I have the idea of setting up a hog dog van on a vacant piece of waste ground opposite the club at night. The van would also be handy for offices nearby so sales could also be made during the day. However these sales would be on contract to local firms and would be paid by invoice three months in arrears. Sales would be as follows;
T/ Night Sales (£)/ Day Sales (£)
2010/ 15000/ 19500
2011/ 16025/ 20832.5
2012/ 17050/ 22165
2013/ 18075/ 23497.5
van cost £20,000, my accountant has advised me that this should be depreciated at 25% and will have a net worth of zero at the end. I paid £10,000 to a market researcher. He estimates I will need a cash float of £30,000. He estimates annual staff costs and stock costs:
Variable Costs
T/ Staff Costs (£)/ StockCosts (£)
2010/ 17550/ 13500
2011/ 18083/ 15120
2012/ 18616/ 16934
2013/ 19149/ 18967
Stock purchases from wholesalers given six months credit.
I will undertake the initial expenditure in 2009. Should I go ahead given that I currently earns 6.5% on my savings in a high interest account?
1. Set these figures out as a profit and loss account
2. Calculate the accounting rate of return
3. Work out the Net Present Value
4. Roughly work out the internal rate of return(to within a half percent either way)
5.Explain which of the above criteria would be relevant in making a decision on whether to go ahead with the project. (25)
6.Would you recommend this project? (5)