Subject Code : BUS1AFB
BUS1AFB: Dollars and Sense Finance Assignment Help 
Assignment Task:

FACT SET
John Peterson is considering investing in a new gym franchise business. John has hired you to estimate the financial viability of the business. To do this, you intend to conduct a Net Present Value (NPV) analysis with the following set of available data.

? The membership fees are set at a flat rate of $70 per month. You estimate that the gym will have approximately 250 members in the first year, 300 in the second year and 500 in the third year.

? Under the franchise agreement, John will have to pay a royalty payment equal to 7% of sales. He will also have to contribute 4% of sales towards the marketing costs of the franchisor.

? Monthly rental estimate is $3500. Utility estimate is $1,500 per month.

? John needs to employ a full-time manager and two (2) casuals to look after the gym during the week. No staff are needed during the weekends. The manager’s wage is estimated to be $50,000 per annum plus 9.5% superannuation. The total hours for two (2) casuals are approximately 25 hours per week at a rate of $25 per hour plus 9.5% superannuation.

? The gym equipment costs $120,000 and is expected to depreciate over a six-year useful life on a straight-line basis. Besides the cost of the equipment, John also incurs other initial investments such as initial franchise fee, grand opening, etc. which totals to $200,000.

? John finances the franchise using his own savings. You estimate the cost of capital to be 16%.

? Assume John incurs a tax rate of 30% and assume no inflation in prices or wages.

TASKS
1. What is the contribution margin per member per year?  Contribution margin per member per year = Selling price for 12 months for each member – Variable
costs for 12 months for each member.

2. Calculate the yearly fixed costs that John will incur. (10 marks)

3. Calculate the break-even number of gym members per year. (4 marks)

4. Calculate the Net Profit each year for the first three years of operation. (15 marks)

5. Estimate the free cash flow the franchise generates each year for the first three years of operation.
 

Free Cash Flow = Net Profit + Depreciation × (1-tax rate) + Interest × (1-tax rate).

6. Assume John can sell the franchise for approximately $600,000 at the end of the third year. Calculate the Net Present Value (NPV) of the business. (15 marks)

7. Calculate the Profitability Index. 

8. Would you recommend to John that the investment is financially viable? Justify your recommendation. 

9. Provide an analysis of three major risks that John would face in making this investment. 

 

CASE STUDY 2
FACT SET
• Go to yahoofinance.com.au and obtain:
o the closing adjusted price for JB Hifi Limited (JBH.AX) on the 30 June for each year from 2014 to 2019. If the price on 30 June is not available, use the price from the closest previous trading day, such as 29 June or 28 June.

o the dividends paid by JB Hifi Limited (JBH.AX) between 30 June 2014 and 30 June 2019.

o the closing adjusted price for Harvey Norman Holdings Limited (HVN.AX) on the 30 June for each year from 2014 to 2019. Again, if the price on 30 June is not available, use the price from the closest previous trading day, such as 29 June or 28 June.

o the dividends paid by Harvey Norman Holdings Limited (HVN.AX) between 30 June 2014 and 30 June 2019.

• Go to the JB Hifi Ltd website and obtain the annual report (i.e. the Income Statement and Balance

Sheet) for the company for the 2019 financial year:  (i.e. ‘Appendix 4E and Financial Report 2019 Full Year‘).

• Go to Harvey Norman Holdings Limited website and obtain the annual report (i.e. the Income Statement and Balance Sheet) for the company for the 2019 financial year:


 

 

BUS1AFB: Dollars and Sense Finance Assignment Help

4. Based on the information taken from the 2019 annual reports, calculate the following ratios for each company for the 2019 financial year 
a. The annual growth in Earnings per Share;
b. Net Profit Margin;
c. Asset Turnover Ratio;
d. Leverage Ratio;
e. Return on Equity;
f. Quick Ratio; and
g. Net Debt to Equity Ratio.
(These ratios have been calculated for you from financial year 2015 to 2018.)

 

BUS1AFB: Dollars and Sense Finance Assignment Help

BUS1AFB: Dollars and Sense Finance Assignment Help

5. Which company has performed better over the past five years? Justify your answers using all the ratios calculated in question 4 (from year 2015 to year 2019) and Total Return to Shareholders calculated in question 3. 

6. Based on the examination of Return on Equity (ROE) using DuPont analysis, recommend and justify three changes that the underperforming company can implement to improve its future performance.

DuPont Formula for Return on Equity = Profitability × Efficiency × Leverage = Net Profit Margin × Asset Turnover × Leverage.

 

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  • Posted on : November 07th, 2018

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