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In: Finance

This week, after engaging in the exercises, viewing the materials and engaging in Constructive Actions, prepare...

This week, after engaging in the exercises, viewing the materials and engaging in Constructive Actions, prepare a financial analysis of the preliminary start up costs of your venture and a preliminary cost benefit analysis.

Solutions

Expert Solution

I am assuming a kids retail clothing store as an example.

The tables below show the investment details and operating costs for the store:

Carpet (in square feet) 1200
Investment
Initial Stock Purchase @ Rs 3000/sqft 3600000
Store Interior @Rs 1500/sqft 1800000
Software 30000
Architect fees 30000
Andride Smart TV 30000
Building rent deposit advance 720000
Total 6210000
Operating Cost Particular Monthly Yearly
Rent 120000 1440000
Salary (4 sales man /1 manager) 80000 960000
Electricity 18000 216000
GST 160512 1926144
Staff Incentive 33792 405504
Misc 8448 101376
Total 420752 5049024

There are some business assumptions shown below:

Assumption
Foot fall 44
Conversion 80%
No Of Bill 35.2
Item per Bill 4
Avg Item Value 400
Avg Bill Value 1600
Daily Sales 56320
Monthly Sales 1689600
Yearly sales 20275200
Rent/sq ft 100

The Net margin calculation is show below:

Monthly Yearly
Net Sales 1689600 20275200
Margin (@37.5%) 633600 7603200
Operating cost 420752 5049024
Net Margin 212848 2554176

1. Please note that the above numbers are preliminary model for a retail store. The net sales is assumed to be 100% of the expectation. However, in real time, when the cashflow projections are made, only a certain percentage of the expected net sales will be realised at first, and grows thereon.

2. This model assumes 100% equity investment. If the investor avails a bank loan, the repayment schedule should be included in the monthly cashflow.

3. In clothing business, seasonality plays an important role in driving the sales, and, also to market the products. This model doesnot assume any seasonality, but, the projections are held flat. The seasonal factors can be set either doing a market research, or, benchmarking to any market data.

jeff jeffy answered 1 year ago
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