You are a young entrepreneur, willing to launch an ambitious business project. You are required to understand the sources and availability of finance for a business organisation You have been asked to identify a range of sources of finance available to open your business these can include raising funds through a combination of finance areas. Please identify at least three sources You should also assess the implications of your choices: What are the legal, financial and dilution of control implications (percentage ownerships); risks of bankruptcy. After assessing the possible sources of finance you must choose a source(s) that would be appropriate for your business project You need to include the following in your answer Advantages and disadvantages of different sources Task 2 ANALYSE the finance costs of your chosen sources of finance for your business project. With reference to the financial planning of your project, you will need to explain why financial planning is important for the success of your idea. ASSESS the different information needs for each decision makers within your project: Identify and assess the information that is needed for a range of decision makers? Using the table below, complete a balance sheet for accounting purposes: you should clearly indicate how different types of finance and their costs would IMPACT on the financial statements of the business. Assets £ Fixed Assets 10000 Accumulated Depreciation 1000 Total Fixed Assets 9000 Current Assets Stock 2500 Debtors 1500 Bank 12500 Total Current Assets 16500 Liabilities Creditors 3000 Loan 2000 Credit card 750 Total Liabilities 5750 Equity Capital 2000 Retained Profit 17750 Task 3 Task 3.1 ANALYSE budgets and make appropriate decisions 3.1A Produce a personal budget of your own finances AND make decisions from this budget.3.1B The Simmons Company is planning to request a line of credit from its bank. The following sales forecasts have been made for parts 2014 and 2015. £ May 14 150,000 June 14 150,000 July 14 300,000 August 14 450,000 September 14 600,000 October 14 300,000 November 14 300,000 December 14 75,000 January 15 150,000 Collection estimates obtained from the credit and collection department are as follows: Collected within the month of sale, 5 percent: collected the month following the sale, 80 percent; collected the second month following the sale 15 percent. Payments for labor and raw materials are typically made during the month following the month in which these costs are incurred. Total labor and raw materials costs are estimated for each month as follows: £ May 14 75,000 June 14 75,000 July 14 105,000 August 14 735,000 September 14 255,000 October 14 195,000 November 14 135,000 December 14 75,000 General and administrative salaries will amount to approximately £22,500 a month: Lease payments under long term lease contracts will be £7,500 per month; depreciation charges will be £30,000 a month; miscellaneous expenses will be £2,250 a month; income tax payments of £52,500 will be due in both September and December; and a progress payment of £150,000 on a new research laboratory must be paid in October. Cash in hand on July 1 will amount to £110,000 and a minimum cash balance of £75,000 will be maintained through-out the cash budget period. Prepare a cash budget for the last 6 months of 2014 and ANALYSE this making decisions.Task 3.2 Explain the calculation of unit costs and make pricing decisions using relevant information. Scenario Luxury Ltd is a small perfumery selling luxury oil based perfumes Its costs for 500 units are as follows: Total Direct Cost £25,000 Fixed Cost £10,000 Total Cost £35,000 Luxury is currently reviewing its selling prices and is considering cost-plus pricing based on: Either a 33.33 % mark-up on cost price (i.e. profit is 33.33 per cent of cost price) or a 20 % return on capital employed. The company has capital employed of £50,000. Discuss the best option for Luxury Ltd, you can justify this with the option that produces the most revenue or base your answer on other considerations that could affect the supply and demand. Calculate the unit price based on both costing methods, and select the price you think is most appropriate. Explain why you think it is the appropriate price. You may round up your figures to nearest £1 when calculating your answers. Task 3.3 Assess the viability of a project using investment appraisal techniques. In a new strategy aiming to diversify its products range Imad’s luxury Ltd has been presented with 3 new product opportunities. You have been asked to identify which product the company should produce and sell. You need to use the Payback Period and Net Present Values (NPV) for each of the products. Based on the table below, identify which new product (A, B or C) you would select for manufacturing and selling by the organisation. Yr. Product A Product B Product C 0 Investment £80,000 Investment £150,000 Investment £80,000 1 Cash Inflow £35,000 £30,000 £40,000 2 Cash Inflow £35,000 £45,000 £40,000 3 Cash Inflow £40,000 £75,000 £20,000 4 Cash Inflow £50,000 £75,000 £25,000 Total £160,000 £225,000 £125,00 The estimated cost of capital is 10% per annum. None of the projects will have any residual value at the end of the 4 years and there is no depreciation. Note –The discount factors are as follows: Year 1 = 0.909 Year 2 = 0.826 Year 3 = 0.751 Year 4 = 0.683 To assist Fort Sport Ltd to make a decision you are required to calculate the following for each of the three projects. (3.3) • Payback period • The accounting rate of return (ARR) • The net present value (NPV) Task 4 Scenario You have been asked to prepare a report for the Managing Directors of JG Ltd. They will attend the Wahabou PLC Group Head Office to meet with key decision makers in the venture capitalist department. They have asked you to provide them with an explanation of the Trading Profit and Loss Account, the Balance Sheet and Cash flow. Compare appropriate formats for financial statements for different business organisations. That is, compare the balance sheets formats and also compare the income statements/profits and loss accounts formats, between a sole trader and a limited company. Luxury Ltd runs a chain of small shops and you have just received extracts for the period ending 31th December 2014. Summarised Balance Sheet at 31st December 2014 £000 £000 Fixed Assets 2,600 Current Assets Stock 600 Debtors 900 Bank 100 1,600 Trade creditors 800 800 3,400 Debenture stock 1,400 2,000 Capital reserves Ordinary share capital 1,000 (£1 shares) Preference share capital 200 Profit and loss account 800 2,000 Summarised Profit and loss account for the year ending 31st December 2014 £000 Sales 6,000 Cost of sales (including purchases) 4,500 Gross Profit 1,500 Admin and distribution costs 1,160 Trading profit 340 Debenture interest 74 Profit before tax 266 Taxation 106 Profit after tax 160 Preference dividend 10 Profit available for ordinary shares 150 Ordinary dividend 10 Retained profit 140 You are required to calculate the following accounting ratios for Ltd: • Current ratio • Acid test ratio • Return on capital employed (ROCE) • Gross profit margin • Net profit margin For each ratio, include the formula and INTERPRET the financial statements using the ratios above also COMPARING these with Industry standards for internal and external ratios.