Description
Scenario
You recently went to a dealership for an oil change on your vehicle as no independent oil change companies or auto repair shops are within 50 miles of your home. You paid $170 for this oil change on your Chevy Camaro. Given your entrepreneurial spirit and frustration with the cost of the oil change, you have an idea for a mobile oil change company. You have completed a marketing survey to determine potential interest in such a company. The results of the marketing survey suggested that 40% of vehicle owners would entertain using a mobile oil change company for oil changes if such a company existed.
You live in a town that has 20,000 registered vehicles, of which 15,000 are taken by their owners to the dealerships for oil changes. Most owners take their vehicles into the dealership three times a year. You will need a truck, supplies, tools, and insurance to start this business and must gain funding from investors. Pro forma financial statements, a financial plan, and a business plan are required for all potential investors and creditors. Prepare a 10-15 slide PowerPoint presentation with the above information to present to potential investors and creditors.
Instructions
Using PowerPoint (or similar), you have been asked to develop a feasibility study presentation to determine the feasibility of this idea of a new company. Your feasibility study presentation should include the following:
- Develop a conservative forecasted sales budget based on the survey results. Make sure your price is less than what the dealership charges.
- Identify fixed and variable costs for each oil change. Using these values, develop an operating budget to determine the contribution margin for an individual oil change, and the total amount for the forecasted sales budget.
- Develop a proforma income statement, balance sheet, and statement of cash flows for the first year of business.
- Based on these proforma financial statements, calculate all profitability, liquidity, and solvency ratios.
Explanation & Answer
View attached explanation and answer. Let me know if you have any questions.
Estimated Figures based on Market Survey
Vehicle Owners in Town, taking their vehicles to Oil Change Dealership
Expected owners to use Mobile Change Company (40% of Owners)
Number of Oil Changes expected in a year (3 time per owner)
Price per oil change (Less than the dealership) $
15,000
6,000
18,000
150
Conservative Annual Forecasted Sales Budget
Quarters
Number of Oil Changes (18,000 divided equally to each quarter)
Price per oil change (Less than the dealership)
Forcasted Sales in $
Quarter 1
4,500
150
675,000
Operating Budget
Quarters
Number of Oil Changes (18,000 divided equally to each quarter)
Price per oil change (Less than the dealership)
Forcasted Sales in $
Less Variable costs
Motor Oil
Oil Filter
Grease
Supplies
Disposal services
Truck Maintenance
Total Variable Cost per Oil Change
Quarter 1
4,500
150
675,000
90,000
67,500
45,000
22,500
13,500
18,000
256,500
Contribution Margin (Sales - Variable Cost)
418,500
Performa Income Statement
For the first year ended 31st December 2021
Revenue
Less Variable Cost of Sales
Gross Profit
Less Other Operating Expenses
Annual Salaries
Annual Rent of the Shop
Annual Depreciation Charges
Total Other Operating Expenses
Operating Profit
Less Interest Expenses
Profit before Tax
Amount in $
2,700,000
(1,026,000)
1,674,000
$
$
$
$
(1,008,000)
(300,000)
(36,042)
(1,344,042)
329,958
(40,000)
289,958
Tax Expenses (25%)
Net Profit After Tax
(72,490)
217,469
Performa Balance Sheet
As at 31st December 2021
Assets
Current Assets
Cash in Hand
Cash at Bank
Office Supplies
Tools
Inventory in Hand*
Total Current Assets
Non-current Assets
Trucks
Laptop
Air Conditioners
Less Accumulated Depreciation
Non-current Assets (Net Book Value)
Total Non-Current Assets
Total Assets
46,308
416,774
5,000
60,000
355,042
883,124
300,000
25,000
35,000
(36,042)
323,958
323,958
1,207,082
Liabilities
Accounts Payable **
Bank Loan for 7 years @ 8% (1/7 principal repaid each year)
Total Liabilities
181,042
428,571
609,613
Equity
Capital Invested
Drawings (10,000 per month)
Retained Earnings
500,000
(120,000)
217,469
Total Equity
597,469
Total Liabilities & Equity
1,207,082
* Inventory in Hand = Opening Inventory + Purchases - Cost of Sales
Opening Inventory of Oil, Filter & Supplies
Add Purchases during the year
Less Cost of Sales
Closing Inventory of Oil, Filter & Supplies
1,381,042
(1,026,000)
355,042
** Accounts Payables = Opening balance + Purchases - Less Payments
Opening Payables
-
Add Purchases during the year
Less Payables Paid
Closing Payables
1,381,042
(1,200,000)
181,042
Statement of Cash flow (Direct Method)
Cash received from customers
Cash paid to suppliers
Less other operating expenses paid
Less Interest paid
Less Taxes paid
Net cash provided by operating activities
Cash flow from Investing activities
Non-current assets purchased
Tools & Supplies purchased
Net cash used by investing activities
Cash flow from Financing activities
Capital invested (equity)
Long-term debt borrowed
Less drawings made
Less long-term debt repaid
Net cash used by financing activities
Cash Flow Summary
Opening Cash & Bank Balances
Net increase / (decrease) in cash during the year
Closing Cash & Bank Balances
2,700,000
(1,200,000)
(1,308,000)
(40,000)
(72,490)
79,510
(360,000)
(65,000)
(425,000)
500,000
500,000
(120,000)
(71,429)
808,571
463,082
463,082
Estimated Oil Changes per person per week
Work Hours per week per person
Hours taken per oil change per person
Number of oil changes per person
OR
Number of oil changes in a year (from above)
Number of oil changes in a week ( In a year / 52)
Number of employees
Number of oil changes in a week per person
18,000
346
12
29
Capital Investment Appraisal for Additional Trucks
Assumptions
Cost per truck
150,000
40
1.4
29
Number of Trucks to be purchased
Total cost upfront
Estimated increase in sales per truck per year
Total Increase in sales per year
Increase in variable costs per year (35% of sales)
Increase in fixed costs per year
Scape value per truck at year 5
Discount Rate
Capital Investment appraisal Calculations
Initial Investment for Trucks & Scrape Value for 5 Trucks
Increase in Sales
Increase in Variable costs
Increase in fixed costs
Net Cash Flows
Discount Factor (6%)
Discounted Cash Flows
Net Present Value
IRR (Internal Rate of Return)
5
750,000
70,000
350,000
122,500
50,000
25,000
6%
0
(750,000)
(750,000)
1.000
(750,000)
91,102
10.0%
Quarter 2
4,500
15...