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Question:
He has contacted you to carry out a cost-benefit analysis and a payback analysis to determine the financial viability of the proposed travel agency plan in Norman Gardens area. As a business analyst, you will conduct a cost-benefit analysis by comparing expected costs with expected benefits over a period of 7 years and advise Mr. Joey whether it is worthwhile continuing with the proposed plan inquestion.
In this assignment, you will:
1. Conduct a cost-benefit analysis using Microsoft Excel
2. Write up a report using Microsoft Word to demonstrate how you evaluated costs and benefits and determined payback period and advise Joey Tribbiani how to develop a business plan to start a new business.
Answer:
Part A:

Set Up Costs

Items

Time period over 7 years

Hardware/software costs

Unit cost

Quantity

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Computers

    1,400

          4

    5,600

 

 

 

    3,920

 

 

Server

    2,500

          1

    2,500

 

 

 

    1,750

 

 

Backup system

    2,200

          1

    2,200

 

 

 

    1,540

 

 

Printer

    1,200

          1

    1,200

 

 

 

       840

 

 

Photocopy machine

    3,500

          1

    3,500

 

 

 

    2,450

 

 

Software license

    1,500

          4

    1,500

 

  1,500

 

    1,500

 

    1,500

One-off costs

 

 

 

 

 

 

 

 

 

Consultant fee

 

 

  20,000

 

 

 

 

 

 

Business registration fee

 

 

    2,500

 

 

 

 

 

 

Office fit out/furniture

 

 

  30,000

 

 

 

 

 

 

Staff training

 

 

    5,000

 

 

 

 

 

 

Total

 

 

  74,000

      -   

  1,500

         -   

  12,000

      -   

    1,500

Cost reduction after 4 years

30%

 

 

 

 

 

 

 

 

Software license renewal fee

    1,500

 

 

 

 

 

 

 

 

 

Operating Costs

Items

Time period over 7 years

Fixed Costs

Monthly

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Office rent

       1,600

    19,200

    19,200

    19,200

    19,200

    19,200

    19,200

    19,200

Business insurance

          100

      1,200

      1,200

      1,200

      1,200

      1,200

      1,200

      1,200

Internet connection

            80

         960

         960

         960

         960

         960

         960

         960

Staff salary

       6,000

    72,000

    72,500

    73,000

    73,500

    74,000

    74,500

    75,000

Loan payment

          761

      9,129

      9,129

      9,129

      9,129

      9,129

      9,129

      9,129

Variable costs

 

 

 

 

 

 

 

 

Electricity

          200

      2,400

      2,448

      2,497

      2,547

      2,598

      2,650

      2,703

Stationery

          200

      2,400

      2,400

      2,400

      2,400

      2,400

      2,400

      2,400

Domain name and website

            90

      1,080

      1,080

      1,080

      1,080

      1,080

      1,080

      1,080

Phone charges

          100

      1,200

      1,200

      1,200

      1,200

      1,200

      1,200

      1,200

Miscellaneous expenses

          500

      6,000

      6,000

      6,000

      6,000

      6,000

      6,000

      6,000

Total

       9,631

  115,569

  116,117

  116,666

  117,216

  117,767

  118,319

  118,872

Salary rise

          500

 

 

 

 

 

 

 

Electricity rates rise

2%

 

 

 

 

 

 

 

Loan calculation

 

 

 

 

 

 

 

 

Annual interest rate

0.60%

 

 

 

 

 

 

 

Number of months of payments

            84

 

 

 

 

 

 

 

Loan amount

     50,000

 

 

 

 

 

 

 

Monthly payment

          761

 

 

 

 

 

 

 

 

Benefits

Time period over 7 years

Items

Sales/Month

Income/Month

Income/Year

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Ticket sales

       70,000

             7,000

        84,000

    84,000

    84,000

    84,000

    84,000

    84,000

    84,000

    84,000

Holiday travel packages

       10,000

             1,000

        12,000

    12,000

    12,000

    12,000

    12,000

    12,000

    12,000

    12,000

Hotel bookings

       15,000

             1,500

        18,000

    18,000

    18,000

    18,000

    18,000

    18,000

    18,000

    18,000

Total

       95,000

             9,500

      114,000

  120,840

  120,840

  120,840

  120,840

  120,840

  120,840

  120,840

 

 

 

 

 

 

 

 

 

 

 

Sales Profit

10%

 

 

 

 

 

 

 

 

 

 

Escape Travel & Tours Cost Benefit Analysis

 

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Set up costs

    74,000

           -   

       1,500

            -   

     12,000

            -   

         1,500

Operating costs

  115,569

  116,117

   116,666

   117,216

   117,767

   118,319

     118,872

Benefits

  120,840

  120,840

   120,840

   120,840

   120,840

   120,840

     120,840

Cumulative costs

  189,569

  305,686

   423,852

   541,068

   670,835

   789,154

     909,526

Cumulative benefits

  170,840

  291,680

   412,520

   533,360

   654,200

   775,040

     895,880

Return on investment (%)

-9.88%

-4.58%

-2.67%

-1.42%

-2.48%

-1.79%

-1.50%

Payback in dollars

  (18,729)

  (14,006)

   (11,332)

     (7,708)

   (16,635)

   (14,114)

     (13,646)

 

 

 

 

 

 

 

 

Payback period in years

5

 

 

 

 

 

 
Part B:
Q1. Defining cost benefit analysis and briefly evaluating its key components, while indicating how cost benefit analysis help small business enterprises start a new business:

With the help of cost benefit analysis organisation are able to understand the level of expenses and income, which could be generated from a particular investment or project. Moreover, cost benefit analysis is a globally used method, which compares cost of the project with its benefits. This allows the organisation to gauge into the financial viability of the project and make adequate investment decisions, which could increase their product in the long run. The main key components of the cost benefit analysis are list of alternative scenarios, identifying benefits & cost, comparison of alternatives, and sensitivity analysis, which allows the organisation to detect the financial viability of the selected project. Boardman et al. (2017) mentioned that with the help of cost benefit analysis organisations are mainly able to detect the relevant cash outflow and inflow, which can be conducted by the project.

The implementation of cost benefit analysis directly allows small business entrepreneurs to gauge into the risk and reward attributes of the project. This eventually helps small entrepreneurs to save the investment capital and detect investment opportunity, which could improve return from investment over the period of time. The use of cost benefit analysis directly allows the organisation to improve the level of income from investment, while detecting the actual expenses and benefits which could be generated from the investment (Johansson and Kristrom 2018).

Q2. Indicating what is payback period, while indicate the payback period for the travel business and providing adequate advice:

Payback period is an investment appraisal technique, which allows the organisation to understand the number of years that could be taken by the project for returning the initial investment capital. The payback period is essentially calculated to be within the life of the project to make the investment option viable, where the investment will be collected as quickly as possible. From the calculation that is been conducted for Joey Tribbiani the initial investment will not be collected within the life of the project, as the cumulative expenses is higher than the cumulative income of the project. Hence, on the basis of payback period the overall investment does not indicate a profitable investment for Joey Tribbiani, as the payback period is greater than the project life. On the other hand, Jonker, Junginger and Faaij (2014) argued that payback period does not incorporate time value of money, which directly reduces the financial viability of the investment appraisal technique to detect the actual financial position of the project to generate higher returns from investment.

Q3. Providing adequate recommendation to Joey Tribbiani:

Business objective:

The main business objective is to attain higher sales of selling tickets, holiday travel packages and making hotel bookings, as it will positively affect income stratum of the travel agency. The further objective of the business is to improve the level of returns by reducing the level of expenses from operations.

Service and product description:

The travel agency will sell tickets, holiday travel packages and make hotel bookings, as it will be the main income stream for the organisation. In addition, the customized travel packages could eventually help the travel company to acquire the required level of income, which could raise their profits from operations.

Marketing strategy and target market:

With the implementation of marketing strategy, the travel business could flourish and built adequate customer base. In addition, the use of online marketing system with the television advertisements could eventually help in improving the level of marketing presence to generate adequate returns from investment (Solomon, et al. 2014). The main target market for travel business are households, businesses and experience seekers. The household is mainly targeted with holiday packages and hotel bookings, which eventually allow the organisation to acquire adequate revenue from selling packages. Moreover, the target of business can be conducted by selling tickets and holidays bookings, which are conducted by employees of the organisation. Lastly, the accommodation of individuals who seek experience could help in generating revenues by selling holiday packages for different exotic destinations.

Financial plan and requirements:

The financial plan prepared in the above table are accurate, while reduction in expenses of employees could eventually help in improving their income streams. This deduction in expenses from 72,000 per year to 60,000 would provide an immense boost on the financial stability of the project. Hence, the move will allow the organisation to reduce the payback period to 2 years, which might help in gathering the required investment funds. Therefore, decline in salary expenses will eventually allow Joey Tribbiani to conduct the business successfully and generate higher return on investment.

References:

Boardman, A.E., Greenberg, D.H., Vining, A.R. and Weimer, D.L., 2017. Cost-benefit analysis: concepts and practice. Cambridge University Press.

Johansson, P.O. and Kriström, B., 2018. Cost–Benefit Analysis. Cambridge University Press.

Jonker, J.G.G., Junginger, M. and Faaij, A., 2014. Carbon payback period and carbon offset parity point of wood pellet production in the South?eastern United States. Gcb Bioenergy, 6(4), pp.371-389.

Solomon, M.R., Dahl, D.W., White, K., Zaichkowsky, J.L. and Polegato, R., 2014. Consumer behavior: Buying, having, and being (Vol. 10). London: Pearson.

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My Assignment Help. (2021). Cost-Benefit Analysis For Starting A Travel Agency In Norman Gardens. Retrieved from https://myassignmenthelp.com/free-samples/cois11011-foundations-of-business-computing/concepts-and-practice.html.

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My Assignment Help (2021) Cost-Benefit Analysis For Starting A Travel Agency In Norman Gardens [Online]. Available from: https://myassignmenthelp.com/free-samples/cois11011-foundations-of-business-computing/concepts-and-practice.html
[Accessed 23 June 2024].

My Assignment Help. 'Cost-Benefit Analysis For Starting A Travel Agency In Norman Gardens' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/cois11011-foundations-of-business-computing/concepts-and-practice.html> accessed 23 June 2024.

My Assignment Help. Cost-Benefit Analysis For Starting A Travel Agency In Norman Gardens [Internet]. My Assignment Help. 2021 [cited 23 June 2024]. Available from: https://myassignmenthelp.com/free-samples/cois11011-foundations-of-business-computing/concepts-and-practice.html.

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