Question

If we are building application that provides service for drivers. I want financial analysis of the data assuming I don’t have money and I am going to take loan how I am gonna get my investment and profit. I want logical data for building the app if it requires innovation.

will my project is to launch application and pur revenue will be from the subscriptions

all the costs and revenues will be assumptions

the only real thing is that we must assume we don’t have money for the intial investment and I am going to take loan from the bank.

but I should demonstrate how I am gonna get the money back and the profit

you can use any financeal measure or formula

Answer 1

Here are a few assumptions I make for the Project:

Name of the start-up Company: Easy Naviga Co.

Product: Application App for Drivers

Initial Investment Required: $ 5, 000,000

Source of the Fund: Bank Loan @ 5% interest rate pa

Source of Revenue:Subscription fee

Fixed Cost: IT Infrastructure, Depreciation, Salaries to Full Time employees, Rent of the Office and Interest on Bank Loan

Variable costs: Sales Team Commission, Internet Charges, Utility Bills,office stationary

Solution

Feasibility Report for seeking loan from Bank based on the pay back period analysis and cash flow projections for the app:

Forecast of Revenue & Expenses (For 12 months: Jan-Dec)	Amount in Dollars	Gross Amount
Expected Revenue @ 10 pm for 3000 subscriptions for first Jan	30,000
Expected Revenue @ 10 pm for 12000 subscriptions for Feb	120,000
Expected Revenue @ 10 pm for 15000 subscriptions for March	150,000
Expected Revenue @ 10 pm for 25000 subscriptions for April-May	500,000
Expected Revenue @ 12 pm for 40000 subscriptions for June-August	1,440,000
Expected Revenue @ 12 pm for 60000 subscriptions for Sept-Dec	2,880,000
Total Revenue (A)		5, 120,000
Fixed Expenses (PA):       Software Development Cost (one time cost) Plant Property & Equipment (PPE) (one time Cost) Depreciation @ 25% of PPE cost of 400,000 Salaries for 5 Engineers @ $10,000pm x 12 months Support staff salaries: 5 person @ $4000pm x 12 months Rent of the Office @ $ 2,000pm for 12 months Interest on the Bank Loan @ 5% pm on 5,000,000	200,000    400,000    20,000    600,000    240,000 240,000    250,000
Total Fixed Expenses (B)	1,950,000
Utility Bills @ 500 per month for 12 months Internet Usage Bill @ 1000pm for 12 months Office Stationery @ 800pm for 12 months Salesmen Commission in full year	6,000      12,000     96,000 1,086,000
Total Variable expenses (C )	1, 200,000
Total Expenses D (B + C)		3,150,000
Surplus (A – D) Net Cash Flow in year 1		1,970,000
Projections for Year 2 ( Assumption: Expected Revenue growth in year 2-3 @ 50% Expected Revenue growth in year 4-5 @ 30% (assuming new apps would be there and would need to develop new app) Thus Revenue in 2nd year at 50% growth on 5,120,000               (E ) Expenses in 2nd year at 10% growth in Fixed Exp of 1,350,000 and 50% 1,200,000 variable exp)                                 (F) Surplus in year 2    (Cash Flows)                                     G            ( E – F)		7,680,000 3,285,000 4,395,000
Conclusion: Since, the company is able to generate positive cash flow and good surplus of $1,970,000 in the first year itself even after subtracting the finance cost and thus shall be able to recover the investment of $5,000,000 by the end of the 2nd year only considering 50% growth in revenue and 10% increase in fixed expenses of 1,350,000 and 50% on variable expenses (Proportionate to growth of Revenue). Though, the software App is not expected to have a life of more than five years and it is assumed that the app would see a decline trend from the fourth year of its launch, but it is not a bad proposition even in that case considering the net cash flows are positive and the capital investment would be recovered in about 2 years of payback period. Investment : 5,000,000 Cash Flow in year 1: $1,970,000 (A above) Cash Flow in year 2: $ 4,395,000 (G Above) Investment to be recovered in year 2= 5,000,000 – 1,970,000 = $ 3,030,000 Payback period: 1 + 3,030,000/4,395,000= 1.689 years

Conclusion:The payback period is less than 2 years. Shall be able to convince bankers for a loan of 5,000,000 dollars since a positive cash flow is expected from the first year of the starting of the business.