Please see attached word document for questions.

I have attached a excel sheet for you to show your work in.

Entrepreneurial Finance option 1 Create excel financial analysis for your business. Based the analysis, answer the following questions for your business plan on water shoes: 1. Briefly explain your business plan or how you screen the business opportunity? 2. Create financial projections for your business. 1. Describe major assumption for the financial statements project. 2. Based on the proforma statements, evaluate return profile of your business plan. 3. Below is a list of essential questions to answer for your business plan. 1. When will you need money? 2. How many customers or how much revenue do you need to break even? 3. When will you break even? 4. When can you expect to start to pay off investors? 5. What is the return from your project? 6. What is the cost of your project, or the required rate of return from capital providers? 7. You can also include other interesting issues from your business planning. // ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Guide for creating financial projections for your startup Financial projection is necessary for business plan Creating financial projections is an important part of your startup's business plan. If you're seeking financing, financial projections help convince prospective lenders and investors that your business will be profitable by offering them a good return on their investment. Financial projections are vital to you even if you are not seeking financing. First, they enable you to plan and budget for your new business. Second, they serve as a yardstick. By comparing your actual financial statements to your projections, you'll be able to see if your business is consistently falling short of your projections or surpassing them. If your projections are falling behind, then you'll need to make some changes by raising prices, cutting costs or rethinking your business model. Conversely, if your income surpasses your projections, then you may need to hire employees, expand your facility or seek financing sooner than you expected. Financial projection versus accounting The financial projection is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow -- look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forwardlooking view, starting today and going into the future. We don't do financials in a business plan the same way you calculate the details in the accounting reports. We summarize and aggregate more than you might with accounting, which deals more in detail. We don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation. We can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better. Nobody wins by overly optimistic or overly pessimistic forecasts. Guide for financial project in a business plan Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of five years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. We need to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., raw materials), because it's a good thing for a business to know. "Lower fixed costs mean less risk. Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such. Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. You can go with simple math. Tax = Estimated profits times best-guess tax percentage rate Interest = debts balance times an estimated interest rate. Calculate the cash flow for valuation FCF = EBIT * (1-T) + D&A - NCS - NOWC - Interest + Net New Debt The valuation cash flow (VCF) should include adjustment for initial cost and terminal value (or salvage value if the project stops after designated periods). Pro-forma balance sheet, income statements, and cash flow statements could be developed accordingly. Breakeven analysis. The breakeven point, is when your business's expenses match your sales or service volume. The five-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest. This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy. Based on the cash flow stream, calculate the investment criteria (NPV, IRR, payback period, etc.) Along with the assignment, I have included an Excel template to work out the cash flow projections of your startup. With proper assumptions and some adjustment, you can work out the cash flow projection and valuation. Industry Advertising Aerospace, defense Air transport Apparel Auto parts Beverages Beverages (alcoholic) Biotechnology Broadcasting Brokerage and investment banking Building materials Business and consumer services Chemical (specialty) Computer services Computer software Computers, peripherals Construction Educational services Electrical equipment Electronics Electronics (consumer and office) Engineering Entertainment Environmental and waste services Financial services Food processing Furniture, home furnishings Healthcare equipment Healthcare facilities Healthcare products Healthcare services Healthcare information and technology Number of firms in sample Unlevered beta 65 95 25 70 75 47 19 349 30 49 37 179 100 129 273 66 18 40 135 191 26 56 85 108 76 97 36 193 47 58 126 125 0.73 0.92 0.52 0.99 1.23 1.24 0.93 1.07 1.1 0.33 1.07 0.75 0.95 0.82 1.04 1.13 0.77 1.04 1.07 1 1.08 1.13 0.99 0.81 0.58 0.71 1.03 0.77 0.56 0.89 0.72 0.92 Unsystematic risk adjustment factor for beta 4.266 2.1175 2.7867 2.7381 1.8859 3.5149 2.7359 4.2222 1.9887 1.5462 1.343 2.2246 1.7817 2.9972 2.6655 2.8819 2.4059 3.3313 3.0638 3.2237 2.6005 1.5648 3.3646 3.9113 2.2173 2.6459 2.1108 3.22 2.0639 2.7051 3.2714 3.6152 Number of firms in sample Heavy construction Homebuilding Hotel, gaming Household products Information services Internet software and services Machinery Metals and mining Office equipment and services Oil and gas distribution Oilfield services, equipment Packaging and container Paper, forest products Pharmaceuticals and drugs Publishing and newspapers Real estate (development) Real estate (operations and services) Recreation Restaurant Retail (automotive) Retail (distributors) Retail (general) Retail (groceries and food) Retail (Internet) Retail (special lines) Semiconductor Semiconductor equipment Shoes Telecommunication equipment Telecommunication services Trucking Total market 46 32 89 139 71 330 141 134 30 80 163 24 21 138 52 22 47 70 84 30 87 21 21 47 137 104 51 14 131 82 28 7766 Unlevered beta 1.22 1.23 0.9 0.89 0.81 1.05 0.96 0.9 0.82 0.55 1.17 0.73 0.93 1.03 0.87 0.85 0.94 1.11 0.71 0.8 0.74 0.8 0.58 1.02 0.78 1.14 1.21 0.81 1.11 0.63 0.77 0.64 Unsystematic risk adjustment factor for beta 1.2203 1.2515 2.5806 3.8576 1.7 4.4316 1.6138 3.8475 1.4741 1.8186 1.9525 1.0791 1.7822 3.2703 2.6891 2.8024 4.0758 2.8666 2.3116 1.8263 2.38 1.8299 2.4285 3.1829 2.2239 1.7847 1.9286 2.0437 2.57 3.4359 1.6574 2.5729 a. Reduce the lunch price from 11.5 to 11. b. Inflation is scaled down from 4% to 3%. c. Tax rate is scaled down from 35% to 30%. d. Average S&P500 risk premium is adjusted from 5% to 5.5%. e. Cost of debt adjusted from 9% to 8%. input parameter lunch price inflation tax rate mrp cost of debt 11.5 4% 35% 5.00% 9%