Posted: May 20th, 2015

Finance

The project is EXCEL based evaluation of the business plan. The business plan has future projections of balance sheets and income statements items for three to five years. The valuation of the project requires estimation of the project’s weighted average cost of capital (WACC) and then computing the net present value (NPV) of the project. To calculate the project’s NPV you will need to estimate the terminal value at the end of the high growth period and discount it back to time zero. You have already been working with examples like that in the valuation’s module. You are provided with an EXCEL sheet that contains a template that you can use to input specific data for your project. You will be required to submit the EXCEL template with a final one page report explaining whether or not the project is acceptable. In case of project being acceptable you should highlight sensitive balance sheet or income statement’s items that are critical for the future success of the project. In case of the project being unacceptable you should provide your analysis of why this is the case and what critical factors that may need to change before the project becomes acceptable. If the project is done as a group, then each student of the group should submit different scenarios of the analysis. For example, one student could use a growth rate of 5% and WACC of 12% while another student could use growth rate of 6% and WACC of 11%. It will be required then to combine the different growth rates and WACC into a table showing the NPVs under different scenarios. A group report will be needed to explain the scenarios’ table.

*the income statement and balance sheet is uploaded

*the sample of the project is uploaded as well

*the project should contain two separated excel sheet with explanation and report in ( word ).

*Contact us for any information.

*be sure that it is ORIGINAL project .

 

 

7 The Financial Plan

This section explains the financial state of the Yeshab Designing. It contains an estimation of project capital with source of funds it also refers to three primary statements: income statement, balance sheet, and cash flow statement.

7.1 Capital for the Project

7.1.1 Partners

There are five members; each one will pay QR 60,000 from their own saving accounts. In total the partners will pay QR 300,000 as a start for the project. The five owners will not take any dividends for the first four years until the business operates well and becomes known.

Capital for The Project (Source of Funds)
Partners	5 members – each QR 60,000	QR 300,000
Bank Loan (QIB)	2.5% Interest for 4 Years	QR 200,000
Total Sources		QR 500,000

7.1.2 Bank Loan

 

Qatar Islamic Bank, ‘QIB,’ offers finance to support general business needs or growth objectives through comprehensive selection of Corporate Lending products for a new project. The loan in total is QR 200,000 with 2.5% interest for four years of annual payments. The loan will be taken under the business name and the owners will share the payments for interest and installments equally.

 

7.2 Income Statement

This income statement illustrates the profitability of Yeshab Designing for the upcoming three years: year ending Dec 31, 2015, year ending Dec 31, 2016 and year ending Dec 31, 2017.

Yeshab Designing
Income Statement
For the Years Ending	31/12/2015	31/12/2016	31/12/2017
Sales	188,550	314,250	377,100
Cost of Goods Sold	103,703	172,838	207,405
Gross Profit	84,848	141,413	169,695
Operating Expenses
Advertising	0	0	0
Warranty	1,200	28,560	29,400
Permits and Licenses	7,000	7,300	8,500
Depreciation	0	0	1,610
Rent	0	0	0
Salaries & Wages	120,000	120,000	120,000
Utilities	0	0	0
Total Operating Expenses	128,200	155,860	159,510
Interest Expense	5,000	5,000	5,000
Net Profit (Loss)	(48,353)	(19,448)	5,185

 

 

 

7.2.1 Sales

In the first two years the business will not cover the total cost, so it will operate at a loss at the beginning. The business will focus on unique customized items that produced according to customers’ orders. The selling prices are calculated in range because we are using different changeable prices for different stones and materials depending on weight per gram.

 

7.2.1.1 Items list

Items	Price Range QR		Average Price QR
Bracelets	500	8000	4,250.000
Necklace	1000	12000	6,500.000
Rings	300	5000	2,650.000
Earrings	600	6000	3,300.000
Pens	600	2500	600.000
Cufflinks	300	2500	1,400.000
Key rings	300	2000	1,150.000
Lighters	200	2000	1,100.000
Average price per unit			QR 2,618.750

 

 

 

 

 

 

 

 

7.2.1.2 Annual Sales

Annual Sales	Numbers of Item Sold	Total Price (Sales)
Year 1	72	QR 188,550.000
Year 2	120	QR 314,250.000
Year 3	144	QR 377,100.000

 

 

 

 

 

 

7.2.2 Cost of Goods Sold

1. Low cost associated with obtaining raw materials and finding from India.
2. Collect orders first then send them to manufacturer in India as wholesale to reduce cost. (See Orders Procedure in Appendix A)

7.2.3 Operating Expenses

1. Warranty Expense, Permits and Licenses Expenses have a positive relationship with the sales, this types of expenses increase with the increased of sales.
2. Depreciation starts from Year 3 using the straight line method:

Items	Original cost	Useful life	Depreciation
Computer (from Sony)	QR 3000	3 Years	QR 1000
Large screen (from Sony)	QR 600	4 Years	QR 150
Furniture and Fixtures (from IKEA)	QR 2,760	6 Years	QR 460
Total Depreciation			QR 1,610

 

3. Advertising Expense: Not available because the business will use Social Media and Word of Mouth for advertising to avoid extra expenses at the start up. In fact, social media has become a strong communication tool in marketing and today mobile phones have social networks. Individuals are notified of any happenings on social networking sites through their mobile phones. Also word of mouth is the unpaid powerful promotion tool that can spread a positive marketing message from person to person.
4. Salary Expenses: The business will be operated by its five owners. Each one will take a salary equal to QR 2000 per month for the three years. (See Salaries expense Table in Appendix A)

 

5. Rent and Utility Expenses are not available for the three years because the business will start as a home business, which is a suitable way to avoid these kinds of expenses.
6. Interest Expenses: As mentioned before the loan will be taken from Qatar Islamic Bank. The loan amount is QR 200,000 with 2.5% interest for 4 years. The interest expenses are as follows:

Loan amount	Interest rate	Interest expense for each year
QR 200,000	2.5%	QR 5000

 

7.3 Balance Sheet

The balance sheet provides an instant picture of the business. It has two sections: one is for assets and the other for liabilities and owner’s equity. These are the balance sheets for the year ending Dec 31, 2016 and 2017. (See Appendix B for more details)

 

 

 

 

 

 

 

 

 

 

Yeshab Designing
Balance sheet
For the Year Ending	31/12/2015	31/12/2016	31/12/2017
Current Assets
Cash	500,000	402,147	333,199
Total Current Assets	500,000	402,147	333,199
Fixed Assets
Equipment			3,600
Less Allowance for Depreciation			1,150
Furniture and Fixtures			2,760
Less Allowance for Depreciation			460
Total Fixed Assets			4,750
Total Assets	500,000	402,147	337,949
Liabilities and Shareholder’s Equity
Loan Payable	200,000	150,000	100,000
Total Liabilities	200,000	150,000	100,000
Owner’s Equity	300,000	252,147	237,949
Total Liabilities and Owner’s Equity	500,000	402,147	337,949
Common Financial Ratios	Year 1 – 2015	Year 2 – 2016	Year 3 – 2017
Debt Ratio	0.4	0.37	0.30
Assets-to-Equity Ratios	1.67	1.59	1.42
Debt-to Equity Ratio	0.67	0.59	0.42

 

 

7.4 Cash Flow Statement

The cash flow statement is concerned with the flow of cash in and out of the business. It includes three segments:

 

1. Cash flow resulting from operating activities;
2. Cash flow resulting from investing activities;
3. Cash flow resulting from financing activities.

Yeshab Designing
Cash Flow Statement
For the Years Ending	31/12/2015	31/12/2016	31/12/2017
Cash at Beginning of Year	300,000	505,350	644,600
Operations
Cash receipts from customers	188,550	314,250	377,100
Cash paid for
Inventory purchases
General operating and administrative expenses	(8,200)
Salaries expenses	(120,000)	(120,000)	(120,000)
Interest	(5,000)	(5,000)	(5,000)
Net Cash Flow from Operations	55,350	189,250	252,100
Investing Activities
Cash receipts from
Sale of property and equipment
Collection of principal on loans
Sale of investment securities
Cash paid for
Purchase of property and equipment			(6,360)
Making loans to other entities
Purchase of investment securities
Net Cash Flow from Investing Activities	–	–	(6,360)
Financing Activities
Cash receipts from
Issuance of stock
Borrowing	200,000
Cash paid for
Repurchase of stock (treasury stock)
Repayment of loans	(50,000)	(50,000)	(50,000)
Dividends
Net Cash Flow from Financing Activities	150,000	(50,000)	(50,000)
Net Increase in Cash	205,350	139,250	195,740
Cash at End of Year	505,350	644,600	840,340

Appendix A

• Order Procedure

Send customers’ orders to manufacturer two times a month

1. Take orders from customers in the first two weeks of the month (from day 1 to day 15)
2. Send orders to manufacturer on day 15 (two weeks to manufacture)
3. Take orders again from customers for the second two weeks of the month (from day 15 to day 30)
4. Send second orders to manufacturer at day 30 and receive the first orders

Note: There is an exception for emergency situations and urgent orders with extra fees.

• Salaries Expenses

Salary for each employee per month	Salary for each employee per year	Numbers of employees	Total salaries paid each year
QR 2,000	QR 24,000	5	QR 120,000

 

• Financial Ratios Formulas

Common Financial Ratios
Debt Ratio	(Total Liabilities / Total Assets)
Assets-to-Equity Ratios	(Total Assets / Owner’s Equity)
Debt-to Equity Ratio	(Total Liabilities / Owner’s Equity)

 

 

 

 

 

 

 

Appendix B

• Balance Sheet Formulas and Explanations

1. Cash

Year 1 = Business Budget (Owners Saving Accounts & Bank Loan)

Year 2 = Business Budget + Net Income OR – Net loss from Year 1 – Year 1Loan Installment

Year 3 = Business Budget + Net Income OR – Net loss from Year 2 – Year 2 Loan Installment

 

2. Equipment

Items	Original cost	Useful life	Depreciation
Computer (from Sony)	QR 3000	3 Years	QR 1000
Large screen (from Sony)	QR 600	4 Years	QR 150
Furniture and Fixtures (from IKEA)	QR 2,760	6 Years	QR 460
Total Depreciation			QR 1,610

 

3. Furniture and Fixtures (from IKEA) usefulness approximately 6 years

Items	Original cost
Desk	QR 345
Office chairs	QR 275
Small table	QR 95
Two seat sofa & chaise longue	QR 2,045
Total Furniture cost	QR 2,760
Total Depreciation	QR 460

 

 

 

 

 

 

 

 

4. Loan Payable

Year 1 = Loan amount = QR 200,000

Year 2 = Loan amount – Year 1 Installment = QR 200,000 – QR 50,000 = QR 150,000

Year 3 = Loan amount – Year 1 & 2 Installments = QR 200,000 – QR 100,000 = QR 100,000

 

5. Owners Equity

Year 1 = Investments from Owners Saving Accounts

Year 2 = Owner’s Equity Year 1 + Year 1 Net Income OR – Net Loss

Year 3 = Owner’s Equity Year 2 + Year 2 Net Income OR – Net Loss