ANSWER 1:

I would suggest for David’s project that you should go for the option of small retailers.
There are certain reasons for choosing the option of small retailers are:-

1. Large retailers cannot go anywhere like small retailers can open their shop
anywhere.
2. Those small retailers are famous in their society than they can also work like large
retailers in their society.
3. For manufacturing their costs are less than their large retailers.
4. For advertisement and other expenses are also less than large retailers.
5. The main strongest point for small retailers they are getting more profit than
instead of large retailers.

FUNDS REQUIRED

In every company expected cost is there in which every financial manager or the director
has a right to know it because what we are going to do in business is based upon this
only. So for this business also expected cost is summarized next only:-

Funds required Average cost

Manufacturing cost ₤100,000- ₤350,000 ₤200,000
Marketing cost ₤75,000 ₤50,000
Prototype cost ₤750 ₤750

Total cost ₤250,750 (A)

In this table we have assumed that manufacturing expense can be up to ₤200,000

and marketing cost can be up to ₤50,000 and finally prototype cost has already paid by
David’s for showing products to the managers of several DIY stores and outlets. Let total
costs i.e. ₤250,750 be (A).

FUNDS AVAILABLE

In every company there are some costs which is arranged by the owners, promoters of the
company or rather taking loan from friends or outsiders. For this business, funds which I
have are summarized below:-

Bank a/c ₤100,000

Pension ₤20,000
Funds made available by friends ₤100,000

Total funds ₤220,000 (B)

In this table I have given all information about funds which David’s can use for the
purpose of business. David’s also have a house from which he can take loan from bank
right only but I don’t think that there is necessary for taking loan from bank because we
have more good options than this. You can take loan after 10 or 15 years when you have
to arrange your product in nationwide.

ADDITIONAL REQUIREMENT

As funds required are ₤250,750 and funds available is ₤220,000. The additional
requirement is ₤30,750.without raising loans from banks and other financial institutions
are etc. there are sources from which David’s can take raise funds are:-
1. trade credit
2. accrued expense
3. overdraft
4. Bills discounting and bills purchased.

TRADE CREDIT

In trade credit he can communicate with the manufacturing company and can say that he
write now can pay only 50% of the amount in cash and another 50% will pay later on
which is more benefit for us to maintain balance sheet also.

ACCRUED EXPENSE

In accrued expense there is no implicit or explicit cost and the firm saves liquidity. From
which after this we will invest the money in different projects or contracts so that when
we have to pay the money than we will take out the money from that project or contract
and we will give you money as easy as can.

OVERDRAFT

As I have seen the past record of the bank a/c I think there is no problem so I think that
when we will communicate with bank manager than he has no problem of doing the
overdraft facility for us.

BILLS DISCOUNTING & BILLS PURHASED

If any body doesn’t want to give credit to us and he is saying that I want legal proof or he
wants money early as we are saying to him than we can give bills which is legal also and
if he wants money early as his needs than he can discount the bills from the bank and we
will give the money to the bank as per maturity date of the bills.
Answer 2:-

There are several options of utilization of David’s friend‘s funds are:-

• Either you should go for the option of loan.

• Either you should go for the option of equity shares.
• Either you will go for both of the option of loan and equity.

OPTION OF LOAN

The money which is given by David’s friends is very necessary for us. The help they are
doing for our company is very grateful for us company. They have given us ₤100,000
which means if we will use this money as loan than we have to pay the rate of interest
and principal also. In the below table we have explained what money we have of his
friend’s and what money what we have to give after a long period.

(Assumptions) (Assumptions)
Present value of money future value of money
Rate of interest 5% 8%
Paper work ₤50 ₤100
Friend’s money ₤100,000 ₤100,000

Total money ₤105050 (C) ₤108100 (D)

Have you notice that if we will take money as loan then not only we have to pay principal
amount & 5% extra and also we have to pay rate of interest more or less as per the
market conditions because certain things in which we cannot do anything.

OPTION OF EQUITY

As the conditions of loan are not suited for our company therefore I will say you that you
should go for the option of equity shares also. Now in the below table we are explaining
the equity shares option which is made on the basis of per year.

(Assumptions) (Assumptions)
Present value of money future value of money
Rate of dividend 4% 5%
Paper work ₤50 ₤100
Friend’s money ₤100,000 ₤100,000

Total money ₤4050 (E) ₤5100 (F)

Have you notice that in equity shares we have to pay less money then loan. And in equity
shares we have to decide what type of rate of dividend is good for our company which we
have to give to share holders or we do not have to give the dividend to share holders.
Because this is not necessary for us to give the dividend to share holders and in equity
shares we do not have to give principal amount also.

OPTION OF LOAN AND EQUITY

As the option of loan and equity I have recommended is very grateful for our company.
In which we have to pay less amount per year and we do not have to give the tax more
according to per year. In this case what we have to do is this that we should divide
amount half in both the sources i.e. equity and loan. It can be formed in table also which
is recommended below:-
(Assumptions) (Assumptions)
Equity Loan
Rate of interest nil 5%
Rate of dividend 5% nil
Paper work ₤50 ₤50
Amount ₤50,000 ₤50,000
Tax 10% 10%

If we will work according to this table than we can also say to David’s friend’s that we
will not give you dividend till 3 years in return we will give you rate of interest instead of
dividend. According to this we will save the money of dividend of 3 years for liabilities
and we do not have to pay tax more for 3 years.

Now you are thinking that after 3 years we have to give rate of interest and rate of
dividend which means you are giving double money to your friend’s but it is not the
really task. In this when we are not giving rate of dividend than we can repay loan to the
David’s friend’s and from which in 3 years, I think most of the loan will recover so it will
not create the problem for us.

CONCLUSION

So instead of going through the point of loan and equity separate, it is better to opt for the
equity and loan together. After doing this David’s friends will also get the rights of equity
and loan are:-

1. Voting rights.
2. Rights to sell transfer or equity shares.
3. Right to receive the annual report.
4. Right to receive cash management.
5. Right to know cash inflow and cash outflow. Etc and etc.
Answer 3:-

FINANCIAL PLANNING

Financial planning is very important for company now a days because of financial
planning we can see how much we are doing profit or lose and what are the expenses
which we are doing which is not useful but we are doing. It is very grateful for us that
who has invented the financial planning because we can predict or can plan what we have
to do in the business or how much we have to take care of cash inflow and cash outflow
because we are no doing so then our company can go into the lose and we are not aware
about it or you can say that “a disease can kill any man”. So there are several points from
which we can do a better business in the future are:-
1. We always have knowledge about that how our product is doing.
2. We always have knowledge that any other company is also making same product
or not.
3. We have to know that how much cash inflow or outflow is there.

PRODUCT IS DOING

We always aware that how our product is doing. Is it doing good or bad? We can know
such things by our wholesalers or retailers that how much quantity is there and comparing
from our achievements we will know that how we are doing. For ex. You have decide
that your sales per week is 85 per units and you have achieved 70 sales per unit than you
are not doing so much bad but you have to know that why our products sales can not
reached that we have decided. There are certain reasons from which our sales cannot
achieve the target so there are such points are:-
1. Market conditions are not so much good.
2. Our product has not reached every where in the market.
3. Our advertisements are not so much good that we cannot attract rich class peoples
to us. And etc. & etc.

COMPETITION

We always have to aware that any other company is making same product or not. If any
other company is also making same product than due to him our product sales can go low
or become nil if we will not do anything. Then in such cases we have to follow various
points are:-
1. We can decrease the price of our product so that it can be fit for everybody’s
budgets.
2. We can also offer various types of offers to our customers like buy 2 products and
get 1 free. Etc and etc.
3. We can also change our advertisement from television so that new customers can
also attract to us. Etc. and etc.
CASH INFLOW AND CASH OUTFLOW

We have to aware that how much cash inflow and cash outflow are there in the company.
If there is more cash inflow towards company than it will be a good sign for us because it
means that we are getting money from the market which also means that our product is
going stronger in the market or taking place in the market. If it is not then it will create
problem or company can go into loss.

CONCLUSION

After considering whole financial planning I think you have to take care of these small
small points because these small points are always become major issues if we will not
take care of them it can create problem whether it is small or large. This can be deciding
up to conditions of company or some other problems.