Feasibility Study: Proposed Expansion Of Rob’s Furniture Restoration Ltd

The report has been prepared with an intention to analyse the feasibility of proposed expansion strategy with directors of Rob’s Furniture Restoration Limited (RFR), a family owned business with 3 directors on board. The company is seeking an opportunity to expand its business and has accordingly consulted the Accounts team to conduct a feasibility study of the project and comment on the same. The feasibility study has been annexed to the report and the project is feasible based on the calculations detailed in annexure. The Net Present value stands at $ 1,234,455.

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The assumptions under the said computation have been detailed here-in-below:

  • Trip cost is sunk cost and $37,500 has not been considered;
  • Reimbursed expenditure is not considered ;
  • Staff salary of 3 additional staff is considered;
  • Increase in salary takes place from second year;
  • The price offered by other party for the property in Hornsby is not taken into consideration;
  • The sale value of premise includes the sale price of building and has not been considering separately;
  • The increase in working capital is realised at the end of the period.

Sl No

Particulars

Year 0

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Year 1

Year 2

Year 3

Year 4

Year 5

Terminal Value

1

Increased Revenues

750000

780000

840000

900000

960000

2

Cancellation Agreement (Net of Tax)

-4900

3

Increase in Maintenance cost

6700

6834

6970.68

7110.094

7252.295

4

Land Cost

-2430000

5

Cost of Equipment

-260000

6

Training Cost (Net of Tax)

-39200

7

Wage Cost for 3 employees

224100

229702.5

235445.1

241331.2

247364.5

8

Valuation of Premise post 5 Year

4250000

9

Depreciation of old equipment

3600

3600

3600

3600

3600

10

Depreciation of New Equipment

37000

37000

37000

37000

37000

11

Saving in Rent Cost

85000

85000

85000

85000

85000

12

Depreciation on Building

66500

61845

57515.85

53489.74

49745.46

13

Increase in Working Capital

45000

1800

3600

3600

3600

57600

14

Residual Value of Machine

75000

15

Net Cash flow before Tax

-2734100

282100

354218.5

410868.4

468869

526437.8

4382600

16

Tax Impact

84630

106265.6

123260.5

140660.7

157931.3

39780

17

Cash Flow Post Tax

-2734100

197470

247953

287607.9

328208.3

368506.4

4342820

18

Depreciation (Add Back)

107100

102445

98115.85

94089.74

90345.46

19

Net Cash flow

304570

350398

385723.7

422298

458851.9

4342820

20

Discounting Factor

1

0.900901

0.811622

0.731191

0.658731

0.593451

0.593451328

21

Present Value of Cash Flows

-2734100

274387.4

284390.8

282037.9

278180.8

272306.3

2577252.297

22

Net Present Value

1234455.451