Urban Edge Sportswear: Investment Appraisal and Balanced Scorecard

This report provides a comprehensive financial analysis of Urban Edge Sportswear, a new sports apparel business. It begins with a business overview, highlighting the market demand and the company's mission to become a global leader. The report includes sales analysis, forecasting around 27,000 units sold in the first year at $25 each, and increasing sales by 10% annually. It details the weighted average cost of capital (WACC) at 8.40% and a cash flow forecast, including fixed asset investments and operational costs. The financial viability is assessed using Net Present Value (NPV) and Internal Rate of Return (IRR), with the project showing a positive NPV of $75,072 and an IRR of 12.19%. The report also incorporates a balanced scorecard to identify key performance and results areas for effective management. The analysis provides a solid financial foundation for the proposed Urban Edge Sportswear project.

Urban Edge
Lightning Comfort

Sportswear For
All
• The product designed
would be comfortable
and light wear.
• Special Neon Strips
would be the key
highlights
• Low Pricing would be
the key selling focus.

Background
• The demand for such products is immense in the market. The
plan is being formulated for introducing a new sport t-shirt in
the market which will be specially designed for sports persons.
The business which is being established would be named as
Urban Edge and the management of company aims to ensure
that the quality of the product is of highest quality.
• The industry is highly competitive in nature and therefore, the
business of Urban Edge needs to ensure that proper quality is
maintained along with keeping the prices of the product to a
minimum. Global Sports apparel market is anticipated to
gather around $184.6 billion by 2020, registering a CAGR of
4.3% during the forecast period 2015 - 2020
(Alliedmarketresearch.com. 2019).

Highlights
• The mission of the business is to become global leaders in the
sports accessories industry and the business wants to strive
towards continuous improvements so that the business can
effectively combat competitive pressure in the market.
• The management of Urban Edge plans to implement all steps
in pursuance of these objectives and also to ensure that
proper revenue is generated by the business in the long run
process.
• A new light weighted sports T-shirt with Neon sides would be
offered by the company which would be appropriate for sports
persons and even for normal workout sessions.

Sales Analysis
• In the first year of
operation the
company will be
selling around 27,000
units.
• The selling price
would be around $25.
• The variable cost for
the product would be
around $18.25
Year 1 Year 2 Year 3 Year 4 Year 5
0
5000
10000
15000
20000
25000
30000
35000
Units to be sold
Year 1 Year 2 Year 3 Year 4 Year 5
$0
$10
$20
$30
$40
$50
$60
Margin Analysis
Selling Price Variable Cost

Sales Breakdown Analysis
• Sales in the first year would
be $0.675 million in the first
year.
• The sales would increase by
around 10% every year in
the five-year trend period.
• On the other hand the
selling price for the
company would be
increasing by around 5%.
Sales Breakdown
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Selling Price $25 $26.25 $27.56 $28.94 $30.39
Units to be
sold 27000 28286 29633 31044 32522
Sales Value 675000 742500 816750 898425 988267.5

Weighted Average Cost of
Capital
• The weighted average cost of capital for the firm shows the
minimum required return by the firm for the invested capital.
• The weights taken into consideration will be as 60% into
equity financing and 40% into debt financing.
• The associated cost of equity for the company would be 10%
and cost of debt would be around 6%.
• The combined WACC for the company would be around 8.40%
and the same would be used for the purpose of capital
investment appraisal techniques.

Cash Flow Forecast
• An all total of $250,000 would be spend in acquiring the fixed assets
of the company whereby the company will be using the same for the
purpose of manufacturing and designing the products.
• It is also estimated that around $500,000 would be spend primarily
in the operational cost of the company including the initial labour
cost, advertisement, research & development and raw material cost.
• A detailed cash flow forecast was prepared for the company
including all the sources of cash inflows and outflows for the
company thereby determining the net cash flows for the company in
the five-year trend period.
• The amount spend in the acquiring the fixed assets of the company
would be depreciated using the straight-line method.

Investment Appraisal
• The two key investment appraisal techniques that will be applied will be Net Present Value and
Internal Rate of Return Approach for assessing the financial viability of the project.
• The Net Present Value of the project determined was around $75,072 and the respective IRR
was around 12.19%.
• Since, the stated NPV is greater than zero it would be good if the project is accepted as the
same will be creating wealth.
• On the other hand an IRR greater than WACC of the firm in percentage terms also shows the
effectiveness of the project.

Balanced Scorecard
• The balanced scorecard is an effective tool which can help the
business to ensure that proper management of the work
process is conducted so that the business is able to generate
positive revenue from operational process.
• The balance scorecard approach would allow Urban Edge to
identify the key performance areas as well as the key results
areas and on the basis of the same different steps which can
be taken by the business would be decided.
• The balanced scorecard approach would also help in
performance management for the company

References