Financial Management Analysis Term Paper

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Financial Analysis

Assumption Use in the Financial Plan

Additional Assumption in Sensitivity Analysis

FIRST TWELVE MONTH CASHFLOW RESULT

HOW MUCH SHOULD NORMAN PAY FOR THE EXCLUSIVE RIGHT?

FORECASTED CASHFLOW FOR THE NEXT FIVE-Year

CASH FLOW WITH A LOAN AT 8% PER ANNUM

SENSITIVITY ANALYSIS

THE SALES PRICE AND kg SALES GRADUALLY INCREASE AT 5%

THE SALES PRICE PER kg INCREASE AT 10% BUT THE UNIT SALES REMAIN AT 5%.

Investment Value Using At Discounted Rate 5%

Best Financial Plan and Option

Assumption Use In The Financial Plan

Additional Assumption in Sensitivity Analysis

It is further assumed that price will increase gradually at the rate of 8% per annum and sales will increase at 7% per annum.

For the purpose of analysis, both the sales price and Kg sales will gradually increase at 5%.

Another scenario will be that the sales price per Kg increase at 10% but the unit sales remain at 5%.

Best-case scenario assumption, Norman did not exercise his plan to borrow $100,000 at 8% per annum. We will look into what is the cash flow outlook if Norman did not exercise this option.

5. Norman believes that he could borrow up to $100,000 at 8% per annum. As an additional assumption, if Norman takes $100,000 loan, Norman will pay this loan for the first five years of the company operation.

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We will look into what is the cash flow outlook if Norman exercises this option.

6. We also assume that Norman will exercise the option to hire an assistant for $1,000 per month from the beginning of his online operation.

7. We also assume Norman will pay all payable tax in the year precedent to the year of tax payable.

8. We also assume that charges such as rental will remain constant throughout the period.

9. Norman plans to order from Belgium every two weeks and intends to maintain a minimum stock of four weeks' worth of sales to ensure that he will be able to supply a suitable range of products to customers.

10. Exchange rate between Euros to U.S. dollar will remain at $1.355.

FIRST TWELVE MONTH CASHFLOW RESULT

The forecast cash flow for the first twelve month showed Norman can bring excess cash in after paying the tax.

HOW MUCH SHOULD NORMAN PAY FOR THE EXCLUSIVE RIGHT?

Based on these considerations

1. To maintain the maximum cash flow available to bring to the second year of operation and

2. after taking into consideration the amount of cash flow generated during the first year,

We suggest the amount of right payment to BelgChoc should be between $100,000 and $400,000. For the rest of the case study we assume.....

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