Question

Answer all the questions below
I have select a business topic which is based on cycling retail shop we sell bicycles in following shop and do repairing as well so thats the business which i have select below are the questions which have to be answered in regards to cycling business

Guide Questions
1. What is the total capital requirement?

2. Is a loan needed? What will be the equity contribution of the entrepreneur? And how much?

3. What security (collateral) can be given to the bankers?

4. What does the profit and loss statement indicate?

5. What does the cash flow statement indicate?

6. What does the balance sheet indicate?

7. What is the loan repayment schedule?

8. What is the break-even point (BEP)?

9. What is the return on investment (ROI)?

10. Is the project feasible?

Answer 1

Answer 1

Total capital requirement depends on the size of your business you want. For a cycle business we can assume that total capital required would be $650000, which includes all the cost related to starting the business.

Answer 2

Let assume we have $150000 in our hand, so we will required a loan of $500000 and the equity contribution of the entrepreneur will be $150000 i.e. 23.08% of entire capital required.

Answer 3

Security to the bank can be given for the loan is fixed asset purchased and stock purchased for the business as well as personal property can also be given as security to bank.

Answer 4

We can draw a projected profit and loss statement as below-

Particulars	Amount
Sales	1200000
Direct costs	675000
Gross Margin	525000
Salary and Wages	150000
Sales and Marketing expenses	75000
Utilities	7500
Rent	24000
Depreciation	800
Total operating expenses	257300
Profit before Interest and Taxes	267700
Interest	37500
Profit before Taxes	230200
Taxes paid	57550
Profit after Tax	172650

It indicates that on the sales of $1200000 we will get a profit of $172650 which is 14.39% of sales.

Answer 5

We can draw a projected cash flow statement as below-

Particulars	Amount
Cash sales	840000
Operating costs	652610
Repayment of Loan	50000
Purchase of Fixed Assets	22000
Net cash Flow	115390
Add - opening cash introduced	15000
Closing cash balance	130390

Answer 6

We can draw a projected Balance Sheet as below-

Assets	Amount
Current Assets
Accounts receivable	360000
Stock	150000
Cash	130390
Total Current Assets	640390
Long-term Assets
Net Fixed Assets	54000
Total Assets	694390
Liabilities	Amount
Current Liabilities
Accounts payables	240000
Current borrowings	129650
Total current Liabilities	369650
Long-term liabilities	152090
Retained Earnings	172650
Total Liabilities	694390

Answer 7

We assume that a loan is taken of $500000 for 10 years with 11% interest rate, therefore the repayment schedule will be as follows-

No. of years	Principal payment	Interest payment
1	₹ 29,900.71	₹ 55,000.00
2	₹ 33,189.79	₹ 51,710.92
3	₹ 36,840.67	₹ 48,060.04
4	₹ 40,893.14	₹ 44,007.57
5	₹ 45,391.39	₹ 39,509.33
6	₹ 50,384.44	₹ 34,516.27
7	₹ 55,926.73	₹ 28,973.98
8	₹ 62,078.67	₹ 22,822.04
9	₹ 68,907.32	₹ 15,993.39
10	₹ 76,487.13	₹ 8,413.58

Answer 8

BEP = Fixed cost/contribution per unit

= 50000/(8000-4000)

= 12.5

Answer 9

ROI = PAT/Total assets

= 172650/694390

= 24.86

Answer 10

Yes the project is feasible as it gives profit.