NG36 : Finance & Operations

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09-11-2020

Course Code: NG36
University: University Of York

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Country: United Kingdom

Question:

a). An evaluation of operational and regulatory factors to be considered by the board

b). Estimate the Income and Expenditure projections for the first 4 years incorporating any operational and regulatory costs you feel the proposal may be missing.

c). A critical evaluation of the financial worth of the current proposal AND an alternative evaluation including all costs and revenues you deem to be appropriate.

d). A detailed and fully evaluated conclusion with clear recommendations for the board to consider

Answer:

a) Evaluating the operating and regulatory factor to be considered by the board:

The UK government has relative and regulations that needs to be imposed by the training centre before commencing their operations. this relevant regulations relatively help in reducing the excessive burden on centres, while minimising the unethical measures taken by the businesses (GOV.UK 2018). The overall operating and regulatory factors that needs to be considered by the board before opening the overall bespoke training centre are depicted as follows.

Bespoke Training Centre needs to have adequate staff for supporting its classes and teaching sessions.
The training centre also needs to have highly educated tutors to support the level of training that will be provided to the students our customers.
Adequate level of infrastructure needs to be implemented in the centre to support the level of activities that is intended by the organisation.
The relevant regulations Such a safety and security need to be maintained by the organisation before commencing the overall project.

Environmental condition for the training centre:

The overall location of the training centre that is intended to be in East London relatively indicates the overall competition that will be faced by the organisation in the location. the training centre would have intense competition from different other competitors who provide he spoke training services to both the franchise and the students. Furthermore, the above relevant regulations need to be followed by the overall organisation to effectively comments their operations and improve the level of profitability that could be generated from the training centre. Additionally, the evaluation also indicates that there is adequate level of franchise near the location of East London which could allow the organisation to effectively improve its profitability. the demand from franchise and students is relatively rising in UK due to the intense competition in the market. students are willing to take extra lessons to increase their grades which would eventually help them in long run. On the other hand, franchise companies are utilising bespoke training centres for training their individuals employees for improving their productivity (Sun, Liu and Zhou 2017).

The evaluation also indicates that there is adequate possibility for the new project to generate higher rate of returns due to the large customer base in East London. The evaluation also indicate that Increment and customer base would eventually allow the new project to conduct adequate sales, which could generate higher revenues from the operations. In addition, the environmental evaluation also states the possibility of higher competition level by the organisation, which will directly affect its operational capability (Heald 2015).

Applying operational management theory:

The operational Management Theory can be implemented for improving the level of profit that could be generated from the new project. the Operation Management Theory directly focuses on the expenses incurred by the organisation to commence its operations. the new project a relatively utilizes the tutor fees and other overhead expenses to commenced business. However, the ignorance of electricity cost and other rental cost would directly have an impact on future performance of the organisation. The operational Management Theory relatively focuses on the services that is provided by the new project, which will directly affect its capability to support different operations. In this context, Bird and Brown (2016) stated that with the help of operational management theories organisations are able to evaluate their current expenses on raw materials and reduced their expenses to improve the profitability.

The operational management accounting theory can only be implemented on the tutors and cleaning stuff that is maintained by bespoke training centre. The evaluation of the operation would eventually help in detecting the viability of the expenses incurred by the project. From the evaluation of the activities it could be understood that during the initial use the in-hiring process of tutors and administrators and not needed adequately due to the low activity of sessions conducted by the organisation. Therefore, reduction in number of tutors would be beneficial for the company. However, the increment and sessions could be seen from 2nd year of the operation, therefore adequate addition to the tutors and administration needs to be conducted by the organisation. Hence, applying the operational management theory could eventually help the company to maximize the profit and minimise any kind of expenses on operations of the new project

b) Estimating the income and expenditure projections for the first 4 years incorporating and regulatory cost for the proposal:

There is different level of finance source, which could be used by New Life Training Plc for financing the proposal for opening bespoke training centre. In addition, choosing the relevant sources of finance is essential for the company, as helps in minimising the overall finance cost and maximises its profitability. Abbasi and Abbasi (2017) stated that with the identification of adequate finance source organisations able to determine whether to accept the proposal or rejected due to the lack of adequate capital. On the other hand, Ismai et al. (2018) argued that the results obtained from investment appraisal techniques could be wrong due to the wrong assumption of revenues, expenses, and discounting factor of the proposed project. New Life Training Plc can evaluate the following sources of finance for supporting the expenses of their new project.

External Source of Finance:

Mortgage:

The use of mortgages could be helpful for the organization to acquire the required level of funds from external sources to support its new project. this fund acquiring would eventually consist of interest payments which is a relatively lower due to the mortgaging of lands by the organization. This source of fund could only be acquired if the value of land is adequate and consistent with amount of the loan.

Share Issue:

The second method that could be used by the organisation is issuing shares, which is relatively helpful in generating the required level of funds to support its business idea. However, the extensive issue of shares would eventually increase its supply in the market, while demands remains the same, which relevantly hampers its share price valuation (Su and Lu 2015).

Bank Long-term Loan:

The last external source of finance that could be used by the organisation is Bank long term loans, which relatively provides the lowest finance caused due to the longevity of the loan period. Bank long term loans are relatively provided to organisations which have adequately portrayed a positive financial balance over the fiscal years and achievable to support the finance cost incurred from the loan process. Bank loan are provided with a fixed interest rate which relatively reduces the net profits of the organisation.

Internal Source of Finance:

Sales of existing assets:

The second internal source of finance could be from the sale of existing assets, which might allow the company to acquire the required funds for the investment. The sale of existing assets would only allow the organization to acquire the funds, which will be generated from the current value of the assets. However, the asset selling procedure is not viable for an organization, as it would reduce its total assets capacity and hamper its operational viability (Bangemann 2017).

Retained profits:

The major internal source that could be used by the organisation is retained profit, which is accumulated throughout the years for investing in new business opportunities. The use of retained earnings would eventually help the organization to nullify the finance cost, as the company’s cash balance will finance the whole investment amount. However, the retained income of an organisation is never high, due to the extensive dividend and market condition of the organisation. Nevertheless, after the evaluation of New Life Training PLC current retained earnings it could be identified that the company has adequate cash balance to support the proposal, which could help in increasing net income of the organisation (Vlcek 2018).

Particulars	2017/18	2018/19	2019/20	2020/21
Expected Activity (Sessions)
Franchise Training	48	96	144	144
Student session	190	220	220	440
Chargeable sessions	238	316	364	584
Private Hire	100	100	100	16
Total (max 600)	338	416	464	600
Planned Fees
Per person per session
Franchise Training	60	60	60	60
Student session	8	9	10	15
Per session
Private Hire	180	180	180	400
Customers per session
Franchise Training	30	30	40	40
Student session	20	20	20	20

From the overall evaluation of above table, income that is generated by the company could eventually help in generating high level of profits. In addition, the segregation of different level of activities that will be conducted by the proposed project is mainly provided adequately. Furthermore, the pricing, number of customers and session that will be conducted by the new proposed business is adequate, which will provide higher returns from investment. The anticipation of rising revenue from the operations will eventually help in supporting the level of profits that could be generated form operations. Changes in current operations of the business could eventually help in generating high level of profits from operations, which might help in improving the level of returns from investment. The changes in expected activity can be conducted by reducing private hire and student session, while increasing franchise training could eventually help in improving the level of profits from operations. The increment in overall franchising training could eventually help in generating high level of returns from investment (Larder, Sippel and Argent 2017).

Particulars	2017/18	2018/19	2019/20	2020/21
Revenue franchising training	86,400	172,800	345,600	345,600
Revenue student session	30,400	39,600	44,000	132,000
Revenue from private hire	18,000	18,000	18,000	6,400
Revenue	134,800	230,400	407,600	484,000
Variable Expenses
Tutors	120,000	120,000	120,000	120,000
Administrators	36,000	36,000	36,000	36,000
Fixed Expenses
Cleaning and power	10,950	10,950	10,950	10,950
Total Expenses	166,950	166,950	166,950	166,950
Profit	(32,150)	63,450	240,650	317,050

The above table relatively represents the overall cash flow of the first 4 years, which would eventually help in identifying the profitability that could be obtained by the new project. Moreover, the evaluation also indicates that during first year the organization will incur loss, while the other 3 years the increment in profits could be seen. This is a positive attribute for the organization, where the new proposal would eventually help in improving the level of profits that could be generated from the operations. After the evaluation of the different sources of finance, it could be identified that using the retained earnings cash flow to finance the new business would be much more beneficial for the organization. This would eventually nullify the finance cost that is needs to be paid to the lender, which would directly affect its net profit. The reduction in finance cost would eventually help the organization to maximize the profit level from the operation, while reducing the finance cost. In this context, Xiaoqiu (2015) stated that companies that have low finance cost are able to increase their income retention capability, while reducing the cash outflow of the organization. Therefore, with the help of retained earnings measure could eventually help the organization to maximize their profits from operations.

c) Critical evaluation of the financial worth of current proposal and an alternative evaluation including all cost and revenue deemed appropriate:

The section relevantly value is the current proposal and the overall measures that which could be used for improving the level of returns from operations. In addition, the investment appraisal techniques are also evaluated in the measure to identify whether the proposal has a viable factor for the organisation. Moreover, profits of the new proposal are relatively evaluated by deducting the expenses both variable and fixed from the operations for identifying the cash inflows that will be generated by the new proposed. However, the expense level of the new proposal is relatively situated to the salaries of the tutors and administrators with the fixed overhead expense of cleaning (Gotze, Northcott and Schuster 2016). The proposal does not evaluate any kind of other overhead expenses such as electricity and maintaining that needs to be conducted by the organisation. this relatively limits the viability of the new proposal while depicting the actual expenses incurred from operations. In addition, the land was mainly owned by the company, which relatively reduces the initial investment capital of the organisation. Therefore, the organisation needs to evaluate different level of expenses that it will conduct for opening the new centre, which would eventually reduce your overall income of the organisation.

In addition, the evaluation of the overall fees and activities of the new project relatively depicts a positive attribute for the organisation, where relevant income is generated from operations, which could eventually increase their net profits. The changes in the overall activities could be conducted by the organisation to increase its profits, while it would directly affect its activities that is being conducted in the project (Baum and Crosby 2014).

Discounting rate		7.77%
Year	Cash Flow	Cum Cash Flow	Discounting rate	Dis Cash Flow
0	-£1,200,000.00	-£1,200,000.00	1	-£1,200,000.00
1	-£32,150.00	-£1,232,150.00	0.9258	-£29,764.45
2	£63,450.00	-£1,168,700.00	0.8571	£54,383.28
3	£240,650.00	-£928,050.00	0.7935	£190,957.40
4	£317,050.00	-£611,000.00	0.7346	£232,913.82
5	£317,050.00	-£293,950.00	0.6801	£215,631.46
6	£317,050.00	£23,100.00	0.6297	£199,631.47
7	£317,050.00	£340,150.00	0.5829	£184,818.69
8	£317,050.00	£657,200.00	0.5397	£171,105.02
9	£317,050.00	£974,250.00	0.4996	£158,408.92
10	£317,050.00	£1,291,300.00	0.4626	£146,654.87
	Net Present Value		£ 324,740.48
	Payback Period		6 Years
	Internal Rate of Return		12.36%
	Accounting rate of return		10.76%

The above table relatively evaluates the investment appraisal techniques which is used in identifying the financial viability of the new proposal. From the evaluation it is detected that net present value of the new proposed project is positive and at the level of £ 324,740.48, relatively represents a positive attribute for the new proposed business. In addition, the positive attributes of the net present value are derived by identifying the discounting factor that was used for the calculation. In this context, Mahmoud and Neale (2016) stated that with the identification of net present value organisations able to compare different projects and identify their financial capability to provide adequate returns from investment.

However, from the evaluation of Payback period the investment would only be accumulated after 6 years, which is relatively high for a capital investment. moreover, this indicates that within the life of the project the overall investment will be obtained by the organisation and thus positive cash inflow will be generated after year 6. Lakew and Rao (2015) argued that payback period does not allow the organisation to identify and evaluate cash inflows based on time value, which are relatively reduces the viability of the investment appraisal technique. nevertheless, for the evaluation and illustrating purposes payback period can be used to portray the minimum time needed by the project to return the invested amount of the company.

The investment appraisal technique that is used for the evaluation is internal rate of return, which relatively is at the levels of 12.36%. This derive the value from the internal rate of return directly indicates the overall investment returns that could be generated by the new project. According to Gotze, Northcott and Schuster (2015), managers of the organisation relatively chooses internal rate of return for the project selection, as they can identify the proposal which could provide the highest return from investment that could be the invested in other projects. the internal rate of return is relatively high off from the discounting factor which relatively depict the positive attributes of the internal rate of return where the business could provide adequate profit to the organisation.

The accounting rate of return is calculated for the new proposed project is at the levels of 10.76%, which relatively indicates the positive attributes of the new project. the overall returns that could be provided by the investment is a relatively positive which would eventually help the organisation to generate higher rate of returns from investment. The positive attributes identified from the investment appraisal techniques relatively indicates that the project is a viable approach for the company which would eventually generate higher rate of income from investment. Higham, Fortune and Boothman (2016) mentioned that with the help of accounting rate of return, organisations are able to determine the overall profit that could be generated by the operation for the period of investment.

Year	Revenue	Variable cost	Contribution	Contribution %	Fixed Cost	Breakeven
1	134800	156000	-21200	-15.73%	10950	69,625.47
2	230400	156000	74400	32.29%	10950	33,909.68
3	407600	156000	251600	61.73%	10950	17,739.35
4	484000	156000	328000	67.77%	10950	16,157.93
5	484000	156000	328000	67.77%	10950	16,157.93
6	484000	156000	328000	67.77%	10950	16,157.93
7	484000	156000	328000	67.77%	10950	16,157.93
8	484000	156000	328000	67.77%	10950	16,157.93
9	484000	156000	328000	67.77%	10950	16,157.93
10	484000	156000	328000	67.77%	10950	16,157.93

The above table relatively evaluate the overall contribution analysis and breakeven point of the new business, which would eventually allow the organisation to gauge into its financial perspective. the contribution conducted in the first year the relatively negative due to the high variable cost and low revenue generated by the project. Therefore, the contribution relatively indicates a negative approach towards the operation. In addition, the variable cost relatively consists of the salary paid to the administrators and the tutors of the organisation, while the fixed cost consists of daily cleaning and maintenance that is conducted in the premises (Throsby 2016). This relatively indicates a positive break-even analysis, where in the initial use the company needs to have a higher amount to achieve break even, while in later years the company only needs 16,157.93 from their operations.

From the evaluation of both investment appraisal techniques and break-even analysis the financial worth of the new proposed business is relatively positive, which could eventually help in generating higher rate of returns from investment. The project would provide a higher cash inflow to the organisation, which food increase the firm value in future. The alternative cash inflow is relatively not needed for the new proposed business, as the overall investment amount was used by the detailed income which does not have any kind of Finance cost. moreover, the building was prepared for the land of the organisation, which reduces the purchasing price of the land. therefore, it could be understood that there is no alternative cost incurred by the organisation to commence the new business (Laird and Venables 2017).

d) Detailed and fully evaluated conclusion with clear recommendation is provided to the board:

From the evaluation of all the relevant financial and regulatory perspective the investments that will be conducted in the new proposed business is Deemed to be viable. The New Life Training PLC would eventually improve their profitability by opening the Bespoke Training Centre, which will relatively have a positive cash inflow for the organisation. The evaluation also indicated that implementation of the new bespoke Training Centre would eventually allow the organisation to improve its future profits, while increasing the overall firm value. Furthermore, after revaluation of all the relevant sources of finance it could be identified that using retained income for the purpose of Financing the project would be much beneficial for organisation. the company relevantly has adequate retained income to support the expenditure on the particular project which would eventually help in minimising the overall finance cost which will income by New Life Training PLC. therefore, selection of the retained income for commencing the project is an adequate measurement which could eventually allow the organisation to maximize its profitability in long run. Furthermore, adequate regulatory Framework needs to be considered by the organisation while implementing the project. the training Centre needs to follow adequate Regulations that is laid down by the UK Government for starting the overall project.

The positive attributes of the income that will be generated from the project a relatively indicates its viability to effectively generate higher rate of return from investments. The overall investment appraisal techniques such as net present value, payback period, internal rate of return, and accounting rate of return provides a positive attribute of the new project. this relatively indicates that according to the investment appraisal technique the project would provide a higher rate of returns for the company which would eventually improve its future income. Furthermore, the positive attribute would also help New Life Training Plc to generate adequate returns from the bespoke training centre. Moreover, the breakeven analysis also contributes to the positive attributes of river new project, where the initial stage relatively needed extra income while the later stage provided of lower breakeven point for the organisation. the minimum of 16,157.93 needs to be obtained by the new project for getting no profit no loss, which is relatively achievable in the current scenario.

Therefore, it could be assumed that the project is relatively viable and could allow the organisation to generate higher rate of returns from investment. Hence, the organisation could effectively utilise the new bespoke Training Centre for increasing its revenue in future and generate higher rate of returns from investment. The analysis of different regulations, sources of finance and investment appraisal techniques relatively indicated a positive attribute for the new business. this mainly indicates that the organisation should continue with the new project for improving it firm value in near future. However, reduction in relevant expenses and changes in sessions activities could eventually help the organisation to improve its current profitability and generate higher rate of returns from investment.

Conclusion:

After evaluating the overall financial perspective of the new project with the help of investment appraisal techniques and break-even analysis it could be identified that the project is relatively viable. In addition, after evaluating the prospects of the new business the organisation could generate high rate of returns from investment, while reducing the overall expenses from operations. The evaluation of both regulatory and operational Framework that is needed by the organisation is effectively evaluated reassessment, which would eventually improve the operation is capability of the new project. Furthermore, the evaluation on Cost and revenue perspective of the new project is conducted, which relatively indicates positive here for the proposal. However, changes in the revenue section is determined, which could eventually improve the cash inflow of the organisation. On the other hand, the changes on expenses also proposed, which would eventually incur by the project while increasing the cash outflow. However, from the evaluation of all different levels of operations that could be identified that the project is a viable option for the company is Effectively analyzed in the assessment. Hence, from the valuation it could be identified that Investments in the new project would eventually provide fruitful returns for the organization, while improving their retained income.

Introduction:

The overall assessment is mainly conducted to understand the financial performance of New Life Training Plc, when implementing new proposal for the business. The evaluation on different levels of cost and income that is incurred by New Life Training Plc is adequately understood in the statement, which could help in detecting the overall financial performance of the organisation. In addition, the company current utilises a bespoke training centre, which provides compulsory franchise training, evening sessions for East London School and Private lettings of facilities group. Furthermore, the use of investment appraisal techniques is mainly utilised in identifying the overall financial ability of the current proposal made for New Life Training Plc. Moreover, relevant evaluation of operational and regularity factors is conducted, which could help the board to improve operations of the company. Estimating the income and expenditure projects for the first 4 years, while incorporating the relevant regulatory cost incurred by the proposal. Additionally, the critical evaluation of financial worth of current proposal and alternative evaluation is depicted in the assessment. The use of investment approach techniques such as NPV, ARR, IRR and payback period are conducted to identify viability of the investment. Lastly, adequate recommendations are provided, which could help in improving the level of profits from operations that could be generated by New Life Training Plc.

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