Discuss advantages and disadvantage of each option; discuss the costs associated with this option

Financial accounting
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Guidance on Assignment

Don’t forget to reference your sources!!!!! (this is applicable to all tasks)

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Task 1.

Introduction to your business:
– What your business is all about

– Location – area – for example: Ealing, London

– Type of business ownership – sole trader, partnership or limited company

– Explain briefly why you think this business can be profitable. You might

consider you unique selling points

Start-up costs – costs that you will incur even before you start operating:
Short paragraph that provides the reference to the sources you used
to prepare you estimated start-up costs

The list of start-up costs- 10 items – equipment, licensing/permits/
registration, rent for the property (for three months), marketing

costs, furniture, salary of managers (for three months), the cost of

initial stock

At the end you need to calculate the total amount that you require
Sources of finance
– Choose 3-4 alternative options.

– Discuss advantages and disadvantage of each option; discuss the costs

associated with this option

– Select the most suitable option (please remember that owner’s

investment or borrowing from family/friends cannot be chosen) and

explain why it is the most suitable option

– explain what is the impact on their idea if you don’t get the necessary

financing they have selected an inappropriate form of finance

Task 2

Briefly explain how you estimated your revenues and expenses – what
sources have you consulted; what principle did you follow.

Before preparing the projected financial statements (income statement,
balance sheet and cash budget), you need to briefly define each one of

them and explain their purpose. Hint: they will represent the estimated

results and not the actual results.

Explain why the formats of the 3 documents are appropriate.
Projected Income Statement:
Projected Profit and Loss statement for XYZ for the year ended…

Sales 600,000

Less Cost of Sales 300,000

Gross Profit 300,000

Less Expenses 187,500

Rent 60,000

Utilities 60,000

Salaries 50,000

Insurance 10,000

Interest repayment 2,500

Bank costs 5,000

Net profit 112,500

Make sure you include the following expenses: salaries, marketing expenses, rent,

utilities (electricity, water, internet, phone – each one separately), your business specific

expenses; the expenses associated with your source of finance ( for example, interest

payments for the bank loan)

Projected Balance sheet:
Projected balance sheet for XYZ as at …

Assets:

Non-current assets 300,000

Current assets 50,000

Total assets 350,000

Equity and Liabilities:

Liabilities 200,000

Equity 150,000

Total Equity and Liabilities 350,000

Projected cash budget:
Projected Cash Budget for XYZ for 1 year

Projected cash budget for one year can be based on quarterly or monthly budgets

Cash budget for the first month (quarter) will also include the receipt of funds and

payments associated with purchasing non-current costs

Task 3.

3.1: Return on investment:

– Explain what an investment appraisal technique is and its purpose.

– Briefly discuss the payback period and NPV techniques – the purpose, what they

are all about, advantages and disadvantages.

– Calculate the payback and NPV for your project. The figures for year 0 (from

task 1-start-up cost) and Year 1 should be from Task 2 (cash budget). However, you

need to have at least 5 years. Starting from Year 2, you need to provide an

estimate of how your cash flows would change (for example, you can say that they

will increase by 10% or 5%) and calculate the cash flows based on this estimate. At

the end of your calculations, write the summary of NPV and payback period of

your project

– Hint: for your project to be accepted, the NPV should be positive. If not,

continue until it is positive.

– Explain which stakeholders will be interested in this information and why they

would want this information

3.2. Ratio analysis:

– Based on Task 2, you are required to calculate the following ratios: ROCE , net

profit margin, current ratio, gearing ratio.

– you need to analyse your company’s performance using these ratios and compare

it with the industry average or another similar company. When you are analysing

the performance: first define the ratio, then indicate the general rule, then show

11 2 3 4 5 6 7 8 9 10 11 12

Opening

cash

Cash

receipts:

Sales

Cash

payments

Labour

Utilities

Closing

Cash

the formula, then calculate the ratio and then interpret it by comparing with the

industry average or another similar company

– Briefly explain the importance of this information to potential investors.

Task 4.

Main focus : to convince your potential financier of the success of your idea

Explain the importance of financial planning in general and then indicate
why it is important for the success of your business

Briefly outline the pricing strategy and why you have selected this
approach.

Briefly outline the importance and benefit of budgeting for your
venture’s success

Briefly summarise the main points of your proposal with the focus on the
potential of your idea and hope that you will be able to get the necessary

funds

Reference list – you must follow Harvard Referencing

 

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