Financial Management Project: Detailed Analysis of a Startup Business

This financial management project analyzes a business startup venture in Toronto, Canada, over a seven-year period. The project focuses on evaluating the feasibility of Mr. Isaac's new business by assessing its cash flows using a discounted cash flow approach. Revenue streams include sales of goods in Canada and a collaboration with a travel agency. The project includes monthly and annual cash flow projections, sensitivity analysis, and a positive net present value (NPV) for the project. The analysis considers initial investments, working capital, and foreign exchange rates. The project recommends accepting the project, with an expected return of approximately 16.07% from the initial investment, and the document is contributed by a student to be published on the website Desklib, a platform which provides all the necessary AI based study tools for students.

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

1FINANCIAL MANAGEMENT
Executive Summary
The aim of the assignment is to evaluate the business start-up project that Mr. Isaac will be
evaluating based on the various cash flows that the company expects to receive from the business
operations of the company. The new startup operations of the company would be initiated in
Toronto, Canada. The business operations would be for a sum of seven years of time period
whereby relevant cash flows that would be flowing to the company would be considered. In
order to well analyze the feasibility of the business operation a valuation model would be applied
that is discounted cash flow approach whereby relevant cash flows flowing to the company
would be well taken into consideration. The business operations of the new startup venture has
been drawn on a monthly basis and on an annual basis. The business operations of the company
would be primarily distributed into key parts, in the first part the company would be well
receiving its revenue from the sales of goods in the Canada itself. While the other half of the
business revenue would be coming from the Toronto Business Collaboration from Mr. Jane who
runs a travel agent business in the Toronto. The business collaboration would be for a sum of two
years and in order to better analyze the cash flows respectively flowing from this collaboration
we have created a monthly budgeted cash flow statement for the company. The net present value
for the project has been positive for the company for the overall seven year trend period that has
been analyzed. The project feasibility was found to be on a positive scale for Mr. Isaac new
project venture and it is well recommended that he should accept the project. It is important to
note that there were several assumptions and figures base which were planned out for the
company and if the same materializes then Mr. Isaac on a turn would be creating a wealth of
around CAD 118,713 from the business, that is around 16.07% of return from the initial
investment of CAD 456,700 that would be done by the company.

2FINANCIAL MANAGEMENT
Table of Contents
Business Project Analysis................................................................................................................2
Assumptions, Estimates and Sensitivity Analysis...........................................................................3
Key Assumptions and Estimates.................................................................................................3
Sensitivity Analysis.....................................................................................................................5
Cash Flow and Viability Analysis...................................................................................................7
Other Financial Details..................................................................................................................11
Finance/Capital Available.........................................................................................................11
Depreciation Expenses...............................................................................................................11
Profit and Loss Statement..........................................................................................................12
Sales Growth..............................................................................................................................13
Purchase Cost Analysis..............................................................................................................13
Critical Reflection..........................................................................................................................14
References......................................................................................................................................15

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Business Project Analysis
The business analysis of the new project has been analyzed based on the cash flows that
would be flowing from the project for a sum period of seven years. Mr. Isaac in particular would
be running down a line of business in which he would be considering buying chocolates from
AlpenChoc, which is located in Germany and would be allowing Mr. Isaac to well sell their
associated range of product for an upfront premium for a seven year of trend period. The
business operations of the company would be simple it would be by buying chocolates from
Germany at a discounted rate and then selling the same at the estimated selling price in order to
earn profits. The chocolates considered varies from the normal range and types of chocolates that
are offered in the market. Mr. Isaac would be buying Artistic Innovative Flavored Chocolates
which would be having a sound demand as the same would be introduced in the market for the
first time. Expenses in particular would be in the field of shipping cost from Germany to Canada,
Purchase Cost of Products, Wages and Salaries, Credit Card Expenses and Depreciation
Expenses will be some of the key expenses that the company would be incurring for the trend
period. In particular Mr. Isaac has also well managed to go through a business operation or
business agreement with Mr. Jade who has well agreed to enter into a two year business
agreement for buying a defined set of chocolates units for its travel customers. The cash flow
analysis has been done separately for both the operations that the company would be running and
that would be helping us better analyze the cash flows that is flowing from each of the operations
of the company (Levin and Hallgren 2017). Several assumptions has been made with respect to
the business operations and cash flows that were forecasted for the company and accordingly
detailed discounted cash flow model has been built. The initial sum of money with which the

4FINANCIAL MANAGEMENT
company well be initiating the project would be around CAD456700 and the same would be
primarily in the form of upfront premium, asset purchase, security deposit and investment into
working capital of the business (Su et al., 2018). In particular since the business operations of the
company would be involving two different economies and exchange of goods would also be
done in a different currency that is EURO/CAD the exchange rate for EURO/CAD has also been
taken into consideration in order to well incorporate the forex factor that the business would be
undergoing. Risk and Return are some of the crucial aspects of the business and in order to well
account that sensitivity analysis for the business has been specially carried.
Assumptions, Estimates and Sensitivity Analysis
Key Assumptions and Estimates
The project investment has been well prepared based on a set of assumptions and factors
that might be relevant for the cash flows for the company (Siziba and Hall 2019). The key
assumptions that was made for the project investment are as follows:
 Initial Investment: The initial investment for the project would be around
CAD456,700 and that would be primarily in the field of Upfront Premium which is
expected to be around 40% of the available capital that is CAD800,000 that comes to
around CAD320,000 for the company. Capital Expenditure that the company would be
doing will be primarily purchase of key assets for the company that is Refrigerator
Expense and Table Top Wrapping Machine. The total amount of capital expenditure
would be around CAD17700 for the company. Other investments like security fees, e-
commerce sites and working capital for the company would be jointly contributing for
the total initial investment available for the company (Nawaiseh et al., 2017).

5FINANCIAL MANAGEMENT
 Working Capital: The working capital that would be available with the company will
be around CAD100,000 and the key reason why the given number has been done in
order to well account for the various operational and business expenses that Mr. Isaac
would be requiring for a sum of seven years. The investment into the working capital is
estimated to be well recovered by the company after a sum of seven years and is well
accounted in the drawn cash flow budget for the company.
 Forex Exchange Rate: The business operations of the company would be in particular
involving two economy that is Germany and Canada whereby the forex exchange rate
that is EUR/CAD would be considered. The current exchange rate for the currency pair
of EUR/CAD is around 1.55 and the same would be well considered for exchanging
the goods from Germany to Canada.
 Market Research Cost: Mr. Isaac in particular would be conducting a market survey
that would be involving around CAD5000 has been treated as suck cost and would not
be well accounted in the cash flow budget that has been prepared for the company.
 Discount Rate Assumption: The discount rate that would be well considered by the
company is rounded to 10% and the same has been well considered based on the risk
return basis that an investor can well generate by investing into the stock market. The
return generated by the S&P/TSX Composite Index has been around 10.4% and the
same has been well accounted while projecting the financials of the business venture
(Rothery and Rothery 2016).
 Additional Income/Investment Income: The total amount of capital that is available
with the company is around CAD800,000 and the amount that would be well utilized

6FINANCIAL MANAGEMENT
in the financial course of business operation will be around CAD4567,000. The
remaining amount CAD343,300 will be well invested into a risk free account that
would be well helping the company earn an additional set of 3% on the amount
invested on a yearly basis and the same has been well accounted in the Profit and Loss
Statement that has been drawn for the new venture.
Sensitivity Analysis
The sensitivity analysis shows the changes that would be well observed in the company if
a key component or factor well changes for a given period of time and the impact that it would
be creating on the cash flows of the company (Marchioni and Magni 2018). The key factor
which has been well changed in order to well account for performing the sensitivity analysis has
been the discount rate. In the base case of analysis the discount rate that has been well considered
for the analysis purpose has been around 10%, however, the same can well increase in order to
account for the forex risk and the increasing business risk (Batra and Verma 2017). The new set
of discount rate which was considered in order to well account for the increasing risks and
volatile sales base can be in respect to using a discount rate of 15% for the company’s
operations. The changes that would be well observed after accounting for the higher discount
rate would be a reduced amount of return or the NPV that the project would be creating. After
accounting for the changes the cash flows on a net present value that would be created from the
investment is expected to be around CAD18,260 for the company (Etemadi, Koosha and Salari
2018).
In particular the key aim of the sensitivity analysis has been to show the effect how a
change in a key factor can well influence the overall business decisions that the company would
be undertaking. In the case analyzed even if the discount rates well changes from 10% to 15%

7FINANCIAL MANAGEMENT
then the overall value that would be created from the project is projected to be around
CAD18,260, which in the base case at a 10% discount level was calculated to be around CAD
118,713 for the company (Shaban, Al-Zubi and Abdallah 2017).

8FINANCIAL MANAGEMENT
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Investment Available CAD 800,000
Investible Sum CAD 800,000
Upfront Fees CAD 320,000
Special Refrigerator CAD 15,500
Security Fees CAD 10,500 CAD 10,500
E-Commerce Site CAD 8,500
Table Top Wrapping Machine CAD 2,200
Investment in Working Capital CAD 100,000
Initial Investment CAD 456,700
Canada Operations (Core Business)
Unit Sold 3257 9000 9000 9000 9000 9000 9000
Sales Price CAD 160 CAD 160 CAD 160 CAD 160 CAD 160 CAD 160 CAD 160
Total Sales CAD 521,110 CAD 1,440,000 CAD 1,440,000 CAD 1,440,000 CAD 1,440,000 CAD 1,440,000 CAD 1,440,000
Variable Cost (Total Purchase Cost) CAD 409,072 CAD 1,130,400 CAD 1,130,400 CAD 1,130,400 CAD 1,130,400 CAD 1,130,400 CAD 1,130,400
Shipping & Package Cost CAD 19,542 CAD 54,000 CAD 54,000 CAD 54,000 CAD 54,000 CAD 54,000 CAD 54,000
Rent (Fixed Cost) CAD 42,000 CAD 42,000 CAD 42,000 CAD 42,000 CAD 42,000 CAD 42,000 CAD 42,000
Credit Card Fees (1.2% of Sale) CAD 17,280 CAD 17,280 CAD 17,280 CAD 17,280 CAD 17,280 CAD 17,280
Wages and Salaries (Fixed Costs) CAD 30,000 CAD 30,000 CAD 30,000 CAD 30,000 CAD 30,000 CAD 30,000 CAD 30,000
Depreciation Exp. Of Refrigerator CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214
Total Expenses CAD 500,613 CAD 1,273,680 CAD 1,273,680 CAD 1,273,680 CAD 1,273,680 CAD 1,273,680 CAD 1,273,680
Cash Inflows/(Outflows) CAD 20,497 CAD 166,320 CAD 166,320 CAD 166,320 CAD 166,320 CAD 166,320 CAD 176,820
Torronto Operation (Other Oper.)
Unit Sold 1200 1200
Sales Price CAD 45 CAD 45
Total Sales CAD 54,000 CAD 54,000
Decorative Papers CAD 9,600 CAD 9,600
Assistant Salary CAD 6,000 CAD 6,000
Variable Expenses CAD 37,680 CAD 37,680
Depreciation of Wrapping Machine CAD 1,100 CAD 1,100
Total Expenses CAD 54,380 CAD 54,380 CAD 0 CAD 0 CAD 0 CAD 0 CAD 0
Net Cash Flows (CAD 380) (CAD 380) CAD 0 CAD 0 CAD 0 CAD 0 CAD 0
Total Cash Flows CAD 20,117 CAD 165,940 CAD 166,320 CAD 166,320 CAD 166,320 CAD 166,320 CAD 176,820
Tax Rate @ 25% CAD 5,029 CAD 41,485 CAD 41,580 CAD 41,580 CAD 41,580 CAD 41,580 CAD 44,205
After Tax Cash Flows (CAD 456,700) CAD 15,088 CAD 124,455 CAD 124,740 CAD 124,740 CAD 124,740 CAD 124,740 CAD 132,615
Add: Non Cash Exp. (Depreciation) CAD 3,314 CAD 3,314 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214
Add: Working Capital Recovery CAD 100,000
Free Cash Flows (CAD 456,700) CAD 18,402 CAD 127,769 CAD 126,954 CAD 126,954 CAD 126,954 CAD 126,954 CAD 234,829
Dicounting Factor @ 10% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51
Discounted Cash Flow (DCF) (CAD 456,700) CAD 16,729 CAD 105,594 CAD 95,383 CAD 86,711 CAD 78,829 CAD 71,662 CAD 120,505
NPV
IRR
Investment Amount CAD 800,000
Finance Utilized (CAD 456,700)
Balance CAD 343,300
Interest Rate 3.00%
CAD 118,713
16.07%
Project Investment Analysis
Particulars Yearly Cash Flow Analysis

9FINANCIAL MANAGEMENT
Cash Flow and Viability Analysis
The cash flow analysis for the company has been projected for a sum of seven years
whereby relevant cash inflows in the form of sales and cash outflows in the form of operational
and business related expenses has been well accounted. It is important to note that the cash flow
analysis has been segregated into two key portions. The first portion of the cash flow statement
consist of the revenue and expenses that are directly to the business operation that Mr. Isaac
would be undergoing. In the second portion of the cash flow statement of the company, the
business agreement that has been well drawn with the Travel Agency Company has been
considered. On an overall basis, the net cash flows that would be flowing to the company from
the entire business operations has been calculated. The effect of taxation has also been shown
with the help of statutory tax rate of 25% that has been well applied to the cash flows of the
company.
Project Investment Analysis
Particulars Yearly Cash Flow Analysis
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Investment Available
CAD
800,000
Investible Sum
CAD
800,000
Upfront Fees
CAD
320,000
Special Refrigerator CAD 15,500
Security Fees CAD 10,500 CAD 10,500
E-Commerce Site CAD 8,500
Table Top Wrapping Machine CAD 2,200
Investment in Working Capital
CAD
100,000
Initial Investment
CAD
456,700
Canada Operations (Core
Business)

10FINANCIAL MANAGEMENT
Unit Sold 3257 9000 9000 9000 9000 9000 9000
Sales Price CAD 160 CAD 160 CAD 160 CAD 160 CAD 160 CAD 160 CAD 160
Total Sales
CAD
521,110
CAD
1,440,000
CAD
1,440,000
CAD
1,440,000
CAD
1,440,000
CAD
1,440,000
CAD
1,440,000
Variable Cost (Total Purchase
Cost)
CAD
409,072
CAD
1,130,400
CAD
1,130,400
CAD
1,130,400
CAD
1,130,400
CAD
1,130,400
CAD
1,130,400
Shipping & Package Cost
CAD
19,542 CAD 54,000 CAD 54,000 CAD 54,000 CAD 54,000 CAD 54,000 CAD 54,000
Rent (Fixed Cost)
CAD
42,000 CAD 42,000 CAD 42,000 CAD 42,000 CAD 42,000 CAD 42,000 CAD 42,000
Credit Card Fees (1.2% of Sale) CAD 17,280 CAD 17,280 CAD 17,280 CAD 17,280 CAD 17,280 CAD 17,280
Wages and Salaries (Fixed Costs)
CAD
30,000 CAD 30,000 CAD 30,000 CAD 30,000 CAD 30,000 CAD 30,000 CAD 30,000
Depreciation Exp. Of Refrigerator CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214
Total Expenses
CAD
500,613
CAD
1,273,680
CAD
1,273,680
CAD
1,273,680
CAD
1,273,680
CAD
1,273,680
CAD
1,273,680
Cash Inflows/(Outflows)
CAD
20,497
CAD
166,320
CAD
166,320
CAD
166,320
CAD
166,320
CAD
166,320
CAD
176,820
Torronto Operation (Other Oper.)
Unit Sold 1200 1200
Sales Price CAD 45 CAD 45
Total Sales
CAD
54,000 CAD 54,000
Decorative Papers CAD 9,600 CAD 9,600
Assistant Salary CAD 6,000 CAD 6,000
Variable Expenses
CAD
37,680 CAD 37,680
Depreciation of Wrapping
Machine CAD 1,100 CAD 1,100
Total Expenses
CAD
54,380 CAD 54,380 CAD 0 CAD 0 CAD 0 CAD 0 CAD 0
Net Cash Flows (CAD 380) (CAD 380) CAD 0 CAD 0 CAD 0 CAD 0 CAD 0
Total Cash Flows
CAD
20,117 CAD 165,940 CAD 166,320 CAD 166,320 CAD 166,320 CAD 166,320 CAD 176,820
Tax Rate @ 25% CAD 5,029 CAD 41,485 CAD 41,580 CAD 41,580 CAD 41,580 CAD 41,580 CAD 44,205
After Tax Cash Flows
(CAD
456,700)
CAD
15,088
CAD
124,455
CAD
124,740
CAD
124,740
CAD
124,740
CAD
124,740
CAD
132,615
Add: Non Cash Exp. (Depreciation) CAD 3,314 CAD 3,314 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214 CAD 2,214
Add: Working Capital Recovery CAD 100,000
Free Cash Flows
(CAD
456,700)
CAD
18,402
CAD
127,769
CAD
126,954
CAD
126,954
CAD
126,954
CAD
126,954
CAD
234,829
Dicounting Factor @ 10% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51
Discounted Cash Flow (DCF)
(CAD
456,700)
CAD
16,729
CAD
105,594 CAD 95,383 CAD 86,711 CAD 78,829 CAD 71,662
CAD
120,505

11FINANCIAL MANAGEMENT
NPV CAD 118,713
IRR 16.07%