ACC11407 Financial Management for Decision Making.
Assignment
FoodPlanet PLC which started in 2010 was founded by the chairman Mr Pep. The corporation operates a wholesale service for independent retailers, caterers and businesses and are committed to providing a better service to all of their customers. However, due to an increasing consumer demand for everything from online grocery shopping to more personalized advertising, the rise of technology in the grocery industry is reaching a fever pitch. The sales have plummeted due to external competition.
The company does not have an online platform and is struggling to cope with the demand of online shopping. Their sales have dropped as less people venture into the shops to buy food. To encourage sales and growth, the company have provided more discounts and offers to customers. Nevertheless, the fall in the company has affected the profitability margins and has had a serious effect on their borrowing capacity and ability to pay back the interest on their debts and decrease in cash flow.
In order to enhance competition and start up the online branch, Mr Pep considers raising finance to expand the online retailing stores and buy products. Given that the firm`s financial positions and the risk entering into new internet market, this has not been without risks both short term and long-term growth as the running online e- retail store will affect financial structure and probability.
Initially, the cash flow coming into the online branch is expected high as customers were intrigued over the range of goods and wholesale prices. There was a high volume of sales and therefore the companies had more liquid assets (cash) then initially anticipated.
After discussing the business online experts in the type of retail grocery business they anticipate that after costs the cash flow coming into the online store will increase the sale by 550,000 a year. The immediate cost necessary to establish the online processing software will cost 4,000 and it can have a useful life of five years. The internet company charges 6,000 for installing a new online network (line) and 1,600 a year for the line. The online delivery is needed a fleet of new delivery vans and the vans cost 250,000.
The vans can be financed for 5 years with a 40% down payment. The bank will offer finance for the vans through a loan at 5% compounded monthly with monthly payment of 2,830.69. The company will need to recruit for part time van delivery drivers to carry out the delivery of catering products and it costs 5,000 a year. The vans have a useful life of five years and it depreciates straight line for five year. It assumes that the salvage value on the new vans is equal to 25% of the total cost of vans and that the straight line depreciation method is appropriate to estimate the depreciation expense per year. The annual depreciation expense in the company`s income statement is calculated at 20% of annual depreciation. It should be noted that the company has a 20% tax rate for its profits.