iTable of Contents

Capital from partners will be invested as follows 1 Working Capital 1 Operations Management 1 The Financing Decision 2 The Total Funding Required 2 Internally Generated or Externally Resourced 2 Accounting Rate of Return 3 Expected Cash Inflows (£m) 4 Payback Period 4 Net Present Value (NPV) 4 Profitability Index 5 Internal Rate of Return 5 Proposed Dividend Allocation to the Partners 6

Capital from partners will be invested as follows

Total Capital from partners = £ 6.35m

No. of Shops = 12 * 0.354 (m) = £ 4.25m [Total money invested for shop purpose]
Decoration (for 10 years) = 10 * 0.12 = £ 1.20m
Other Overhead (fixed) = 10 * 0.01 = £ 0.10m
Delivery Vans = 2 * 0.015 = £ 0.30m
Webpage Development (for 5 years) = £ 0.50m

= £ 6.35m

Working Capital

Total inventory will be hold at a time = £ 2.15m
Total level of credit will be given to customers = £ 1.0m

Cash on hand will be kept for day-to-day expense = £ 0.5m

Total Working Capital = £ 3.65m

Operations Management

Ordering bulk items will bring more profit for the CES-V-RT Clothing as CES-V-RT Clothing will get a good percentage of discounts (about 10%) on 2m = 0.2m and this decision will increase the CES-V-RT Clothing’s financial strength.
However, all the bulk discounted products will be purchased according to the size of the warehouse. To make a precise use of the CES-V-RT Clothing’s warehouse by placing order to the supplier will be as per the table below:
Economic Order Quantity (EOQ) = √ (2*Ch*D/Cn)
Where,
Ch = Cost of holding one item for a year,
Co = Cost of placing each order
D = Annual demand. Order Quantity | Annual Cost of Holding (£) | Annual Cost of Ordering (£) | Total Amount Stock Cost (£) | 1000 [By reducing order quantity CES-V-RT Clothing will face more expense] | 750 | 100 | 51.64 | 100 | 75 | 1000 | 516.39 | 10 | 7.5 | 10000 | 1632.99 |

It is clearly feasible that, bulk purchase of the items would be less expensive and resource of the CES-V-RT Clothing will be used precisely. Therefore, the CES-V-RT clothing has decided to order at least 1000 units of the clothes at once which will have a stock cost of just £ 51.64 and ordering cost of 100.
The Financing Decision

The following issues need to resolve before considering the financing decision. The topics are illustrated below:

The Total Funding Required

Capital = £ 6.35m
Long term loan from Bank = £ 3.65m
Total funding = £ 10.0m

Internally Generated or Externally Resourced

Source of Money | Amount (£) | Bank Loan | 3.65m | Real Acharjee | 1.11m | Suman Bhandari | 1.10m | B G Moinuddin Chisty | 1.11m | Emmanuel Otuokpai | 1.11m | Thiurmaran Thiruganam | 1.11m | Vikrant Dhokale | 1.11m | Total | 10.0m |
Accounting Rate of Return

Average Rate of Return = (Average annual profit/Initial investment)*100
The ARR for the CES-V-RT Clothing is expressed below:
ARR = (C-D)/I
Where ARR = the accounting rate of return
C = Average annual net inflows, from the investment
D = Annual depreciation, of the equipment purchased
I = Net investment outlay

Depreciation is calculated below just only on the following assets where money were invested,
Decoration = £ 1.20m
Other Overhead = £ 0.10m
Delivery Vans = £ 0.30m
Total Depreciation = £ 1.60m
Depreciation, D = 1.68 = £ 0.20m
Using the figures given in the payback period, the ARR would be calculated as:

ARR = 2.035-0.2010.00*100% = 18.35%
Note: Net inflows if covered for the estimated time of the entire project period (8 years).

Expected Cash Inflows (£m)

£m Year-1 Year-2 Year-3 Year-4 Year-5
Profit 0.85 1.25 1.65 1.95 2.35 Year-6 Year-7