Having already established the technical and marketing aspects of the study, Magnum will now try to incorporate all pertinent information gathered to determine the financial feasibility of W.I.T.
A comprehensive discussion of key quantitative indicators will be presented in this part of the study. This section will start off by presenting information regarding the project\u2019s total cost, initial capital requirements, the correct mix of financing as well as sources for such. Assumptions were already made regarding several factors concerning the financial projections. Financial statements and analysis of such will also follow. This will provide insight regarding the financial potential of W.I.T as a business.
The analysis and detailed evaluation of all generated projections is the basis for Magnum\u2019s conclusion that W.I.T is financially sound and capable of competing in the industry.
In order to realize the financial feasibility of W.I.T, Magnum conducted financial analysis to be able to conclude whether it is a business worth undertaking. The study started with an estimation of the total investment which will be required to set up the business. This amounted to Php 2,993,034.21, which includes registration fees, fixed assets, pre-operating/promotion expenses, as well as initial working capital requirements necessary to start up the business.
In order to determine the optimal capital structure, Magnum employed the EBIT-EPS approach. Based on the findings, it was concluded that the optimal mix of 70% debt and 30% equity yielded the highest EPS among the options considered and was therefore chosen. This translates to a Php 2,095,123.95 loan requirement and almost Php 900,000 in equity. Having been backed up by reputable guarantors, Magnum is certain to raise the necessary amounts required.
Based on the resulting projections as reflected by the financial statements, particularly the Income Statement, it turns out that Magnum stands to earn a positive net income in its first year of operations. Though the amount is relatively small, it signals that the business can stand to gain more as it continues its operations despite the additional cost of the 12% VAT and corporate taxes.
In addition, the net present value, computed for the operating cash flows for Years 1 to 10 is found to be positive and greater than zero. The internal rate of return computed for resulted to 29%, and the payback period for the business is 4.56 years. As such, it is determined that the company would earn a return greater than 20%, communicating an attractive market value to the investors and increased wealth for the owners.
Financial Ratios were derived to assess the performance of W.I.T. Based from the resulting liquidity, activity, debt, and profitability ratios, W.I.T.\u2019s business operations are indeed efficiently and effectively managed.
A Sensitivity Analysis using a pessimistic scenario of 20% unmet target revenue and an optimistic scenario of 20% increase in target revenue were used to assess risk and used several possible return estimates to obtain a sense of variability among outcomes.
This action might not be possible to undo. Are you sure you want to continue?