Reference no: EM13139112

Assignment 2: Creation of a Financial Plan 
Assignment overview This assignment has a management accounting orientation. It draws on management accounting topics that include budgeting, sensitivity analysis, cost volume profit analysis and decision-making. The assignment is designed to develop the student's ability to develop a well-reasoned financial plan. The plan is to be written from the perspective of a small start-up business that is seeking to document its worthiness to a bank in order to secure a loan. Students have the choice of working on their own, or in teams of up to four people. 

Assignment details 
You have approached a bank and asked for a loan in connection with a small business you are planning to start. The bank has requested that you prepare a detailed financial plan in support of your loan application 

Assumptions/Criteria 

• To simplify the analysis, this is a one product merchandising or retail business.
  Assume the following cash receipts pattern: 40% collected in month of sale; 55% in month after sale; 5% bad debts.
  Assume the following cash payments pattern for inventory purchases: 30% paid in month following the purchase, 70% paid two months after the purchase.
  Ignore GST and any other taxes.
  The loan you seek will result in a debt / equity ratio of 1.5.
  Part 2) A one year plan (individual budgets can be broken up by month or quarter) which includes:
  
  One page dedicated to each of the following:
  - Data Input sheet
  - Sales budget
  - Inventory purchases budget
  - Other operational budgets
  - Budgeted Income statement in contribution format
  - Cash flow budget
  - Budgeted Balance Sheet
  - Capital expenditure budget
  - Sensitivity analysis of profit and cash flows:
  a. If sales volume increases / decreases 10% from that expected
  b. If variable costs increase by 20%
  
  Total length of part 2: nine pages
  
  Part 3) A long term plan (5 years) which includes:
  
  One page dedicated to each of the following:
  - Sensitivity analysis of income statement (in contribution format)
  - Sensitivity analysis of cash flow budget
  - Capital expenditure plan.
  
  Sensitivity analysis is to document profitability and cash flow under three sales volume scenarios: best case, most likely, and worst case scenarios.
  
  Total length of part 3: three pages
  
  Part 4) Cost volume profit assessment
  
  One page dedicated to:
  Breakeven analysis and margin of safety analysis (in units and sales dollars). The margin of safety analysis should assess three sales volume scenarios: best case, most likely, and worst case scenarios.
  
  Total length of part 4: one page