Business Studies

Consider the following situation: We Guessed & You're Wrong has continued to operate and grow. In fact, business has increased to the point where new partners or staff might be considered. A new partner would bring capital of $1,000,000 to the firm and additional opportunities. Alternatively, you could hire three new NMSU engineering graduates and develop an associate program that would allow the new graduates to grow to partner status through career development. A potential partner would need to accumulate at least one million dollars to join. Make a recommendation to your partners. Use whatever financial data you can to develop your recommendation. A new partner might buy into your firm with either some level of new business or in cash. Associate programs would cost you some money but you would maintain control of your company. F I N A N CI A L P L A N F O R W G & Y W C O M P AN Y Whenever the financial plans for the companies are developed the most important component is the cash flow for that company. How much expenses the company is making in the resources and what is it earning form the services it provide. In the end the net profit or loss is determined so that optimization can be done if needed. CASH FLOW MANAGEMENT Year 1: ????????????????ℎ???????? ???????????????????????????? ???????????????????????? = 48000 $ ????????????????ℎ ???????????????????????? ???????? ???????????????????????????????????? = 8 ???????????????????????? ???????? ???????????????????????????????????? = 4 ???????????????????? ???????????????????????????? ???????????????????????????????????? ???????????????? ????ℎ???? ???????????????????????????? ???????? ????ℎ???? ???????????????? 1 = 48,000 $ × 12 = 576,000 $ So from the above calculation it can be observed that in the year one the total revenue generated by the company’s earning is 576,000$. Now it is necessary to observe that how much resources are being spent to provide these services. List of Expenses for year 1: ???????????????????????????????????? ???????????????????????????????? = 3,000 $ ????????????????ℎ ???????????? ???????????????????????????? ???????????????????? ???????????????????????? ???????? ???????????????????? = 30 ???????????? ???????????????????????????? ???????????????????????????????? ???????????? ???????????????????????????????? ???????????????????????? = 5,000 $ ???????????????? ???????????? ???????????????????????????? ???????????? ???????????????????????????????????? ???????????????????????????????? = 3,000$ × 30 × 4 = 360,000 $ ???????????? ???????????????????????????????? ???????????? ???????????????????????????????? ???????????????????????? = 5,000 $ × 4 = 20,000 $ ???????????????????? ???????????????????????????????? = $ 360,000 + $ 20,000 = $ 380,000 Since all of the expenses are listed it is now formidable to calculate the net profit gained by the WG & YW Company at the end of the year one. ???????????????????? ???????????????????????????? ???????????????????????????????????? = $ 576.000 ???????????????????? ???????????????????????????????? = $ 380,000 ???????????? ???????????????????????? = $ 196,000 Thus at the end of the year one the WG & YW Company earned a net profit of $ 196,000. Now the company partners have set a target to expand the business and increase the number of customers in the next coming two years. At the very moment the company has 8 customers and the total revenue suggest that each customer is generating revenue of almost $ 6,000. Now the calculations will be made for the next two coming years. Business Expansion Plan: ???????????????????????? ???????? ???????????????????????????????????? ???????? ???????????????????????????????? = 4 ???????????? ???????????????????????????? ???????????????????? ???????????????????????? ???????? ???????????????????????????????????? ???????????????????????????????????? = 4 × 4 = 16 ???????????????????? ???????????????????????? ???????? ???????????????????????????????????? ???????? ????ℎ???? ???????????? ???????? ???????????????? 3 = 16 + 8 = 24 ???????????????????????????? ???????????????????????????????????? ???????? ????????????ℎ ???????????????????????????????? = $ 6000 ???????????????????? ???????????????????????????? ????ℎ???????? ???????? ???????????????????????????????? ???????? ???????????????????????????????? ???????? ????ℎ???? ???????????? ???????? ???????????????? 3 = 12 × 24 × $ 6,000 = $ 1,728,000 ???????????????????????????????? ???????? ???????????????????????????? = $ 1,728,000 − $ 576,000 = $ 1,152,000 Five Year Plan: So it can be observed here that in 2 years the revenue generated by the company increased by $ 1,152,000, if the partners of the WG & YW company plan to achieve the target of increasing the number of their customers at the end of 5 years by the same target of 4 customers per partner then the total revenue generated at the end of the 5 years will be: ???????????????????? ???????????????????????????? ???????????? ????ℎ???? 5 ???????????????????? = $ 576.000 + $ 1,728,000 + $ 1,728,000 = $ 4,032,000 So the grand revenue the WG & YW Company generates following the five year plan will be $ 4,032,000. Now this revenue is the one it obtained from its customers by providing the services. Now the resources spent by the company needs to deducted to obtain the net profit. Since the interest rates and the taxation has been neglected thus the only expenses are the travel expenses and the computer and software update. ???????????????????? ???????????????????????????????? ???????????? ???????????????????????????????? ???????????????????????? ???????????????? = 5 × 4 × $ 5,000 = $ 100,000 ???????????????????? ???????????????????????????????????? ???????????????????????????? = $ 3,000 × 30 × 4 × 5 = $ 1,800,000 Thus the net profit gained by the company will be: ???????????? ???????????????????????? ???????????? ???????????????? ???????????????? ???????????????? = $ 4,032,000 − $ 1,800,000 = $ 2,232,000 This is the net profit gained by the company. Now it must be noted while doing these calculations the taxation and the interest rates have been neglected. it should also be noted that the expenses over the span of five years have been kept constant despite of the fact that the number of customers have been increased. Since the computer and software update is absolute thus there will be no increase in that expense per year but since the customers have increased there is a chance that number of trips might increase. But since there is not enough information that how trips are being planned thus the travel expenses have also been kept constant. Now moving to the second part of the assignment, where an offer has been placed to buy the firm. Now we have to make our offer to the entrepreneurship professor. Since the company has a progressive growth the current state analysis of the company regarding the cash flow is necessary. It must be noted that whatever the price is decided it will be divided equally between the four partners. To determine the company’s worth in the market the multiplier method will be used. Since it is a company related to computing technology and data mining software thus the assets here are not involved to determine the company’s market value. So determining the proper multiplier the estimated price can be judged for the company. We will make use of the profits obtained from the five year plan to determine the multiplier factor. ???????????????????????????????????????? ???????????????????????? = ???????????????????? ???????????????????????? − ???????????????????????????? ???????????????????????? ???????????????????????????? ???????????????????????? ???????????????????????????????????????? ???????????????????????? = 2,232,000 − 576,000 576,000 = 2.875 Now the discussion should be made here on the point of using the initial profit as the denominator rather than the final profit. To support this argument this must be noticed that if the denominator uses the final profit the multiplier factor will be 0.74. thus when multiplied with the net profit the company is gaining in the fifth year the amount will turn out to be less. But since the recent five year plan shows the company has shown a continuous growth and its profit has increased over the span of five years thus the progressive factor of 2.875 is justified for the company. Since the multiplier is obtained the net profit gained by the company in one year needs to be calculated. ???????????????????? ???????????????????????????? ???????????????????? ???????????????????????????????????? ???????? ???????????????? 5 = 6000 × 24 × 12 = $ 1,728,000 ???????????? ???????????????????????????????????? ???????????????????????????????? = 3,000$ × 30 × 4 = 360,000 $ ???????????? ???????????????????????????????? ???????????? ???????????????????????????????? ???????????????????????? = 5,000 $ × 4 = 20,000 $ ???????????????????? ???????????????????????????????? = $ 360,000 + $ 20,000 = $ 380,000 ???????????? ???????????????????????? = $ 1,728,000 − $380,000 = $ 1,348,000 Since the net profit is obtained, the market value of the company can be obtained by multiplying it with the factor determined from the profits of the last five year. ???????????????????????? ???????????????????? = $ 1,348,000 × 2.875 = $ 3,875,500 Thus the worth of the WG & YW is determined to be $ 3,875,000 which is purely based on the profits the company has obtained in the last five years and due to this, the said rate is justified. Since the company has 4 partners thus each partner will get: ???????????????????? ???????????????????? ???????????? ????????????ℎ ???????????????????????????? = $ 3,875,000 4 = $ 968,875 Thus if the company’s market worth is $ 3,875,000 then each partner has a share of almost $ 968,875 in it.