................................................................................7
References:.................................................................................................................................9

3PROJECT SUMMARY
Introduction:
The following is report is an analysis of a project which is concerned with a business
venture located in Germany. The project requires the analysis of the venture and to highlight
the business feasibility of the project. Thus, this report aims to provide the analysis of a
business along with the feasibility of the business. The report aims to advice whether the
business venture is feasible and should be undertaken by the investor (Schumacher and
Klönne 2018).
Discussion:
Assumptions used in the Analysis:
A list of the following assumptions has been taken for the analysis of the project
which is highlighted in the points below,
 The exchange rate for 1 euro per Canadian dollar is 1.47.
 The initial investment in the upfront premium is $320000 which has been quoted by
the German company.
 The depreciation and amortization is assumed to be on a straight line basis based on
the useful life of the assets.
 The tax rate for the project is taken as 25% for the project.
 The Growth rate of sales in the 1st year of the project is 27.92%.
 The discount rate for the project is taken as 12%.
Monthly Cash Flow:
The monthly purchase requirement for the company is calculated and a table of the
required cost of goods is presented below,

4PROJECT SUMMARY
Figure 1: Sales and Production
Source: By the Author
Thus in the figure above the monthly sales revenue which is expected along with the
cost of the goods required to make the sales is presented. In the next figure the charges and
the cost which would affect the cash flow of the company is highlighted. This cost would be
taken in the calculation of the 1st year cash flow. The 1st year cash flow from the project
considering all the charges is at $-69120.73 (Boularhmane and Aboulaich 2016)
Figure 2: NPV
Source: By the Author
Discounted Cash flow analysis:
Thus for the analysis of the project, the expected cash flow from the project for the 7
year analysis period along with the cost of goods required is highlighted in the figure below,

5PROJECT SUMMARY
Figure 3: Sales and Production
Source: By the Author
The revenue for the company had been the lowest in the 1st year of operations, while
the highest in the 2nd year of operations. During the 3rd year till the 7th year, the revenue for
the company has fallen due to the loss of the 2 year contract from Jade. The cost of goods
required is the lowest in the 1st year of operation while it was highest in the 2nd year of
operations. The cost of goods was stable from the 3rd year till the life of the project (Smith,
Driver and Matthews 2018).

6PROJECT SUMMARY
Figure 4: NPV
Source: By the Author
Thus the charges for depreciation of the wrapping machine and the packing assistant
charges is only undertaken for 2 years. This is because the project had the contract from Jade
for only 2 years. However, the cash flows from the project had been positive from the 2nd year
of the project, hence the NPV of the project is $55331.8 (Bee 2018).
Sensitivity Analysis:
Thus a project sensitivity analysis is conducted to check the impact on the net present
value of the project. Thus for this purpose the discount rate of the project is tweaked by 2% in
the positive side and the negative side. Thus the project is analysed by how sensitive it is to
the discount rate of the project (Nguyen 2016).
Figure 5: NPV
Source: By the Author
Thus upon doing the sensitivity analysis of the project, the discount rate is taken as
10% and 14% respectively. Thus the project has generated positive NPV in both the scenarios
and thus seems to be feasible to be undertaken by the investor (Nie 2018).

7PROJECT SUMMARY
Income statement and Balance Sheet:
The project income statement and balance sheet for the 1st year of operations is
presented in the figure below,
Figure 6: Income Statement and Balance Sheet
Source: By the Author
Thus the income from the 1st year operations of the project is loss $96580.02, thus the
project creates a loss for the investor. However, since this is the inception year of the project
and all the expenses for the project is undertaken in this year, it leads to provide a loss. The
gross profit from the project is positive and is at $30645.52. The balance sheet total of the
project is $865251.4, with the majority of the asset which is in cash invested at 3%. The
major liability from the project is in the stockholders equity which is at $767225.3 (Bian,
Lemoine and Gayraud 2018).
Critical Analysis and Conclusion:
Thus upon analysing the project with the set of assumptions taken, the project is
feasible for the investor to be undertaken. This is based on the positive NPV generated by the

8PROJECT SUMMARY
project in the base case and also the positive NPV which is provided by applying the
sensitivity analysis of the project. However, the assumption of the exchange rate being stable
is leading to the above judgement in regards to the project. The investor would need to hedge
the exchange rate risk and keep it at lower levels if want to benefit from the project. Also the
investor can try to increase the selling price of the chocolates to reduce risk of loss and
forward the packing expense to the consumers to reduce the cost of operations. Also the
expected sales is at 750 kg which is assumed to be constant for the project period and can
change in the period to be increased or decreased. The cost of shipment is also assumed to be
stable but can increase in the future with the rise in the cost of airline fuel.
Thus the project which is being presented at present even though provides a positive
value for the investor but consists of a high level of risk. The project if operated in the current
scenario is at a very risky situation and any small negative changes can affect the project
adversely.
Thus the investor should reconsider the price at which the chocolates can be sold and
try to reduce the operation expense by passing some of the cost to the consumers. Thus upon
revising the situation a further detailed analysis of the project can be undertaken to determine
its feasibility.
Thus as per the current situation, ignoring the factors which can affect the project, the
project should be considered. While if incorporating the real world factors the project should
not be undertaken by the investor.

9PROJECT SUMMARY
References:
Bee, T.K., 2018. Discounted Cash Flow Method for Valuing International Chemical
Distributors. The Journal of Private Equity, 22(1), pp.52-69.
Bian, Y., Lemoine, D., Yeung, T.G., Bostel, N., Hovelaque, V., Viviani, J.L. and Gayraud,
F., 2018. A dynamic lot-sizing-based profit maximization discounted cash flow model
considering working capital requirement financing cost with infinite production
capacity. International Journal of Production Economics, 196, pp.319-332.
Boularhmane, I. and Aboulaich, R., 2016. Valuation of quarterly stock prices: applying
ethical principles to discounted cash flow method. International Journal of Economics and
Financial Issues, 6(3), pp.1254-1261.
Nguyen, T., 2016. The valuation of kinh do corporation using discounted cash flow method.
Nie, Z.Q., 2018. Discounted cash flow (dcf) model detection based on goodwill impairment
test. Journal of Discrete Mathematical Sciences and Cryptography, 21(4), pp.959-968.
Robinson, T.R., 2020. International financial statement analysis. John Wiley & Sons.
Schumacher, K.F. and Klönne, H., 2018. Discounted Cash Flow Method. In Contemporary
and Emerging Issues on the Law of Damages and Valuation in International Investment
Arbitration (pp. 205-230). Brill Nijhoff.
Smith, J.M., Driver, R. and Matthews, W., 2018. The Real Options Lattice: An Alternative to
Discounted Cash Flow. Journal of Accounting & Finance (2158-3625), 18(7).