WONDER KIDZ FRANCHISE Mayank Bansal sat tensely in his office in Bhopal, the state capital of Madhya Pradesh in India. It was July 13. 2015. and he had just had a long discussion with Rajesh Thakur, director of Delhi-based Wonder Kidz Education Pvt. Ltd. (Wonder Kidz), about the school's franchise model. Bansal was thinking about pursting an entrepreneurial venture in which he could earn additional income and fulfill his dreams with his wife, Sharda. He pondered whether to accept the franchise proposal Wonder Kidz had offered. He did not have much time before he needed to make his decision. Not being an expert in finance, Bansal wanted the opinion of a consultant who could evaluate whether the project was financially sustainable. He would have to borrow money to find the venture, so he needed to exercise caution before taking the risk BANSAL'S BACKGROUND Bansal was a prominent marketing professor with a rich teaching experience of 14 years at a leading management institute in Indore, in Madhya Pradesh. Passionate about academics, he had always wanted to prste acadernic entrepreneurship where he could use his expertise and work alongside his wife. Sharcia was a highly qualified person in her own right, and she wanted to become involved in an activity where she could use her expertise and knowledge in education, One day Bansal came across a newspaper advertisement for a franchise opportunity with Delhi-based Wonder Kidz, which operated a concept-based playschool, or preschool. He immediately felt compelled to explore the possibilities this franchise offered His initial research of the school's website motivated him to look more deeply into the franchise proposal. He was excited by the idea of the playschool and attracted to the prospect of taking on a franchise in Indore Bansal believed that with his academic background and his wife's qualifications, they could secessfully operate such a school. However, because the playschool market was highly competitive with many big players already operating concept-based schools, Bansal knew the path forward would not be easy Batisal's two sons were already gown and living in the United States, Bansal lived in an afluent neighborhood in Indore, in a large house of approximately 8.000 square feet. Although the house had ample room in which to start the school, Bansal thought that renting premises in the nearby area would be preferable. PRESCHOOL MARKET IN INDIA An increase in family income, as well as the demand for quality education, had kindled the growth of preschools in India. A report from Kaizen Private Equity estimated the 2014 size of the preschool market in India at approximately US$800 million. Puture growth of 30 per cent was expected as a result of three key drivers: a higher level of parental awareness of the importance of early education, hectic working schedules of both parents, and a willingness to pay for children's education. Additional potential for growth lay in the fact that the market had limited application of technology in terms of computers and other modem equipment in children's education. Also, the market was being driven by major investments from private equity funds and venture capitalists, with a very low, or no regulatory framework. The market was hugely attractive because of its minimal infrastructure requirements-costs that were considerable in Tier 1 cities and even more significant in Tier 2 and 3 cities. Reports suggested that the preschool market was concentrated only in metropolitan areas and Tier I cities However, experts anticipated that the market would soon begin to emerge within Tier 2 und Tier cities. ABOUT WONDER KIDZ Founded in 1999, Wonder Kidz was the fastest-growing chain of preschools and formal schools in India An ISO 9001:2008 certified company. Wonder Kidz lad more than 1,000 franchises spread across the country. Through its innovative and groundweaking training and education system, the company was committed to helping children develop into wonder kids by motivating them and developing their fall potential The company's objectives were to help children become competent at facing the challenges of rapidly changing modern life by providing structural learning programs based on each child's distinct needs. The program used age-appropriate leaming activities, developed critical thinking skills, and fostered awareness of diversity and monicalism. The founders of Wonder Kidz regarded the information age as a time of perplexing professional choices made more challenging by tough competition from peer hence, every child teeded to be a wonder child to accessfully compete. Its centres offered both indoor and outdoor activities part of the children's regular schedude that provided them with a congenial environment and a positive atmosphere. The founder believed this atmosphere motivated children to attend school regularly The school's curriculum was inted with the learnmg by doins concept, which wed the application of highly systematic and step-by-step processes. The true, childrenented curu was based on a core of activities that included traditional Indian ges like the towering the sina small wooden cubes shakes and ladders an ancient Indian board and the inition mean action role playing video game), as well as the next generatia educational requirements based on the Four Curiosity. Confidence Kazen Private Loty and INSEAD, Implication of Evolving Educational Technologes Tech on the Indian Met-A PENG Perspective May 2013 accessed June 25, 2015, www014 Focation Technology KINSEAD Teen May 2013 Twer and chesinica were casted on the bass of population There hastigh population and more Ter cities ranged from 2 to 5 million and soon ISO 9001:2008 certification was a method of cong the way of services bd Creativity, and Contimity. (The Four Cs concept was derived by the Wonder Kidz team to help students leam by having fun) The school also boasted exclusive smart classrooms in which education we provided through a projector and a talking pen." The talking peo was an innovative tool used to develop inquisitiveness and motivate children to practice listening and learning habits. The pen was inchided in a kit composed of a book containing a chip through which sentences, rhymes, and stories were recognized by the pen. The pen then converted the information into audio, which was played through speakers built into the pen itself. Both children and teachers expressed that this novel pen concept was an enjoyable and brilliant addition to education WONDER KIDZ FRANCHISE MODEL Thakur, the director of Wonder Kidz, promoted the uniqueness of the franchise proposal as a minimum investment for a maximum return. He believed that the education sector was virtually recession-proof meaning there was minimal risk of franchisees losing their investment. An initial investment of approximately 625,000 was required. This amount included the registration cost payable to the friechise and the franchisee cost to initiate the centre. It did not include infrastructure costs such as land and building but it did include set-up costs such as classrooms, furniture, teaching and play equipment, wall designing (the classroom walls were decorated with paintings of cartoons and interesting characters), teacher training. and other ancillary expenses (see Exhibit 1). The investor was also required to have access to constructed premises of approximately 1.200-1,600 square feet, preferably in an affluent residential area. These premises needed to provide three to four roots, ideally on the ground floor. Each centre was allowed to charge a maximum of 20,000 per year for each registered child (see Exhibit 2). Parents could pay the fee in its entirety at the time of registration or spread their payments out over a maximum of four instalments. Although the franchise agreement was flexible enough provide franchisees discretion regarding offering discounted registration fees. Thakur recommended that no discount be offered. He strongly believed that a franchise, with little effort. could generate a profit during its first year. Thankur provided profitability projections for the first three years of a centre's operation; these were tentative projections based on a franchise's estimated expertise which were stured with potential new franchisees (see Exhibit) The franchise proposal allowed for a centres premises to be used for other activities. For example, a centre could allocate four hours in the morning for Wonder Kidz and the remaining time for other activities. These other activities might include skill development for young as well as older children, all of which could be conducted to increase the profitability of the centre. Activities could include abacus handwriting improvetnerst, calligraphy. speed math. Vedic math. drawing and painting, dance music, and other indoor activities Beyond the attractiveness of the financial instient, the branchise model was an enticing one. According to Indian law. no affiliation of approval whatsoever was required from regulatory authorities to open a preschool Wonder Kidz suaranteed that all francaisee schools would receive support for the day-to-day activities, including a full curriculum plan and syllabus, periodic teacher training, a call centre (available 24 hours a day. 7 days a week), and a detailed operations mammal with a daily operating activities chart that INR Indian Rupee all currency amounts we in unless otherwise specified US1164 05 on Juy 31, 2015 An acus was the manual calculating tooned marly in Europe China and Rus Vedic math was based on Hindu clerk Bharat Krishna Tirthas 100 book about the process of mental calculations, reputedly based on ancient Hindiscurs known as the Vedas could be customized by each franchisee. The support included guidance for establishing. operating, and managing a preschool. Moreover, at no additional cost Wander Kidz extended full marketing support to help franchisees increase their enrolment. BANSAL'S DILEMMA Bansal land three meetings with Thakur and was impressed with Thakur's explanation of the franchise model. While a large part of him was convinced that opening a franchise was a good idea. Bansal was undecided as to whether to take the risk. Financing the venture would not be a problem, but he did not want to use his own savings. As a respected citizen, he also did not want to face a situation where he was able to pay back a bank loan if he borrowed the funds. Also, given his capabilities and knowledge, he feared the idea of franchise filure and what it would mean for his professional reputation To help case his hesitancy, Bansal conducted a market survey in his nearby area before proceeding to arrange for funding. As a marketing professor, he made certain his market research report answered the key questions involved in contemplating the opening of a franchise. He found that there were many potential customers in the area, which would allow him to start a preschool with at least 35 students in the first year. He estimated that this number could be increased by at least 15 children in the second year and 30 in the third yeat. Bansal based his calculations on the assumption that some students would leave after one year. but new students would enrol during the second year and beyond. Therefore, he decided to compute his financial projections based on 50 per cent new enrolments and 50 percent old envoluents from the second year onward. New evolments paid an additional 2.500 as their admission and registration fee, a fee that old enrolments were not required to pay. In the fourth and fifth years. Bansal expected that enrolment would remain constant. While he knew that reports of the Wonder Kide model promised lengthy sustainability, he erred on the side of a conservative estimate of challenges he might encounter during his first five years of operations By this point, Bansal had decided that if he did accept the franchise proposal, he was not e his own savings but instead. would bonow the required finds from multiple sources. Based on monal market conditions, he anticipated that the average interest rate would be approximately 15 per cent per year. In addition, he estimated that the core from the school would put him in the 20 per cent tax bracket according to the prevailing income tax laws in India Being a marketing expert, Bansal was contidest about getting the minimum number of students for the next five years, and he was determined to take on the franchise. However, some of his friends arised him that because he had poor financial analytical skills, he should get help from a financial consultant who could do a proper analysis, in projects such as these, the time value of money was important. Bansal decided to enlist the belp of a consultant who, on the basis of Thakur's projections and Banal's own market research report, could explain the ludden factors in the financial estimate and offer guidance on the project's financial feasibility Bawal submitted all the information to the content and eagerly waited the evaluation so that he could come to conclusion about the branchuse EXHIBIT 1: FRANCHISEE PLAN AND FINANCIAL INVESTMENT (FOR SET-UP OF 10 STUDENTS) Category Alition fee Set-up cost (classroom furniture, interior decoration, education and play equipment, printing and advertising material) Other capital investments Service tax on affiliation fees (12.305) Training for Total Foo 125,000 350,000 110,000 15.450 24,000 624.450 Other capital investments inded office future, water purifier, vision, music system, et Source: Sumarted by the authors on the basis of col supplied by the franchise EXHIBIT 2: PROPOSED APPLICATION FEE SCHEDULE Fee) 500 2.000 1,500 4,000 Category One-time fees Form and registration fees Admission fees Caution money Total one-time fees Annual fees Kit charges Activity charges Annual charges Tuition fees Total annual fees Total fees Total foos without caution money 1,300 900 2 800 10 000 16,300 20,300 18,800 Caution money was refundable. It had not been considered other for the purpose of revenue or for computing expenses Earnings on the caution money deposit had been taken the fore deposit rate of the State Bank of India per cent Source Summarved by the authors on the basis of costs supplied by the anchor EXHIBIT 3: PROJECTED ANNUAL PROFITABILITYICASH FLOW ANALYSIS FOR FIVE YEARS (INT) Year 1 Year 2 Year 3 & onward 35 0 35 25 25 50 elela 40 40 18,800 18.800 18.800 16.300 16,300 650,000 877,500 1,404,000 Expected number of enrolmente for 5 yean New enrolments Old onrolments Total expected strength in each year Expected revenue for 5 year Fee collection from now students (one time annual Fee collection from old students (annual) Total fee collection (without caution money) (A) Year 118,800 x 35 Year 2 (18,800 X 25). (10,300 x 25) Year 3(18.800 x 40% (16300 x 40) Anticipated expenses for 5 years Royalty at 21,200 per registration payable to franchisor Salary of one senior trainer/faculty Salary of junior faculty (two required in year 1. three required in year 2. five required in year 3) Salary of nanny (two nannies required in year 1 and 2 three required in year 3) Rent Electricity Office expenses Advertising Total expenses (B) Operational profit (A - B) or earnings before interest & tax Add: Interest on caution money at 8% Less Interest on borrowed funds at 15% Earnings before tax Less Tax 20% Earnings after tax (cash flows) 42,000 84,000 96,000 60,000 90.000 1,80,000 96.000 1,08,000 3.60,000 00.000 108.000 180,000 12.000 18,000 24,000 516,000 142.000 4 200 90.000 50.200 11.240 44.950 72.000 198 000 15,000 24,000 3000 675,000 202,500 6.000 90.000 118,500 23,700 94,800 216 000 18.000 30.000 30,000 966,000 438,000 9,600 90,000 357,600 71,520 288,080 Note: Depreciation on assets was not considered in the case LOSE UMP IS 1470 (I, 1370 BRLUL 20% tax) 4. Also, include a sensitivity analysis if Mr. Bansal decides to provide a fee reduction in the expected revenue for 5 years as follows: Note: Use the following revised expected were structure with the fee reduction (all other assumptions remain the same as given in Exhibit 3 Fees are in Indian Rupees Www Yower Total New eve Reming Pers. Now we Fe - Rawning Huda) year 35 50 35 25 40 17.500.000 15.300.000 s. In 700-800, words discuss whether your group feels the project is financially viable, supported by your group's calculation(s) and discussion. Make a recommendation to the client based on your group's analysis in Steps 1-4. Please submit one Word document submission per group (and any supporting calculations using Excel) and upload it in the Assignment dropbox (25 marks) 6. In place of an in-class group presentation (given that we are not on campus), create a short video in Zoom. You have the option to nominate one group member to be your spokesperson or have more than one group member participate in this video. In 4-5 minutes create a 'make your pitch' video, highlight for the client the importance of capital budgeting techniques in decision- making including the use of NPV and IRR Briefly explain to the client how the various techniques are used to base your team's recommendation and determining whether the project is financially viable. Include the recording (MP4 file) when you upload your group's submission (5 marks) WONDER KIDZ FRANCHISE Mayank Bansal sat tensely in his office in Bhopal, the state capital of Madhya Pradesh in India. It was July 13. 2015. and he had just had a long discussion with Rajesh Thakur, director of Delhi-based Wonder Kidz Education Pvt. Ltd. (Wonder Kidz), about the school's franchise model. Bansal was thinking about pursting an entrepreneurial venture in which he could earn additional income and fulfill his dreams with his wife, Sharda. He pondered whether to accept the franchise proposal Wonder Kidz had offered. He did not have much time before he needed to make his decision. Not being an expert in finance, Bansal wanted the opinion of a consultant who could evaluate whether the project was financially sustainable. He would have to borrow money to find the venture, so he needed to exercise caution before taking the risk BANSAL'S BACKGROUND Bansal was a prominent marketing professor with a rich teaching experience of 14 years at a leading management institute in Indore, in Madhya Pradesh. Passionate about academics, he had always wanted to prste acadernic entrepreneurship where he could use his expertise and work alongside his wife. Sharcia was a highly qualified person in her own right, and she wanted to become involved in an activity where she could use her expertise and knowledge in education, One day Bansal came across a newspaper advertisement for a franchise opportunity with Delhi-based Wonder Kidz, which operated a concept-based playschool, or preschool. He immediately felt compelled to explore the possibilities this franchise offered His initial research of the school's website motivated him to look more deeply into the franchise proposal. He was excited by the idea of the playschool and attracted to the prospect of taking on a franchise in Indore Bansal believed that with his academic background and his wife's qualifications, they could secessfully operate such a school. However, because the playschool market was highly competitive with many big players already operating concept-based schools, Bansal knew the path forward would not be easy Batisal's two sons were already gown and living in the United States, Bansal lived in an afluent neighborhood in Indore, in a large house of approximately 8.000 square feet. Although the house had ample room in which to start the school, Bansal thought that renting premises in the nearby area would be preferable. PRESCHOOL MARKET IN INDIA An increase in family income, as well as the demand for quality education, had kindled the growth of preschools in India. A report from Kaizen Private Equity estimated the 2014 size of the preschool market in India at approximately US$800 million. Puture growth of 30 per cent was expected as a result of three key drivers: a higher level of parental awareness of the importance of early education, hectic working schedules of both parents, and a willingness to pay for children's education. Additional potential for growth lay in the fact that the market had limited application of technology in terms of computers and other modem equipment in children's education. Also, the market was being driven by major investments from private equity funds and venture capitalists, with a very low, or no regulatory framework. The market was hugely attractive because of its minimal infrastructure requirements-costs that were considerable in Tier 1 cities and even more significant in Tier 2 and 3 cities. Reports suggested that the preschool market was concentrated only in metropolitan areas and Tier I cities However, experts anticipated that the market would soon begin to emerge within Tier 2 und Tier cities. ABOUT WONDER KIDZ Founded in 1999, Wonder Kidz was the fastest-growing chain of preschools and formal schools in India An ISO 9001:2008 certified company. Wonder Kidz lad more than 1,000 franchises spread across the country. Through its innovative and groundweaking training and education system, the company was committed to helping children develop into wonder kids by motivating them and developing their fall potential The company's objectives were to help children become competent at facing the challenges of rapidly changing modern life by providing structural learning programs based on each child's distinct needs. The program used age-appropriate leaming activities, developed critical thinking skills, and fostered awareness of diversity and monicalism. The founders of Wonder Kidz regarded the information age as a time of perplexing professional choices made more challenging by tough competition from peer hence, every child teeded to be a wonder child to accessfully compete. Its centres offered both indoor and outdoor activities part of the children's regular schedude that provided them with a congenial environment and a positive atmosphere. The founder believed this atmosphere motivated children to attend school regularly The school's curriculum was inted with the learnmg by doins concept, which wed the application of highly systematic and step-by-step processes. The true, childrenented curu was based on a core of activities that included traditional Indian ges like the towering the sina small wooden cubes shakes and ladders an ancient Indian board and the inition mean action role playing video game), as well as the next generatia educational requirements based on the Four Curiosity. Confidence Kazen Private Loty and INSEAD, Implication of Evolving Educational Technologes Tech on the Indian Met-A PENG Perspective May 2013 accessed June 25, 2015, www014 Focation Technology KINSEAD Teen May 2013 Twer and chesinica were casted on the bass of population There hastigh population and more Ter cities ranged from 2 to 5 million and soon ISO 9001:2008 certification was a method of cong the way of services bd Creativity, and Contimity. (The Four Cs concept was derived by the Wonder Kidz team to help students leam by having fun) The school also boasted exclusive smart classrooms in which education we provided through a projector and a talking pen." The talking peo was an innovative tool used to develop inquisitiveness and motivate children to practice listening and learning habits. The pen was inchided in a kit composed of a book containing a chip through which sentences, rhymes, and stories were recognized by the pen. The pen then converted the information into audio, which was played through speakers built into the pen itself. Both children and teachers expressed that this novel pen concept was an enjoyable and brilliant addition to education WONDER KIDZ FRANCHISE MODEL Thakur, the director of Wonder Kidz, promoted the uniqueness of the franchise proposal as a minimum investment for a maximum return. He believed that the education sector was virtually recession-proof meaning there was minimal risk of franchisees losing their investment. An initial investment of approximately 625,000 was required. This amount included the registration cost payable to the friechise and the franchisee cost to initiate the centre. It did not include infrastructure costs such as land and building but it did include set-up costs such as classrooms, furniture, teaching and play equipment, wall designing (the classroom walls were decorated with paintings of cartoons and interesting characters), teacher training. and other ancillary expenses (see Exhibit 1). The investor was also required to have access to constructed premises of approximately 1.200-1,600 square feet, preferably in an affluent residential area. These premises needed to provide three to four roots, ideally on the ground floor. Each centre was allowed to charge a maximum of 20,000 per year for each registered child (see Exhibit 2). Parents could pay the fee in its entirety at the time of registration or spread their payments out over a maximum of four instalments. Although the franchise agreement was flexible enough provide franchisees discretion regarding offering discounted registration fees. Thakur recommended that no discount be offered. He strongly believed that a franchise, with little effort. could generate a profit during its first year. Thankur provided profitability projections for the first three years of a centre's operation; these were tentative projections based on a franchise's estimated expertise which were stured with potential new franchisees (see Exhibit) The franchise proposal allowed for a centres premises to be used for other activities. For example, a centre could allocate four hours in the morning for Wonder Kidz and the remaining time for other activities. These other activities might include skill development for young as well as older children, all of which could be conducted to increase the profitability of the centre. Activities could include abacus handwriting improvetnerst, calligraphy. speed math. Vedic math. drawing and painting, dance music, and other indoor activities Beyond the attractiveness of the financial instient, the branchise model was an enticing one. According to Indian law. no affiliation of approval whatsoever was required from regulatory authorities to open a preschool Wonder Kidz suaranteed that all francaisee schools would receive support for the day-to-day activities, including a full curriculum plan and syllabus, periodic teacher training, a call centre (available 24 hours a day. 7 days a week), and a detailed operations mammal with a daily operating activities chart that INR Indian Rupee all currency amounts we in unless otherwise specified US1164 05 on Juy 31, 2015 An acus was the manual calculating tooned marly in Europe China and Rus Vedic math was based on Hindu clerk Bharat Krishna Tirthas 100 book about the process of mental calculations, reputedly based on ancient Hindiscurs known as the Vedas could be customized by each franchisee. The support included guidance for establishing. operating, and managing a preschool. Moreover, at no additional cost Wander Kidz extended full marketing support to help franchisees increase their enrolment. BANSAL'S DILEMMA Bansal land three meetings with Thakur and was impressed with Thakur's explanation of the franchise model. While a large part of him was convinced that opening a franchise was a good idea. Bansal was undecided as to whether to take the risk. Financing the venture would not be a problem, but he did not want to use his own savings. As a respected citizen, he also did not want to face a situation where he was able to pay back a bank loan if he borrowed the funds. Also, given his capabilities and knowledge, he feared the idea of franchise filure and what it would mean for his professional reputation To help case his hesitancy, Bansal conducted a market survey in his nearby area before proceeding to arrange for funding. As a marketing professor, he made certain his market research report answered the key questions involved in contemplating the opening of a franchise. He found that there were many potential customers in the area, which would allow him to start a preschool with at least 35 students in the first year. He estimated that this number could be increased by at least 15 children in the second year and 30 in the third yeat. Bansal based his calculations on the assumption that some students would leave after one year. but new students would enrol during the second year and beyond. Therefore, he decided to compute his financial projections based on 50 per cent new enrolments and 50 percent old envoluents from the second year onward. New evolments paid an additional 2.500 as their admission and registration fee, a fee that old enrolments were not required to pay. In the fourth and fifth years. Bansal expected that enrolment would remain constant. While he knew that reports of the Wonder Kide model promised lengthy sustainability, he erred on the side of a conservative estimate of challenges he might encounter during his first five years of operations By this point, Bansal had decided that if he did accept the franchise proposal, he was not e his own savings but instead. would bonow the required finds from multiple sources. Based on monal market conditions, he anticipated that the average interest rate would be approximately 15 per cent per year. In addition, he estimated that the core from the school would put him in the 20 per cent tax bracket according to the prevailing income tax laws in India Being a marketing expert, Bansal was contidest about getting the minimum number of students for the next five years, and he was determined to take on the franchise. However, some of his friends arised him that because he had poor financial analytical skills, he should get help from a financial consultant who could do a proper analysis, in projects such as these, the time value of money was important. Bansal decided to enlist the belp of a consultant who, on the basis of Thakur's projections and Banal's own market research report, could explain the ludden factors in the financial estimate and offer guidance on the project's financial feasibility Bawal submitted all the information to the content and eagerly waited the evaluation so that he could come to conclusion about the branchuse EXHIBIT 1: FRANCHISEE PLAN AND FINANCIAL INVESTMENT (FOR SET-UP OF 10 STUDENTS) Category Alition fee Set-up cost (classroom furniture, interior decoration, education and play equipment, printing and advertising material) Other capital investments Service tax on affiliation fees (12.305) Training for Total Foo 125,000 350,000 110,000 15.450 24,000 624.450 Other capital investments inded office future, water purifier, vision, music system, et Source: Sumarted by the authors on the basis of col supplied by the franchise EXHIBIT 2: PROPOSED APPLICATION FEE SCHEDULE Fee) 500 2.000 1,500 4,000 Category One-time fees Form and registration fees Admission fees Caution money Total one-time fees Annual fees Kit charges Activity charges Annual charges Tuition fees Total annual fees Total fees Total foos without caution money 1,300 900 2 800 10 000 16,300 20,300 18,800 Caution money was refundable. It had not been considered other for the purpose of revenue or for computing expenses Earnings on the caution money deposit had been taken the fore deposit rate of the State Bank of India per cent Source Summarved by the authors on the basis of costs supplied by the anchor EXHIBIT 3: PROJECTED ANNUAL PROFITABILITYICASH FLOW ANALYSIS FOR FIVE YEARS (INT) Year 1 Year 2 Year 3 & onward 35 0 35 25 25 50 elela 40 40 18,800 18.800 18.800 16.300 16,300 650,000 877,500 1,404,000 Expected number of enrolmente for 5 yean New enrolments Old onrolments Total expected strength in each year Expected revenue for 5 year Fee collection from now students (one time annual Fee collection from old students (annual) Total fee collection (without caution money) (A) Year 118,800 x 35 Year 2 (18,800 X 25). (10,300 x 25) Year 3(18.800 x 40% (16300 x 40) Anticipated expenses for 5 years Royalty at 21,200 per registration payable to franchisor Salary of one senior trainer/faculty Salary of junior faculty (two required in year 1. three required in year 2. five required in year 3) Salary of nanny (two nannies required in year 1 and 2 three required in year 3) Rent Electricity Office expenses Advertising Total expenses (B) Operational profit (A - B) or earnings before interest & tax Add: Interest on caution money at 8% Less Interest on borrowed funds at 15% Earnings before tax Less Tax 20% Earnings after tax (cash flows) 42,000 84,000 96,000 60,000 90.000 1,80,000 96.000 1,08,000 3.60,000 00.000 108.000 180,000 12.000 18,000 24,000 516,000 142.000 4 200 90.000 50.200 11.240 44.950 72.000 198 000 15,000 24,000 3000 675,000 202,500 6.000 90.000 118,500 23,700 94,800 216 000 18.000 30.000 30,000 966,000 438,000 9,600 90,000 357,600 71,520 288,080 Note: Depreciation on assets was not considered in the case LOSE UMP IS 1470 (I, 1370 BRLUL 20% tax) 4. Also, include a sensitivity analysis if Mr. Bansal decides to provide a fee reduction in the expected revenue for 5 years as follows: Note: Use the following revised expected were structure with the fee reduction (all other assumptions remain the same as given in Exhibit 3 Fees are in Indian Rupees Www Yower Total New eve Reming Pers. Now we Fe - Rawning Huda) year 35 50 35 25 40 17.500.000 15.300.000 s. In 700-800, words discuss whether your group feels the project is financially viable, supported by your group's calculation(s) and discussion. Make a recommendation to the client based on your group's analysis in Steps 1-4. Please submit one Word document submission per group (and any supporting calculations using Excel) and upload it in the Assignment dropbox (25 marks) 6. In place of an in-class group presentation (given that we are not on campus), create a short video in Zoom. You have the option to nominate one group member to be your spokesperson or have more than one group member participate in this video. In 4-5 minutes create a 'make your pitch' video, highlight for the client the importance of capital budgeting techniques in decision- making including the use of NPV and IRR Briefly explain to the client how the various techniques are used to base your team's recommendation and determining whether the project is financially viable. Include the recording (MP4 file) when you upload your group's submission