BUSN278 Week8

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Wireless World
Budget Proposal
for
[2018-2022]
BUSN278
Professor Edward Kaplan
DeVry University
Wireless World
Table of Contents
Section
Title
1.0
Executive Summary
2.0
Sales Forecast
3.0
Capital Expenditure
Budget
4.0
Investment Analysis
5.0
Subsection
Title
2.1
Sales Forecast
2.2
Methods and
Assumptions
4.1
Cash Flows
4.2
NPV Analysis
4.3
Rate of Return
Calculations
4.4
Payback Period
Calculations
5.1
Pro Forma Income
Statement
5.2
Pro Forma Balance
Sheet
5.3
Pro Forma Cash
Budget
7.1
Appendix 1:
[description]
7.2
Appendix 2:
[description]
Page Number
Pro Forma Financial
Statements
6.0
Works Cited
7.0
Appendices
(Please put page numbers in the last column of the table of contents above, because they apply to
your finished assignment. Do this after your project is complete. Remove this text and all text
that is in italics in this template when finished with your project.)
Wireless World
(Also, please submit your Excel spreadsheet that shows your supporting calculations.)
Wireless World
1.0 Executive Summary
Wireless World is a retail store that offers wireless electronics such as cell phones, e-book
readers, tablets/IPads, and more. We will be located in Orlando, FL in the Millenia Mall;
Neighboring Neiman Marcus, Macys, among other high-end retailers. Our target market is
mainly students & working adults from wealthy families, ages 22-49. This budget will
breakdown budgeting and forecasting of the current and future financials; Including sales
forecast, capital expenditure budget, cashflow, NPV analysis, Rate of return calculations,
payback period calculations and Pro Forma Financials.
2.0 Sales Forecast
2.1 Sales Forecast
The cost for 2018 shows the average of the most popular wireless devices with leading
competitors. Using that average we can put a cost on how much our devices should average. We
can expect the cost to increase for each new version of the devices in question. I used the
assumption that the newer models will be around a 10% increase on the previous year’s models.
2018
Sales
100,000
2019
120,000
2020
145,000
2021
200,000
2022
250,000
2.2 Methods and Assumptions
I reviewed the websites of some of our competitors and I took the cost of the most popular and
newer devices (For example; IPhones, Androids, Tablets, Laptops, and Bluetooth Speakers) and
averaged their costs within that company and then with each other to come up for my average
cost. After that I increased the average cost by 10% per year considering that these devices will
more than likely have new models each year. As for units sold, I decided to go with a standard
number, but those numbers can rise of fall as time goes.
Wireless World
3.0 Capital Expenditure Budget
Five Year Capital Expenditure Budget
Wireless World Software & Equipment
July- 18
July- 19
July- 20
July- 21
July- 22
Software
Accounting Software
Payroll Software
Total
1,452
1,875
3,327
2,000
2,500
4,500
3,000
2,700
5,700
4,000
4,000
4,800
3,500
8,300
5,000
27,500
32,500
7,500
33,000
40,500
9,500
46,750
56,250
9,500
46,750
56,250
12,500
66,000
78,500
600
6,000
2,880
720
10,200
800
8,000
2,880
960
12,640
600
10,000
1,080
1,000
12,680
-
600
10,000
1,080
1,000
12,680
1,500
1,500
2,000
2,000
4,500
4,500
5,000
5,000
3,000
3,000
47,527
59,640
79,330
65,250
102,480
944
7,100
1,600
150
$9,794
2,144
15,950
3,549
372
$22,015
3,644
28,700
5,531
935
$38,810
4,944
41,450
5,531
1,649
$55,557
7,184
58,800
7,514
2,129
$77,487
Electronic Equipment
Cellphones
Computers
Total
Furniture
Cash Registers
Computers
Chairs
Desks
Total
Improvements
Cash-wrap / Entrance Buildout
Total
Total Budgeted Capex
Annual Depreciation
Software (5 years)
Office Equipment (5 Years)
Furniture (5 Years)
Improvements (10 Year lease)
Total
Wireless World
Our Capital expenditure includes what is needed to successfully run Wireless World. Our goal is
to have the necessities, but also of great quality, this includes Furniture, and all other equipment
& software needed. With purchasing the items at a reasonable wholesale prices, we will be able
to still make a profit in the years to come. The software is for everyday use, POS systems,
Payroll, and customer accounts; This also helps us keep track of our income, and how the money
is being spent.
4.0 Investment Analysis
Briefly describe the NVP, IRR, accounting rate of return, and payback period for this
analysis. Indicate the discount rate you used and how you arrived at it.
4.1 Cash flows
Five Year Cash
Flow Budget
Summary
Wireless World
Total Cash Receipts
Less: Total Cash Disbursements
Add Back/Exclude: First
Year's Capital Expenditures
Annual operating net cash flows
for Investment Analysis:
2014
$ 450,000.00
2015
$650,000.00
2016
$ 800,000.00
2017
$ 1,000,000.00
2018
$1,550,000.00
(287,611)
(361,357)
(620,085)
(610,589)
(994,466)
52,922
-
65,890
-
89,630
215,311
288,643
245,805
389,411
645,164
Wireless World
The Cash Flow Budget summary shows the potential profit Wireless World could make over the
next 5 years. By purchasing everything at wholesale prices it gives us room to cut back on some
expenses and stretch profit over the years.
4.2 NPV Analysis
Net Present Value Analysis
Wireless World
Using Present Value Tables:
Cash
Flows
8% Discount
Factor
Present
Value
Startup Costs
$(150,000)
1
2018
$ 215,311
0.9259
$ 199,357
2019
$ 288,643
0.8573
$ 247,453
2020
$ 245,805
0.7938
$ 195,120
2021
$ 389,411
0.735
$ 286,217
2022
$ 645,164
0.6806
$ 439,098
Year
Net Present Value
$
(150,000)
$1,217,246
This table will show how Wireless World will start from a startup cost of $150,000.00 the first
year and create a turnaround profit each year to come. If budgeting correctly and monitoring the
cash flow to a projected discount factor of 8%, each year Wireless World can and will make a
profit. Wireless World is planning to acquire an asset that it expects will yield positive cash
flows for the next five years. Its cost of capital is 8%, which it uses as the discount rate to
Wireless World
construct the net present value of the project. The above table shows the calculation. If Wireless
World actually decides to go this route, then investment in the project would be recommended.
4.3 Rate of Return
Provide a screenshot of your IRR and accounting rate of return calculations here, and explain
the highlights.
Rate of Return
Analysis
Wireless World
Trial & Error Method (as described in the
Week 4 Lecture):
Cash Flows
Year
Startup Costs
2018
2019
2010
2021
2022
Net Present Value
$(150,000)
$ 215,311
$ 288,643
$ 245,805
$ 389,411
$ 645,164
20% Discount
Factor
1
0.8333
0.6944
0.5787
0.4823
0.4019
Present Value
$
$
$
$
$
$
$
(150,000)
179,419
200,433
142,247
187,813
259,291
819,204
24% Discount
Factor
1
0.8065
0.6504
0.5245
0.423
0.3411
Present Value
$
$
$
$
$
$
$
(150,000)
173,649
187,733
128,925
164,721
220,065
725,093
This chart is shows two versions of Wireless World’s Internal Rate of Return. If Wireless World
used a discount rate of 20% it would stand to profit over 5 years with a total of $819,204.00 at
the end of the fifth year. If they were to decide to use a discount rate of 24% then they would
profit with a total of $725,093.00. Looking at the chart, it would be in the best interest to use a
discount rate of 20%.
Wireless World
4.4 Payback Period
Payback Period Analysis
Totals for Wireless World
Year
Annual
Cash
Flows
Cumulative
Cash Flows
Startup Costs
$(150,000
)
2018
$ 215,311
$
215,311
1
year
2019
$ 288,643
$
503,954
2
years
2020
$ 245,805
$
749,759
3
years
2021
$ 389,411
(1.54)
partial
year
2022
$ 645,164
$
1,139,170
$
1,784,334
Payback
Period:
3.97
years
(During year 4 the
Cumulative Cash
Flows get to the
point where they
are greater than the
initial Startup
Costs)
This chart shows that the project is worth investing in because the startup cost of $150,000.00
would be paid back during the first year of business. After that, the next years would be nothing
but profit for the company. During year 4, the cumulative cash flow’s get to the point where they
are greater than the initial startup cost.
5.0 Pro forma Financial Statements
5.1 Pro Forma Income Statement
Wireless World
This income statement shows all of the total investments that Wireless World will be doing. It
includes the profit possibilities from customers and new accounts, the expenses that it will
encounter such as operating cost and interest expenses including tax. The total net income will be
a 17% growth by the end of the fifth year.
5.2 Pro Forma Balance Sheets
Wireless World
The chart above shows the assets, equity and liabilities for Wireless World. This project I
believe is good because it shows that it will have a positive equity of $827,608 at the end of the
fifth year.
Wireless World
5.3 Pro Forma Cash Budget
The chart above shows a cash flow of financing activities over a period of 5 years. It includes
the expected revenue, all cash receipts, cash disbursements, cash surplus and financing
including the equity contributions and how much the company borrows every year.
6.0 Works Cited
List any sources you cited in the body of your report.
Wireless World
7.0 Appendices
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