I need to write an investment appraisal of a new business opportunity and calculate the discounted cash flow forecastfrom the financial statement.I need assistance with this please .

1 P LTD CASE STUDY Company Background and Description P Ltd is a sporting goods online retailer which was establish in 2009. The Company was set up by three university friends Belinda, Cosmo and Anil who share a passion for fitness. Belinda has been a professional fitness blogger for several years and she has built up the brand with regular blogs and fitness videos. Cosmo was previously managing a gym chain and, because of the relationships he has, the Company has been focusing their promotional activity through relationships with independent gyms and smaller chains. Anil has marketing and finance skills developed within a retail environment. The Company sell mainstream higher end quality branded sports clothing focused on stylish gym, running and cycling clothing. They also sell branded home gym equipment such as hand weights, medicine balls..etc. Customers are mainly regular gym users, cyclists and runners for whom fitness is a key part of their lifestyle. Their key demographic are identified as those who take part in sporting events and challenges, and are interested in stylish gym wear, thus willing to spend a little bit more for quality. The historic financial accounts are provided in an excel file. o The key costs for the Company include: staffing, warehousing (operating leases), and marketing whilst a high percentage of Cost of Sales is the distribution costs. o The Company is financed through a loan guaranteed by Anil against his personal property and Equity invested by each of the 3 shareholders of 25k each. o The Company sell B2B and B2C and have established lines of credit with their suppliers. The Company are the only European distributer (currently own the sole rights for 5 years) of KNOWtrition (#iknownutrition) a high protein based sports fuel which has been successfully selling in Australia for the past 10 years and meets all EU food standards. The Company also employs an in house designer who designs fitness t-shirts, their only own line product. They mainly print t-shirts for small scale races/fitness events, 2 bootcamp classes or for promotional t-shirts for the gyms they work with. At the moment this is a loss leader product used as a promotional tool and mainly sold B2B. Your Role Your role is Financial Controller responsible for financial reporting, management accounting and financial strategy (including funding) as well as managing risk and compliance issues. Additionally there are 5 people employed in the Web design, sales and administrative functions. Total headcount: 10 3 Key Information Name: Performance Limited Company Number: 1234783 Incorporation Type: Private Limited with Share Capital Latest Filed accounts: for year ended 30/06/2015 Type of accounts: Small Company Date of incorporation: 2009 Sic code and description: 47640 - Retail of Sports Goods Latest Annual return DUE Registered office: Beehive Lane, London, E18 4JN Other information Motor vehicles year of purchase 1 2 3 Value at start date 2010 2014 2016 14400 11700 6800 2010 -3600 0 0 2011 -2700 0 0 annual charge 2012 2013 -2025 -1519 0 0 0 0 2014 -1139 -2925 0 2015 -854 -2193.75 0 Total charge for year -3600 -2700 -2025 -1519 -4064 -3048 Cost b/f Additions disposals 0 14400 0 14400 14400 0 0 14400 14400 0 0 14400 14400 0 0 14400 14400 11700 0 26100 26100 Charge b/f Charge in the year 0.0 -3,600.0 -3,600.0 -3,600.0 -2,700.0 -6,300.0 -6,300.0 -2,025.0 -8,325.0 -8,325.0 -1,518.8 -9,843.8 -9,843.8 -4,064.1 -13,907.8 -13,907.8 -3,048.0 -16,955.9 NBV 10,800.0 8,100.0 6,075.0 4,556.3 12,192.2 9,144.1 2010 -15,000 0 0 0 2011 -15,000 0 -4,500 0 annual charge 2012 2013 -15,000 -15,000 0 0 -4,500 -4,500 0 -7,076 2014 -15,000 -16,320 -4,500 -7,076 2015 0 -16,320 -4,500 -7,076 -15,000 -19,500 -19,500 -26,576 -42,896 -27,896 0 75,000 0 75,000 75,000 22,500 0 97,500 97,500 0 0 97,500 97,500 35,380 0 132,880 132,880 81,600 0 214,480 214,480 0 0 214,480 0 -15,000 -15,000 -15,000 -19,500 -34,500 -34,500 -19,500 -54,000 -54,000 -26,576 -80,576 -80,576 -42,896 -123,472 -123,472 -27,896 -151,368 60,000 63,000 43,500 52,304 91,008 63,112 Cost depreciation NBV 2010 89,400 -18,600.0 70,800.0 2011 111,900 -40,800.0 71,100.0 2012 111,900 -62,325.0 49,575.0 2013 147,280 -90,419.8 56,860.3 2014 240,580 -137,379.8 103,200.2 2015 240,580 -168,323.9 72,256.1 Charge for the year -18,600.0 -22,200.0 -21,525.0 -28,094.8 -46,960.1 -30,944.0 Fixtures and Fittings inc year of purchase 1 2 3 4 Value at start date 2010 2014 2011 2013 Total charge for year Cost b/f Additions disposals Charge b/f Charge in the year NBV 75,000 81,600 22,500 35,380 0 26100 Total Asset Schedule - adjusted to exclude leases to be treated as operating leases Tangible fixed assets Total fixed assets 2015 '000 72.3 72.3 2014 '000 103.2 103.2 2013 '000 56.9 56.9 2012 '000 49.6 49.6 2011 '000 71.1 71.1 2010 '000 70.8 70.8 Inventory Trade and other recievables Cash Total current assets 242.0 46.3 24.5 312.8 127.7 28.8 0.0 156.6 118.0 20.0 19.8 157.8 88.3 22.0 17.9 128.2 53.9 22.9 12.5 89.3 41.0 19.0 24.9 84.9 109.6 0.0 109.6 57.9 22.5 80.4 53.4 0.0 53.4 40.0 0.0 40.0 24.4 7.6 32.0 24.4 0.0 24.4 275.4 179.4 161.2 137.8 128.4 131.3 55.0 65.0 75.0 75.0 75.0 75.0 75.0 146.1 221.1 75.0 39.7 114.7 75.0 11.4 86.4 75.0 -12.0 63.0 75.0 -21.4 53.6 75.0 -18.7 56.3 Creditors: amounts falling due within one year Trade and other payables Overdraf Total Net Assets Creditors: Amounts falling due afer 1 year Share capital P&L account reserve Shareholders' funds 2015 '000 1,259.4 938.9 320.5 2014 '000 1,055.7 824.6 231.1 2013 '000 889.6 709.7 179.9 2012 '000 650.9 520.8 130.1 2011 '000 417.0 333.6 83.4 2010 '000 248.7 203.9 44.7 -119.6 -53.5 -30.9 -100.3 -44.9 -47.0 -93.4 -28.9 -28.1 -71.6 -24.3 -21.5 -45.9 -16.7 -22.2 -37.3 -3.0 -18.6 116.3 39.0 29.5 12.6 -1.4 -14.2 Interest Payable Pre-tax Profit Taxation Profit Afer Tax 3.3 113.0 6.7 106.4 5.7 33.3 5.0 28.3 4.5 25.0 1.6 23.4 4.5 8.1 -1.3 9.4 5.1 -6.5 -3.7 -2.7 4.5 -18.7 0.0 -18.7 Retained Earnings b/f profit in year c/f 39.7 106.4 146.1 11.4 28.3 39.7 -12.0 23.4 11.4 -21.4 9.4 -12.0 -18.7 -2.7 -21.4 0 -18.7 -18.7 Turnover Cost of Sales Gross Profit Distribution Costs Administrative Expenses Depreciation Cost Adminstrative Costs Operating Profit 2015 2014 2013 2012 2011 2010 147.3 86.0 57.6 34.2 20.8 4.4 -17.4 51.8 -114.3 67.4 -8.8 4.4 -9.8 71.8 2.0 13.4 -29.6 43.4 1.0 15.6 -34.5 16.3 -4.0 0.0 -12.9 4.0 -19.0 24.4 -41.0 -31.2 -3.3 -6.7 57.4 -5.7 -5.0 61.1 -4.5 -1.6 37.3 -4.5 1.3 13.1 -5.1 3.7 2.6 -4.5 0.0 -35.7 0.0 0.0 -11.7 -81.6 0.0 -35.4 0.0 0.0 0.0 -22.5 -14.4 -75.0 Financing Increase in Long Term Debt Equity Financing -10.0 -10.0 0.0 0.0 0.0 75.0 75.0 Increase / (decrease) in cash 47.4 -42.2 1.9 13.1 -19.9 24.9 Note 1: Components of cash and cash equivalents Cash Short term debt Cash position as at yr end 24.5 0.0 24.5 0.0 22.5 -22.5 19.8 0.0 19.8 17.9 0.0 17.9 12.5 7.6 4.9 24.9 0.0 24.9 Reconciliation Cash at start of year Cash as at yr end Increase / (decrease) in cash -22.5 24.5 47.0 19.8 -22.5 -42.3 17.9 19.8 1.9 4.9 17.9 13.0 24.9 4.9 -20.0 0.0 24.9 24.9 Operating Profit before depreciation Add: working capital adjustments Increase/decrease in accounts receivable Increase/decrease in accounts payable Increase / decrease in inventory Cash generated from operations Finance costs paid Taxation Net cash flow from operating activities Purchase of Non Current Assets Motor vehicles Fixtures and Fittings Property Trial Balance Inventory (opening balance) Trade and other receivables Cash Trade and other payables Overdraf Long Term Loan Mortgage Share capital P&L account reserve (opening position) Turnover Distribution costs Administrative costs Motor Vehicles Motor Vehicles Accumulated Depreciation Office and gym Fixtures and Fittings Fixtures and Fittings Accumulated Depreciation Purchases Interest '000 '000 DR CR 242.0 83.3 2.8 89.1 29.1 45 125.0 75.0 146.1 1,344.1 121.0 63.8 32.9 17.0 250.0 214.5 151.4 1,003.8 7.5 2,022 Adjustments 1. The closing balance on Inventory 2. Taxation charge estimated for the year 3. The office and gym space was purchased in the year 4. Motor vehicles are depreciated on a 25% reducing balance basis 5. Fixtures & Fittings are depreciated on cost a 20% straight line basis 249.2 22.61 2,022 6. The office comprises a building 220k that is depreciated on a straight line basis over 20 years and equipment (30k) depreciated on a straight line basis over 5 years Requirement 1 Post the journal entries to record all transactions for the year 2 Prepare small company statutory accounts that are suitable for filing at Companies House. Part C writing: An investment appraisal of a new business opportunityCalculate the discounted cashflow forecast and write up the board memo Task C Internal Memorandum to the board No more than 400 words Writing up the results of your calculations and providing recommendations in memo format. Question.. The company have identified an opportunity. Anil's brother works for a large drinks company, DRINKS plc. DRINKS plc are launching a new sports drink for children (Alligator) in response to market demand for lower sugar drinks for children and the promotion of children sports. Anil has suggested to his brother that PERFORMANCE would be in a position to run a nationwide sporting event for children which could be used to promote this new sports drink as well as the PERFORMANCE brand. Having taken the idea to DRINKS plc's marketing team the board of DRINKS plc have agreed that they were interested in approving such a venture. Cont.. The event will be a nationwide children's obstacle race called \"Muddle\" aimed at 7-9 year olds. The event will be promoted by DRINKS plc who will take on the cost of hiring venues as appropriate, and will undertake the activity of advertising the event to schools and on social media. PERFORMANCE will run the events which will include setting up & training teams of volunteers to staff the event and purchasing all the required equipment. PERFORMANCE will provide a t-shirt for each child participating in the event and a promotional sports bag branded with their company name and the tag line of the sports drink (\"see you later Alligator\"). The cost of this will be dependent on volumes as shown. Cont.. You are required to cost up the investment required for PERFORMANCE to run these events. Anil has stated that he can provide the funding needed, as an equity injection, as long as the amount is less than 200,000. The relevant cost of capital for this project has been calculated as 8.82% You should write up the investment appraisal in a memo format (addressed to the board) assessing whether you would recommend that the company proceed with the project commenting on the financial risk, the assumptions made as well as non-financial issues. SUGGESTED APPROACH Calculate the number of participants (most likely, worst case and best case) Calculate the financial costs of running the event Calculate the financial benefits of running the event Prepare the discounted cash flow calculation Assess the Net Present Value (NPV) of the project Write up and consider other non financial issues regarding the project including linking it back to the Company strategy assessed in Task A. Note: Costs saved should be treated as a cash inflow of doing the project Sunk costs (which have been incurred whether the project is completed or not) should not be included in the cash flow. All sales come at a cost i.e. if you sell a T shirt for 10 which cost you 6 the benefit (or contribution) of making that extra sale is 4 not 10. Your gross profit represents your revenue minus costs of sale. When assessing the cash inflows for the worst case and best case you should calculate the cash inflow from additional sales for the most likely scenario for each year and adjust that by 50% and 200% respectively, you do not need to adjust it on a product line basis. Your final memo should include sufficient information in the appendices for the board of directors to be able to understand the calculations which have been done. How to format a Memo Heading: TO: Recipients' names and job titles FROM: (your name and job title) DATE: (Current date) SUBJECT: (purpose of the memo) Part C: writing about results example Total sales, including markdown sales for the year to date are up +0.4% on last year. Full price sales for the year to date are down -1.1% on last year. For comparison, the table below sets out full price sales for the 54 days to 24th December and year to date for retail and directory. Within the Directory's year to date growth of +3.6%, sales were up +1.4% and overseas sales were up +18% on last year. Part C: recommendations example We recommend boosting revenue in the face of slowing demand by launching a same-day delivery service and Sunday delivery to make online shopping easier. However, profit margins would still be expected to suffer as a result of the depreciating pound pushing up purchase costs and an anticipated dip in consumer confidence. Poor sales due to unseasonably wet and cold weather in the spring of 2016 have dampened our expectations for revenue growth going into the final year of the period. Additionally, the uncertainty caused by the EU referendum is also expected to restrict demand in the current year, as low consumer confidence weighs on discretionary spending on clothes. Note: There is a lot of information work through it methodically. There are three scenarios, the costs & benefits are different for each scenario. Consider how the saved marketing costs should be treated in the DCF Ensure you get your and '000 correct Remember that 2016 is historic so should not be included in an estimate of future benefits The project is about the INCREASE in revenue/contribution from doing the project - you are looking at how the revenue increases because of the project (not all the revenue the company makes is due to the project.) i.e. if revenue in 2016 was 100 and in 2017 was 120 then the value in your DCF is 20. Gross profit margin is used to work out contribution (ie Revenue less direct cost of sales) every sale has a direct cost and the DCF should reflect the contribution of each sale, not the total value of the sales. The costs of the project are what the company will need to pay out up front, the benefits will come in the later years. sensitivity analysis for the project would benefit the memorandum, By doing the base, worst and best you are testing the sensitivity to the key variable i.e. number of participants so it is unnecessary to do any additional calculations, in terms of writing it up you would be considering the same points as a sensitivity analysis