Financial Appraisal And Decision Optimization For Project Essay And Financial Management.

This unit of study will equip students with insights and tools for financial appraisal and decision optimisation. It aims at imparting the basic knowledge and competencies required in project appraisal and financial management, applicable to all sectors of industry and business including services, business investment, R&D, capital projects and projects in local, state and national government departments and agencies. Students are encouraged to learn to apply the tools to financially analyse projects, programs and ventures. The foundation sciences are compound interest rate mathematics and the family of techniques broadly known as discounted cash flow (DCF) techniques. Coverage includes Equivalent Uniform Annual Cash flow (EUAC), Net Present Value (NPV), Internal Rate of Return (IRR), Benefit-Cost Ratio (BCR) as well as replacement analysis.

Unit Learning Outcomes (ULOs) On successful completion of this unit, students will be able to:

Demonstrate an understanding of financial modelling, analysis and interpretation techniques.

Design, develop and implement project and venture appraisal studies.

Demonstrate an understanding of depreciation, valuation, replacement and their associated analyses.

Develop and implement criteria for appraisal and optimisation that incorporate not only financial returns but also community and stakeholders’ benefits.

This unit is delivered over 8 weeks, comprised of 7 weeks of classes and a one-week final examination period. Unit content is delivered to students via lectures and tutorials, and totals 8 student contact hours per week.

Students will participate in teaching and learning activities including ‘activity-based learning’ under academic supervision, with frequent interaction with fellow students and the faculty, who will also provide frequent feedbacks to individuals and the class as a whole.

In addition to timetabled contact hours, students are expected to do at least 4 hours of personal study each week to review lectures and read prescribed and recommended materials for this unit. The expected total individual workload for this unit is 140 hours (including in-class activities and individual self-study).

Development of Course Learning Outcomes and Graduate Attributes

This unit develops the learning required to deliver the following Course Learning Outcomes:

• A broad and coherent knowledge of recent industry developments, and of professional practices, standards, and expectations in contemporary business and project management.
• Cognitive, technical and creative skills to investigate analyse and synthesise complex information in business processes, logistics, finance, and strategy, or other types of problems.
• Technical and communication skills to analyse, theorise about, evaluate, and implement developments, and which add to professional practice and/or scholarship within business, project management and related disciplines.
• With creativity and initiative through the resolution of problems and by preparing for and adapting to new situations in professional practices such as planning and decision making.
• With high level autonomy, responsibility and accountability for their own learning and professional practice and ethical standards, and in collaboration with others within a business or industry environment. Successful completion of this unit also contributes specifically to development of the following APIC Graduate Attributes:
• Analyst. Determines robust, logical and transferable information from a variety of sources.
• Leader. Directs and motivates individuals and teams.
• Inquirer, Innovative and Creative. Seeks information by questioning, and combines their discoveries with novel thinking to inform the development of new ideas or products.
• Culturally Aware. Is sensitive to and respectful of the similarities and differences between cultural groups.

Answer:

The main purpose of this assessment is to analyze the market conditions in Australia so that the team members can choose a business and make plans for establishing the same. The case needs to be analyzed effectively by conducting an economic analysis and therefore would be including review of literature for the purpose of conducting an economic analysis (McGrath, 2013). The evaluation and viability test of the project is conducted considering the tools of applying sensitivity analysis and other management accounting tool.

The title of the project is Business Venture planning which is focus on a business of starting up a new business which would be supplying smart watches in Australia.

The project will be developed considering the market situation in Australian market and analysis of literature review for the same. The project would also be including a methodology on the basis of which information will be collected.

The objective of the project is to set up a profitable business which would be selling smart watches to the consumers and the same would be adopting the most modern techniques for developing an appropriate product which can meet the needs and requirements of modern consumer (Rubin, Aas & Stead, 2015). The demand for smart watches in Australia has increased significantly such that the same are preferred more than cell phones.

The main objective of the project work is to effectively make the members of the team aware of the technological advancements which has taken place and how the same has affected the markets and customer’s preferences in Australia.

The Australia economy is considered to be one of the developed economies and the same has efficient technological advancements. The market is quite favorable for mobile phones and also smart watches which are still at its unpopular stage. However, there is a fascination regarding smart watches in the market which is the main reason why the management has decided to set up a business which produces smart watches. The analysis also shows breakeven for the business and the term period which the business needs to consider before earning consistent profits for the business.

The project which is considered literature review and the same is relating to innovation and business viability analysis. The literature review considers the various risks and different framework for establishing a business of smart watches in Australian (Sztar, 2015). The analysis of viability of the project is done on the basis of sensitivity analysis which can be used as statistical, mathematical and graphical method for presenting the viability of the planned project of the business. The analysis effectively directs the management regarding the sensitivity of profit element due to slight change in any one factor. The method measures the degree of change and the method is also ready to measure two or more methods.

Background of Economic Scenario in Australia

Australia is considered to be one of the developed countries in the world and has an effective market situation. The economy in Australia is considered to be a free and democratic economic whose technological advancement level is also superior to some other countries. The country has enjoyed a period of continuous market growth in most of the business sectors and has not faced any recession in past couple of years (Spelman et al., 2013). The governmental policies and an economy which is heavily dependent on industrial performance is doing extremely well in terms of entrepreneurial development. The involvement of the government is rare in the economy which has flourished new business set ups in the economy. The financing of such new businesses have not been a problem for the countries as a lot of foreign investors are interested in companies set up in Australia. The income tax provisions which are set out by Australian Tax Office (ATO) is followed which charges income tax at the rate of 45% while the corporate tax in the country is set out to be flat 30% on the income.

Teaching Methods and Strategies

The economy is technologically advanced and therefore a lot of businesses are coming up which are closely related to technology. An analysis of the past information and current market situation in Australia suggest that the start-up costs are particularly high in the economy. This effectively contributes to employment requirements of the country and also growth in the business in Australia. An example can be given of a technological knowledge business which is “Technocrat limited and the business is performing significantly well which attracts new entrepreneur in the economy. The new business after its one year of operations is likely to improve goods provided and leads to increase in innovation. The owner of the business should study the market and a better option is to study the performance of a newly established business. The innovation activities in a business has a constant demand for smart watches for fulfilling the needs of the customers.

Funding issues for new businesses in Australia

The funding sources for a new business is very important as the same can be effectively used for financing different activities of the business. As per the analysis of the market, new businesses which are being established in Australia mostly rely on the funds which are taken on credits and not much on raising capital from equity sources. This is because success rate in case equity financing is low as debt capital allows the business to effectively take advantage of leverage effect in a business and also there is an advantage of the tax as deductions. The economy of Australia has been ranked as tenth in terms of business management and new enterprise coming up.

Economic Scenario in Australia

In recent years the economy has experienced certain shocks and the country is also trying to make improvements from the same. There seems to be significant recovery for the business after considering the 2017 and this would give entrepreneurs necessary confirmation about the viability of the economic. The economy can be considered to be a strong one irrespective of the fact that the economy has faced several financial crises in 2016-2017.

The economy of Australia is technological wise far more developed and one of the reasons for the superb growth to which different businesses can be attributed to. The demand in Australia is more for smart watches than smart phones which is the main reason why the economy is considered to be favorable for the business. A recent study shows that the digital products are more in demand in Australia which shows the customer zeal for the products. The fluctuation in currency and fall in the deposable income of the consumers have impacted the business slightly. The growth in the technology-based business has drawn attention of the government who have slightly reduced the tax rate of the business and thereby further promoting the technical products of the business.

The rate of inflation in the economy of Australia has also impacted economy which has slightly weakened the condition of the economy and the same has also allowed the head bank to cut interest rates of the country. As per the results which was presented in 2016, the inflation rate in the country was around 1.5% while on the same time, the customer price index was showing 0.5. The country is able to achieve economic growth and the same is shown to be 3.1%. The government has decided to formulate policies which can effectively control the inflation rate in the economy and also at the same time engage in research and development for the benefit of the entire nation (Khan, Ahmad & Abdollahian, 2013). The year 2007 also shows there are new trends in electronics market and the same is expected to create more demand in the market.

Scope of Smart Watch Business in Australia

As per the analysis of the market, technological development and electronic goods are emerging in the market. The demand for smart watches has significantly increased and the same are nowadays preferred more than a smart phone (Bruno, 2015). The smart watches are the future and in some time it has the capability of replacing smart phones (Chaparro et al., 2015). Some of the gadgets of smart watches has already caught the imagination of the consumers by providing good graphics game, portability, calling features. In addition to this, the demand for smart watches is also increasing mainly because fashion trends in the country (Jin et al., 2014). The numerous reasons due to which the demand for smart watches in the market has grown are listed below in details:

• The demand for smart watches has increased significantly due to increase in demands for the same and cheap availability of the product. The carrier costs are low and there is also a replacement plan. This makes the replacement plans more affordable and easier.
• Smart Watches has motion sensors and can tell exactly how much calories are either gain or reduced. Therefore, this can effectively be used as a fitness tool and examples can be given of Garmin and Fitbit which has its focus on health and fitness(Lu et al., 2016).
• Smart Watches have GPS trackers and it is regarded to be excellent for navigation and moreover the watches also appeal to the styles senses of the generation.
• There is a provision for internet services in a smart watches and therefore contactless payments can be make cashless payments much easier (Shen et al., 2014).

There are many electronic businesses which are coming up which are developing their own smart watches and also trying to make the same unique.  The high level of investments in the country has facilitated the development of more capital goods in the economy. The economy is also importing certain electronic technologies for the purpose of making more development in electronic fields. There are large established brands in the consumer electronics market and it has remained highly competitive. The local consumers in Australia prefer international brands in case of electronic products.

The plan of the management is to open a business which can effectively produce smart watches which can meet effectively all the expectations of the customers. The management wants to take advantage of the lucrative market which is available for electronic goods. The overall level of competition in the market is also high due to the presence of international dealers. The market for smart watches is one which is developing and the same can a great prospect for future.

Factors Affecting the Price of the Product

Pricing strategies of the business in Australia are affected by different factors. The factors which affect the standard and local regulations, wage and labor costs, wholesale and distribution costs, government tax, insurance cost, occupancy and rent costs. There are certain costs which are related to different areas of Australia. The prices of the smart watches affect the nature of the markets in Australia. The product of smart watches has not started in mass production in Australia. The prices of the products of the business is depended on a variety of factors and the same needs to be considered.

The compliance and regulation costs of the business can affect the prices of the business. The compliance cost in Australia in the past three years has risen and 75% of compliance expenditure expected to rise in the next three years. The product which is being developed by the business is considered to be safe and also environmental friendly. The prices of smart watches is affected by regulations and standards which are set by the government. There will be regulations as the smart watches are a product of IT and therefore requires various regulations from authorities.

In order to bring about a uniqueness in the product which is to be developed by the business, the management plans to add certain new features such as remote for any electronic device and some other new features. The management plans to make the product more stylish and also incorporate the existing technologies which are present in such smart watches. A recent estimate suggests that there has been significant increase in the productivity of the business and the same contributes around 16%. The investment decisions of the business are depended on the technological level which is to be incorporated in the smart watches. Australian government can relieve the pricing pressure by minimising the costs of the business and also thereby reduce the overall costs of production of the business. The start up costs of the business would be consisting of the liquid funds which are required by business and also non-current assets of the business is also contributed from such sources. The below table shows economic significance of the project and also start up costs of the business.

Particulars		Amount	Residual Value
Non-Current Assets:
Trademark		400000	0
Patent		500000	0
Property,Plant & Equipment		2000000	600000
Furniture & Fittings		800000	120000
Motor Vehicle		1000000	400000
Computer Equipment		1200000	0
Preliminary Expenses:
Business Registration		120000
License Fees		100000
Deposit for Electricity		70000	70000
Deposit for Telephone & Internet		50000	50000
Recruitment Cost		30000
Share Issuance Cost		35000
Bond Issuance Cost		20000
Other Miscellaneous Expenses		75000
Working Capital:
Purchase of Raw Material		37500000
Wages & Salaries		25000000
Manufacturing Overhead		16250000
Selling & Marketing Expenses		791250
General Administrative Expenses		263250	79804500
TOTAL START UP COST		86204500
Capital Funding:
Equity Capital		38792025
5 yrs. Bond		28447485
Loan From Bank		18964990
TOTAL CAPITAL EMPLOYED		86204500

Figure 1: (Table showing start up costs of the business)

Sources: (Created by the Author)

Assignment	Start date	Submission	Duration
Start up	10/12/2018	17/12/2018	1 week
Activity 1- Researching the Australian markets and its economic scenario	12/12/2018	17/12/2018	5 days
Activity 2- Financial evaluation of project	15/12/2018	04/01/2019	3 weeks
Activity 3- Determining the financial viability of project by selecting the best alternative	25/12/2018	12/01/2019	2.5weeks

Figure 2: (Table showing activities assigned to different members)

Sources: (Created by the Author)

The above assigned task is done on the basis of the allocation of performance role. The above role plays would be supported by some other members. The assistance would be provided in terms of quality control, proofreading and incorporation.

Roles and responsibilities allocation matrix

Assignment/ Roles	Quality manager	Coordinator manager	Research manager
Work plan of startup	ABC	XYZ	LMN
Activity 1- Literature review	Team member 1	Team member 2	Team member 3
Activity 2- Initiation plan	Team member 4	Team member 5	Team member 6
Activity 3- Detailed plan	Team member 7	Team member 8	Team member 9

Figure 3: (Table showing different roles of team members)

Sources: (Created by the Author)

There are several methodologies which can be followed for the purpose of this project. The project would be following investment appraisal techniques as well as applying the techniques of capital budgeting for the purpose of ensuring that the project is worthy of being carried on. In addition to this, a breakeven analysis is also to be conducted so that the minimum sales which the business requires to make can be done so that the operations of the business can continue. In order to assess the viability of the project, certain assumptions are undertaken by the management of the company in terms of costs and fund requirements. The evaluation of the viability of the project requires businesses to effectively establish the cost of capital, rate of return which is expected by the business and also the necessary cash flow which the business needs to achieve. The profit and revenue generation estimation of the business is done on the basis of market situation and the demand for the product in the market.

BASIC ASSUMPTIONS:
Type of Business:	Company
Nature of Project:	Manufacturing
Estimate Life of Project:	5 years
Capital Structure:
Equity	45%
Non-Current Debts	55%
Types of Debts:
5 yr. Bonds at Par	60%
5 years Loan from Bank	40%
Required Rate of Return on Equity	12.50%
Interest Rate on Loan:
Bonds	7.00%
Loan from Bank	9.50%
Tax Rate	30%
Inflation Rate	2.50%
Mode of Sales:
Cash	40%
Credit	60%
Cash Collection Period	30 days
Mode of Purchase:
Cash	30%
Credit	70%
Cash Payment Period	60 days
Wages & Salary Payment	7th day on the following month
Electricity,Telephone & Internet payment	10th day on the following month
Other Operating Payments	Last day of the month
Insurance	12 months' Advance
Dividend Payment Rate	35% of Net Profit
Dividend Payment Period	3rd Month of the Next Year
Depreciation Method:
Property,Plant & Equipment	Straight Line Method
Furniture & Fittings	10% - Reducing Balance Method
Vehicle	12% - Reducing Balance Method
Computer Equipment	20% - Reducing Balance Method
Amortization Method	Straight Line Method

Figure 4: (Table showing Assumptions made for the Project))

Sources: (Created by the Author)

The above table shows various assumptions which are undertaken by the management of the company for the purpose of effectively analyzing the project which is to be undertaken (Palia, 2014). The depreciation which is charged on the assets of the business is done by following both diminishing value method and straight-line depreciation method on different assets of the business. The initial expenses which are to be undertaken by the business are also shown in the start up costs of the business and the same is done on the basis of anticipation of the management of the company.

The benefits of opening a smart watch business which would be producing and supplying the same is sufficient enough for the business to carry out the operations. However, the business also faces certain limitations which are discussed below in details:

• The technology which the management plans to incorporate in the new smart watches which the business is planning to sell is changing continuously and therefore there is always a risk that technological advancements would make the products of the business obsolete.
• The level of experience of the employees is also a crucial part of the business as the same is related to technological advancement in a business. The overall skills and efficiency of the employees also plays a vital role in the performance measurement of the business.
• The level of competition from the existing business would also be immense as the business would be required to compete against products of Apple and Windows.

There are certain risks which are faced by the business which needs to be considered by the business before taking any decisions. The risks which can be identified are listed below:

• Market Risks: The market conditions and trends which are serious risks for the business. The market condition depends on the different region of Australia market. The new business needs to identify the target markets of the business and also ensure that the needs of the business are covered.
• Financial Risks: The financial problems are faced by most of the newly established businesses and also has impacts on setting the budgets of the business(Covello & Merkhoher, 2013). The financing requirements of the business is an important risk which the business needs to manage.
• Management Risks: The organizational structure is a major risk and therefore the management needs to formulate appropriate strategies. Thus, the new Australian business needs to appoint experienced and competent managers to oversee the daily operations of the organisation.

CASH FLOW STATEMENT:
Particulars	Year 1	Year 2	Year 3	Year 4	Year 5
Cash Flow from Operating Activities:
Cash Sales	$70,000,000	$76,772,500	$84,200,239	$92,346,613	$101,281,147
Collection from Debtors	$96,250,000	$114,312,188	$125,371,892	$137,501,622	$150,804,904
Cash Purchase	($30,000,000)	($32,902,500)	($36,085,817)	($39,577,120)	($43,406,206)
Payment to Suppliers	($37,500,000)	($48,628,125)	($53,332,896)	($58,492,854)	($64,152,037)
Direct Labor Cost	($45,833,333)	($54,434,375)	($59,700,901)	($65,476,963)	($71,811,859)
Manufacturing Expenses	($32,500,000)	($35,644,375)	($39,092,968)	($42,875,213)	($47,023,390)
Insurance	($12,000)	($12,300)	($12,608)	($12,923)	($13,246)
Rates & Taxes	($6,500)	($6,663)	($6,829)	($7,000)	($7,175)
Salary of Office Staffs	($91,667)	($102,292)	($104,849)	($107,470)	($110,157)
Cleaning Charges	($5,000)	($5,125)	($5,253)	($5,384)	($5,519)
Electricity for Office	($13,750)	($15,344)	($15,727)	($16,121)	($16,524)
Telephone & Internet	($7,333)	($8,183)	($8,388)	($8,598)	($8,813)
Salary of Marketing Staffs	($137,500)	($153,438)	($157,273)	($161,205)	($165,235)
Sales Commissions @1.5% on Sales	($875,000)	($959,656)	($1,052,503)	($1,154,333)	($1,266,014)
Travelling charges @2% on Sales	($437,500)	($479,828)	($526,251)	($577,166)	($633,007)
Income Tax Expenses	($3,395,401)	($3,874,059)	($4,396,842)	($4,968,295)	($5,593,372)
Cash Inflow/(Outflow) from Operating Activities	$15,435,016	$13,858,425	$15,073,025	$16,407,590	$17,873,498
Cash Flow from Investing Activities:
Purchase of Non-Current Assets	($5,900,000)
Preliminary Expenses	($500,000)
Sale of Assets					$1,120,000
Return on Deposits					$120,000
Cash Inflow/(Outflow) from Investing Activities	($6,400,000)	$0	$0	$0	$1,240,000
Cash Flow from Financing Activities:
Share Issue	$38,792,025
Bonds Issue	$28,447,485
Loan From Bank	$18,964,990
Interest Payment	($3,792,998)	($3,792,998)	($3,792,998)	($3,792,998)	($3,792,998)
Dividend Payment	($2,772,910)	($3,163,815)	($3,590,755)	($4,057,441)	($4,567,920)
Repayment of Bond					($28,447,485)
Repayment of Loan from Bank					($18,964,990)
Cash Inflow/(Outflow) from Financing Activities	$79,638,592	($6,956,813)	($7,383,753)	($7,850,439)	($55,773,393)
Net Cash Increase/(Decrease) for the period	$88,673,608	$6,901,612	$7,689,272	$8,557,151	($36,659,895)
Add: Opening Cash Balance	$0	$88,673,608	$95,575,220	$103,264,492	$111,821,643
Closing Cash Balance	$88,673,608	$95,575,220	$103,264,492	$111,821,643	$75,161,748

Figure 5: (Table showing Cash flow Statement of the business)

Sources: (Created by the Author)

Particulars	Year 1	Year 2	Year 3	Year 4	Year 5
Inflation Rate		2.50%	2.50%	2.50%	2.50%
Sales Growth Rate		7%	7%	7%	7%
Sales Volume	50000	53500	57245	61252	65540
Selling Price Per Unit	$3,500	$3,588	$3,677	$3,769	$3,863
Total Sales Revenue	$175,000,000	$191,931,250	$210,500,598	$230,866,531	$253,202,868
Cost of Good Sold per unit:
Raw Material Consumed	($1,500)	($1,538)	($1,576)	($1,615)	($1,656)
Direct Labor Cost	($1,000)	($1,025)	($1,051)	($1,077)	($1,104)
Total Cost of Goods Sold p.u.	($2,500)	($2,563)	($2,627)	($2,692)	($2,760)
Total Cost of Goods Sold	($125,000,000)	($137,093,750)	($150,357,570)	($164,904,665)	($180,859,192)
GROSS PROFIT	$50,000,000	$54,837,500	$60,143,028	$65,961,866	$72,343,677
Variable Manufacturing Overhead p.u	($650)	($666)	($683)	($700)	($717)
Total Variable Manufacturing Overhead	($32,500,000)	($35,644,375)	($39,092,968)	($42,875,213)	($47,023,390)
Depreciation on Property,Plant & Equipment	($280,000)	($280,000)	($280,000)	($280,000)	($280,000)
Total Manufacturing Overhead	($32,780,000)	($35,924,375)	($39,372,968)	($43,155,213)	($47,303,390)
General Administrative Expenses:
Depreciation on Furniture & Fixtures	($80,000)	($72,000)	($64,800)	($58,320)	($52,488)
Depreciation on Computer Equipment	($120,000)	($105,600)	($92,928)	($81,777)	($71,963)
Amortization of Patent	($80,000)	($80,000)	($80,000)	($80,000)	($80,000)
Amortization of Trademark	($100,000)	($100,000)	($100,000)	($100,000)	($100,000)
Insurance	($12,000)	($12,300)	($12,608)	($12,923)	($13,246)
Rates & Taxes	($6,500)	($6,663)	($6,829)	($7,000)	($7,175)
Salary of Office Staffs	($100,000)	($102,500)	($105,063)	($107,689)	($110,381)
Cleaning Charges	($5,000)	($5,125)	($5,253)	($5,384)	($5,519)
Electricity for Office	($15,000)	($15,375)	($15,759)	($16,153)	($16,557)
Telephone & Internet	($8,000)	($8,200)	($8,405)	($8,615)	($8,831)
Total General Administrative Expenses	($526,500)	($507,763)	($491,645)	($477,861)	($466,160)
Selling & Marketing Expenses:
Depreciation on Motor Vehicle	($120,000)	($105,600)	($92,928)	($81,777)	($71,963)
Salary of Marketing Staffs	($150,000)	($153,750)	($157,594)	($161,534)	($165,572)
Sales Commissions @0.5% on Sales	($875,000)	($959,656)	($1,052,503)	($1,154,333)	($1,266,014)
Travelling charges @0.25% on Sales	($437,500)	($479,828)	($526,251)	($577,166)	($633,007)
Total Selling & Marketing Expenses	($1,582,500)	($1,698,834)	($1,829,276)	($1,974,809)	($2,136,557)
Net Operating Profit/(Loss)	$15,111,000	$16,706,528	$18,449,139	$20,353,983	$22,437,570
Interest Expenses:
Interest on Bond	($1,991,324)	($1,991,324)	($1,991,324)	($1,991,324)	($1,991,324)
Interest on Loan From Bank	($1,801,674)	($1,801,674)	($1,801,674)	($1,801,674)	($1,801,674)
Total Interest Expenses	($3,792,998)	($3,792,998)	($3,792,998)	($3,792,998)	($3,792,998)
Net Profit before Tax	$11,318,002	$12,913,530	$14,656,141	$16,560,985	$18,644,572
Income Tax Expenses	($3,395,401)	($3,874,059)	($4,396,842)	($4,968,295)	($5,593,372)
Net Profit after Tax	$7,922,601	$9,039,471	$10,259,299	$11,592,689	$13,051,200
Gross Profit Margin	28.57%	28.57%	28.57%	28.57%	28.57%
Net Profit Margin	4.53%	4.71%	4.87%	5.02%	5.15%
Return on Equity	20.42%	23.30%	26.45%	29.88%	33.64%

Figure 6: (Table showing Income Statement of the business)

Sources: (Created by the Author)

SENSITIVITY ANALYSIS:-
	Inflation Rate				Growth Rate (Average)				WACC
Particulars	2%	2.50%	3.50%		5%	7%	9%		6.50%	8.71%	10.50%
Av.Gross Profit Margin	28.57%	28.57%	28.57%		28.57%	28.57%	28.57%		28.57%	28.57%	28.57%
Av.Net Profit Margin	3.61%	4.86%	3.68%		3.54%	4.86%	3.73%		3.64%	4.86%	3.64%
Av.Return on Equity	16.11%	26.74%	17.02%		15.26%	26.74%	17.61%		16.41%	26.74%	16.41%
NPV	34188644	64351920	36484023		32028539	64351920	37975672		44657992	64351920	27784904
IRR	9.64%	16.99%	10.22%		9.10%	16.99%	10.58%		12.11%	16.99%	8.05%
ARR	7.25%	12.03%	7.66%		6.87%	12.03%	7.92%		7.38%	12.03%	7.38%
Protability Index	40.30%	74.65%	43.00%		37.75%	74.65%	44.76%		52.64%	74.65%	32.75%

Figure 7: (Table showing Sensitivity Analysis of the business)

Sources: (Created by the Author)

The Australian economy are also affected by non-financial decisions-making process and the same is stated below:

• The business needs to meet the existing and future regulations which can affect the business.
• Complying with the standard which is followed in the industry.
• Providing motivation to the employees of the business for further enhancing the morale of the staff and also enhancing productions.
• Maintaining a friendly relationship with the customers of the business.
• Developing a reputation of the business in the market and building a brand image for the product.

Break-even analysis:

Particulars	Year 1	Year 2	Year 3	Year 4	Year 5
Selling Price per unit	$3,500	$3,588	$3,677	$3,769	$3,863
Variable Expenses per unit:
Raw Material	($1,500)	($1,538)	($1,576)	($1,615)	($1,656)
Direct Labor Cost	($1,000)	($1,025)	($1,051)	($1,077)	($1,104)
Variable Manufacturing Overhead	($650)	($666)	($683)	($700)	($717)
Sales Commission	($18)	($18)	($18)	($19)	($19)
Travelling Expenses	($26)	($27)	($28)	($28)	($29)
Toatl Variable Costs per Unit	($3,194)	($3,274)	($3,355)	($3,439)	($3,525)
Contribution Margin	$306	$314	$322	$330	$338
Fixed Costs:
Depreciation on Property,Plant & Equipment	$280,000	$280,000	$280,000	$280,000	$280,000
Depreciation on Furniture & Fixtures	$80,000	$72,000	$64,800	$58,320	$52,488
Depreciation on Computer Equipment	$120,000	$105,600	$92,928	$81,777	$71,963
Amortization of Patent	$80,000	$80,000	$80,000	$80,000	$80,000
Amortization of Trademark	$100,000	$100,000	$100,000	$100,000	$100,000
Insurance	$12,000	$12,300	$12,608	$12,923	$13,246
Rates & Taxes	$6,500	$6,663	$6,829	$7,000	$7,175
Salary of Office Staffs	$100,000	$102,500	$105,063	$107,689	$110,381
Cleaning Charges	$5,000	$5,125	$5,253	$5,384	$5,519
Electricity for Office	$15,000	$15,375	$15,759	$16,153	$16,557
Telephone & Internet	$8,000	$8,200	$8,405	$8,615	$8,831
Interest on Bond	$1,991,324	$1,991,324	$1,991,324	$1,991,324	$1,991,324
Interest on Loan From Bank	$1,801,674	$1,801,674	$1,801,674	$1,801,674	$1,801,674
Depreciation on Motor Vehicle	$1,991,324	$1,991,324	$1,991,324	$1,991,324	$1,991,324
Salary of Marketing Staffs	$1,801,674	$1,801,674	$1,801,674	$1,801,674	$1,801,674
Total Fixed Costs	$8,392,496	$8,373,759	$8,357,641	$8,343,857	$8,332,156
Break-Even in Units	27404	26676	25975	25300	24648
Break-Even in Dollars	$95,914,240	$95,700,097	$95,515,892	$95,358,367	$95,224,640

Figure 8: (Table showing Breakeven Analysis of the business)

Sources: (Created by the Author)

Capital Budgeting Techniques

Particulars	Year
	0	1	2	3	4	5
Initial Investment:
Purchase of Non-Current Assets	-5900000
Prelinimary Expenses	-500000
Working Capital	-79804500
Total Initial Investment	-86204500	0	0	0	0	0
Net Opearting Profit before Tax	0	15111000	16706528.13	18449139.04	20353982.8	22437569.9
Less: Income Tax	0	4533300	5011958.437	5534741.713	6106194.839	6731270.971
Net Operating Profit after Tax	0	19644300	21718486.56	23983880.76	26460177.64	29168840.88
Add: Depreciation & Amortization	0	780000	743200	710656	681873.28	656414.8864
Net Operating Cash Flow	0	20424300	22461686.56	24694536.76	27142050.92	29825255.76
Terminal Value:
Sale of Non-Current Assets						1120000
Recovery of Preliminary Expenses						120000
Recovery of Working Capital						79804500
Total Terminal Value	0	0	0	0	0	81044500
Net Annual Cash Flow	-86204500	20424300	22461686.56	24694536.76	27142050.92	110869755.8
Discount Rate (WACC)	8.50%	8.50%	8.50%	8.50%	8.50%	8.50%
Discounted Cash Flow	-86204500	18824239.63	19080198.4	19333552.81	19585005.96	73733423.65
Net Present Value	64351920
IRR	16.99%
Average Accounting Profit	10373052
ARR	12.03%
Profitability Index	0.75

Figure 9: (Table showing Capital Budgeting Application for the business)

Sources: (Created by the Author)

The NPV of the project which is shown in the above table is positive which suggest that the business is worth making investment in and the management should move forward with the plan (Eva et al., 2014). The IRR of the project is also shown to be favorable and therefore the management needs to undertake the project immediately.

Conclusion

The analysis which is discussed above shows a project plan which is to open a business which would be supplying smart watches to the customers. The analysis is done considering the market of Australia for which a market analysis is conducted in order to ensure that the market is favorable for establishing such a business. The analysis also shows application of several tools of management such as capital budgeting techniques, breakeven analysis, use of projected financial statement for the purpose of assessing the viability of the project. The conclusion which can be drawn from the analysis is that the management should move forward with the project.

Reference

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