To
This business mail has been framed to the Chairman of Cockatoo Real Estate Pty Ltd for the consultancy for viability of opening branches in Sydney. After analysing the profitability, break-even point, financial viability return on capital employed available on the invested capital, it is found that company should accept the project of opening up its 10 pilot branch Camper down in Sydney as it will give good amount of return on capital employed to investors. However, in order to assess the viability of the project, we need to take the access to an empty retail premises for a pilot investigation. The main reason for getting access to the empty retail premises for the pilot investigation is based on the mock up a simulation branch and analysing the available business factors which may positively and negatively impact the project. It will also help in analysing whether the undertaken office equipment and infrastructure would be complying with the international WHS legislation laws and regulation. Action required by the board of directors- all the directors needs to pass special resolution in the board meeting for giving their consents on the particular events and matter. There will be other points as the research would be made on the internal and external factors for analysing the viability for the project proposal. The estimated time for the report to be submitted would be 6 months which will required to analysis the all the feasible factors associated with the project.
Thanks for considering the mail and looking forward to the positive reply
Dear
The Chairman of Cockatoo Real Estate Pty Ltd
I submit herewith a proposal in support of the research program entitled to opening up its 10 pilot branch Camper down in Sydney. This project is beneficial one and in orders to analysis the feasible factors; we need access to the empty retail premises for the pilot investigation.
I am requesting to allow us to get the access to the empty retail premises for the pilot investigation. Part-2
This report will analysis the review the financial viability and possible benefits which company would have after opening up other inner suburban branches in Sydney over the next 12 months. It will be used to identify the feasible factors which might impact the acceptance of the project.
This report is accompanied with potential issue, challenges, financial viability and related financial returns and opportunities for opening up of pilot branch in Camper down and if successful will open 10 other inner suburban branches in Sydney over the next 12 months. The acceptance of this project would be based on the break-even point, financial viability return on capital employed available on the invested capital.
The financial projection and estimation of the profit and loss associated with the particular project reflects how company could be benefited after undertaking the proposed project. The estimated listing sales per year have been decided on the basis competitors offering and market external factors. The estimated fees from sales of apartment would be $ 15000000 which may also increase with the increase in its services (Hartmann, and Driessen. (2017, 259-470).
The estimated projection for the profit and loss of Cockatoo Real Estate Private Limited has been computed as below (Lin,et al. (2015, 459-470)
|
CRE Limited |
|||||||||
|
Budgeted Profit and Loss Account for Camper down branch |
Forecasted Income statement |
||||||||
|
Year ended 31 December 2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
||||
|
$ |
$ |
||||||||
|
INCOME |
|||||||||
|
Fees from Sale of Apartments |
1500000 |
1650000 |
1815000 |
1815000 |
1996500 |
1996500 |
|||
|
Commissions from Financial services sales (assume 1/3 on sales x 1000) |
25000 |
||||||||
|
TOTAL INCOME |
1525000 |
1677500 |
1845250 |
2029775 |
2232753 |
2456028 |
2701631 |
2971794 |
|
|
EXPENDITURE |
|||||||||
|
Fixed Costs |
|||||||||
|
1 x Manager; 2 x Sales negotiators; 1 x secretary |
(410,000) |
-451000 |
-496100 |
-545710 |
-600281 |
-660309 |
-726340 |
-798974 |
|
|
Rent/Rates/Insurance of Commercial Business premises |
(460,000) |
-506000 |
-556600 |
-612260 |
-673486 |
-740835 |
-814918 |
-896410 |
|
|
Vehicle costs |
(30,000) |
-33000 |
-36300 |
-39930 |
-43923 |
-48315.3 |
-53146.8 |
-58461.5 |
|
|
Lease of Business Equipment (P.copier etc) |
(30,000) |
-33000 |
-36300 |
-39930 |
-43923 |
-48315.3 |
-53146.8 |
-58461.5 |
|
|
Selling and Corporate Marketing Costs |
(50,000) |
-55000 |
-60500 |
-66550 |
-73205 |
-80525.5 |
-88578.1 |
-97435.9 |
|
|
Depreciation of Plant and equipment |
(30,000) |
-33000 |
-36300 |
-39930 |
-43923 |
-48315.3 |
-53146.8 |
-58461.5 |
|
|
Head Office Costs |
(100,000) |
-110000 |
-121000 |
-133100 |
-146410 |
-161051 |
-177156 |
-194872 |
|
|
Total Fixed Costs |
(1,110,000) |
-1221000 |
-1343100 |
-1477410 |
-1625151 |
-1787666 |
-1966433 |
-2163076 |
|
|
Variable Costs |
|||||||||
|
Detailing, stationery and marketing |
0 |
||||||||
|
$500 per listing per year |
|||||||||
|
Total Variable Costs |
0 |
0 |
0 |
0 |
0 |
0 |
1 |
2 |
|
|
TOTAL COSTS |
(1,110,000) |
-1221000 |
-1343100 |
-1477410 |
-1625151 |
-1787666 |
-1966432 |
-2163074 |
|
|
PROFIT/(LOSS) FOR YEAR |
415,000 |
456500 |
502150 |
552365 |
607601.5 |
668361.7 |
735198.8 |
808719.6 |
|
|
GROSS MARGIN |
27.21% |
27.2% |
27.2% |
27.2% |
27.2% |
27.2% |
27.2% |
27.2% |
(Please see the attached profit and loss account)
Break-even point analysis- It is the point at which company would have any profit and loss form its business functioning. This could be computed by using the formula i.e. contribution/ per unit sales (Hartmann, and Spit. 2016, 361-367).
|
Particular |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Sales (in units) |
$ 800,000.00 |
$ 880,000.00 |
$ 968,000.00 |
$ 1,064,800.00 |
$ 1,171,280.00 |
|
Unit costing |
$ 1.88 |
$ 2.27 |
$ 2.75 |
$ 3.32 |
$ 4.02 |
|
Total sales |
$ 1,500,000.00 |
$ 1,996,500.00 |
$ 2,657,341.50 |
$ 3,536,921.54 |
$ 4,707,642.57 |
|
(-) Variable Costs |
$ 37,500.00 |
$ 41,250.00 |
$ 45,375.00 |
$ 49,912.50 |
$ 54,903.75 |
|
Contribution |
$ 1,462,500.00 |
$ 1,955,250.00 |
$ 2,611,966.50 |
$ 3,487,009.04 |
$ 4,652,738.82 |
|
(-) Fixed Cost |
-$ 1,110,000.00 |
-$ 1,221,000.00 |
-$ 1,343,100.00 |
-$ 1,477,410.00 |
-$ 1,625,151.00 |
|
Net Profit |
$ 2,572,500.00 |
$ 3,176,250.00 |
$ 3,955,066.50 |
$ 4,964,419.04 |
$ 6,277,889.82 |
|
Break-even point |
$ 780,000.00 |
$ 861,818.18 |
$ 951,471.07 |
$ 1,049,773.70 |
$ 1,157,619.73 |
These above are the points of listing sales which company needs to make in order to run its business operations at no profit and no loss point (Chapman, and Ward, 2018.).
|
Year |
|||||
|
Particular |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Sales (in units) |
$ 800,000.00 |
$ 880,000.00 |
$ 968,000.00 |
$ 1,064,800.00 |
$ 1,171,280.00 |
|
Unit costing |
$ 1.88 |
$ 2.27 |
$ 2.75 |
$ 3.32 |
$ 4.02 |
|
Total sales |
$ 1,500,000.00 |
$ 1,996,500.00 |
$ 2,657,341.50 |
$ 3,536,921.54 |
$ 4,707,642.57 |
|
(-) Variable Costs |
$ 37,500.00 |
$ 41,250.00 |
$ 45,375.00 |
$ 49,912.50 |
$ 54,903.75 |
|
Contribution |
$ 1,462,500.00 |
$ 1,955,250.00 |
$ 2,611,966.50 |
$ 3,487,009.04 |
$ 4,652,738.82 |
|
(-) Fixed Cost |
-$ 1,110,000.00 |
-$ 1,221,000.00 |
-$ 1,343,100.00 |
-$ 1,477,410.00 |
-$ 1,625,151.00 |
|
Net Profit |
$ 2,572,500.00 |
$ 3,176,250.00 |
$ 3,955,066.50 |
$ 4,964,419.04 |
$ 6,277,889.82 |
|
Breakeven point |
$ 780,000.00 |
$ 861,818.18 |
$ 951,471.07 |
$ 1,049,773.70 |
$ 1,157,619.73 |
|
(-)Depreciation |
$ – |
$ – |
$ – |
$ – |
$ – |
|
Net Profit before Tax |
$ 2,572,500.00 |
$ 3,176,250.00 |
$ 3,955,066.50 |
$ 4,964,419.04 |
$ 6,277,889.82 |
|
(-) Tax @28% |
$ 720,300.00 |
$ 952,875.00 |
$ 1,186,519.95 |
$ 1,489,325.71 |
$ 1,883,366.94 |
|
Net Profit after tax |
$ 1,852,200.00 |
$ 2,223,375.00 |
$ 2,768,546.55 |
$ 3,475,093.33 |
$ 4,394,522.87 |
|
(+) Depreciation |
$ – |
$ – |
$ – |
$ – |
$ – |
|
Cash Inflows |
$ 1,852,200.00 |
$ 2,223,375.00 |
$ 2,768,546.55 |
$ 3,475,093.33 |
$ 4,394,522.87 |
|
(+) Salvage Value |
$ 9,500,000.00 |
||||
|
Cash Inflows |
$ 1,852,200.00 |
$ 2,223,375.00 |
$ 2,768,546.55 |
$ 3,475,093.33 |
$ 13,894,522.87 |
|
*Present value factor @12% |
$ 0.89 |
$ 0.80 |
$ 0.71 |
$ 0.64 |
$ 0.57 |
|
Present Value |
$ 1,653,750.00 |
$ 1,772,460.94 |
$ 1,970,596.75 |
$ 2,208,484.63 |
$ 7,884,125.42 |
|
Total Present values(A) |
$ 15,489,417.74 |
||||
|
(-)Cash Outflows |
|||||
|
Fixed cost investment |
-$ 1,110,000.00 |
-$ 1,221,000.00 |
-$ 1,343,100.00 |
-$ 1,477,410.00 |
-$ 1,625,151.00 |
|
(+)Marketing expenses |
$ – |
||||
|
(+)Cost Of equipment |
$ – |
||||
|
Total(B) |
$ 15,489,417.74 |
||||
|
Net Present Value(A-B) |
$ 15,489,417.74 |
After assessing the cash flow projecting of Cockatoo Real Estate Pty Ltd, It is analyzed that net present value of company would be $ 15,489,417.74 which may increase the overall outcomes and business efficiency in long run (Uechi, et al. (2015, 488-589)
The sensitivity analysis is used to evaluate the changing factors and other related factors which might positively and negatively impact the cash inflow an outflow from the business. In this case, the sensitivity analysis is done by changing the % of the fees units.
|
Year |
|||||
|
Particular |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Sales (in units) |
$ 800,000.00 |
$ 840,000.00 |
$ 882,000.00 |
$ 926,100.00 |
$ 972,405.00 |
|
Unit costing |
$ 1.88 |
$ 2.27 |
$ 2.75 |
$ 3.32 |
$ 4.02 |
|
Total sales |
$ 1,500,000.00 |
$ 1,905,750.00 |
$ 2,421,255.38 |
$ 3,076,204.95 |
$ 3,908,318.39 |
|
(-) Variable Costs |
$ 37,500.00 |
$ 41,250.00 |
$ 45,375.00 |
$ 49,912.50 |
$ 54,903.75 |
|
Contribution |
$ 1,462,500.00 |
$ 1,864,500.00 |
$ 2,375,880.38 |
$ 3,026,292.45 |
$ 3,853,414.64 |
|
(-) Fixed Cost |
-$ 1,110,000.00 |
-$ 1,221,000.00 |
-$ 1,343,100.00 |
-$ 1,477,410.00 |
-$ 1,625,151.00 |
|
Net Profit |
$ 2,572,500.00 |
$ 3,085,500.00 |
$ 3,718,980.38 |
$ 4,503,702.45 |
$ 5,478,565.64 |
|
(-)Depreciation |
$ – |
$ – |
$ – |
$ – |
$ – |
|
Net Profit before Tax |
$ 2,572,500.00 |
$ 3,085,500.00 |
$ 3,718,980.38 |
$ 4,503,702.45 |
$ 5,478,565.64 |
|
(-) Tax @28% |
$ 720,300.00 |
$ 925,650.00 |
$ 1,115,694.11 |
$ 1,351,110.74 |
$ 1,643,569.69 |
|
Net Profit after tax |
$ 1,852,200.00 |
$ 2,159,850.00 |
$ 2,603,286.26 |
$ 3,152,591.72 |
$ 3,834,995.95 |
|
(+) Depreciation |
$ – |
$ – |
$ – |
$ – |
$ – |
|
Cash Inflows |
$ 1,852,200.00 |
$ 2,159,850.00 |
$ 2,603,286.26 |
$ 3,152,591.72 |
$ 3,834,995.95 |
|
(+) Salvage Value |
$ 9,500,000.00 |
||||
|
Cash Inflows |
$ 1,852,200.00 |
$ 2,159,850.00 |
$ 2,603,286.26 |
$ 3,152,591.72 |
$ 13,334,995.95 |
|
*Present value factor @12% |
$ 0.89 |
$ 0.80 |
$ 0.71 |
$ 0.64 |
$ 0.57 |
|
Present Value |
$ 1,653,750.00 |
$ 1,721,819.20 |
$ 1,852,967.74 |
$ 2,003,529.03 |
$ 7,566,634.82 |
|
Total Present values(A) |
$ 14,798,700.79 |
||||
|
(-)Cash Outflows |
|||||
|
Fixed cost investment |
-$ 1,110,000.00 |
-$ 1,221,000.00 |
-$ 1,343,100.00 |
-$ 1,477,410.00 |
-$ 1,625,151.00 |
|
(+)Marketing expenses |
$ – |
||||
|
(+)Cost Of equipment |
$ – |
||||
|
Total(B) |
$ 14,798,700.79 |
||||
|
Net Present Value(A-B) |
$ 14,798,700.79 |
After changing in the units prices, Cockatoo Real Estate Pty Ltd would be having$ 14,798,700.79 net present value if the project of opening up other units is selected.
|
Factor |
Cockatoo Real Estate Pty Ltd |
Strength |
Weakness |
Stockdale and Lego Emeralnd |
Fletcher and building |
Importance of Customer |
|
Products |
Clients oriented customized services |
Unique and quality real estate services |
High fixed cost investment |
Stockdale and Leggo Emeralnd |
Fletcher and building |
Client based real estate services and low price charges |
|
Price |
Based on the demand and varied according to the market factors |
Customer negotiation |
Higher costing and less experts |
$ 4- $ 5 |
$ 4- $ 5 |
Use of online system process |
The SWOT analysis has shown the strength, weakness, opportunity and threats of accepting the project.
Strength- It is analyzed that Cockatoo Real Estate Private Limited open up its pilot branch Camper down in 9 other inner suburban branches when opening up 9 other suburban branches in Sydney, it will have to make high initial investment on yearly basis. However, the net present value of accepting the project in normal and sensitive cases, both are positive. In addition to this, it will allow company to deploy its capital in effective manner which will eventually increase the return on capital employed. In addition to this, due to its advance technology, strong brand image and experts experienced employees it will be easy for Cockatoo Real Estate Private Limited to win over the international market.
Weakness- The main Weakness of Cockatoo Real Estate Private Limited would be complying with the applicable rules and laws which might negatively impact the business outcomes if it is not complied by the organization. In addition to this, company may also fails to achieve the set targets if the proper work process system is not adopted in the process (Vogel, 2014).
Opportunity- With the increasing growth of the GDP rate and national income of Australia, there is positive economic environment for Cockatoo Real Estate Private Limited expand its business. However, company would have to focus on offering the effective services if it wants to strengthen its business in long run irrespective of the price constraints. Use of its advance dashboard mechanism and expert’s employees will strengthen the business functioning in effective manner (Damodaran., 2016).
Threats- The main threat for Cockatoo Real Estate Private Limited would be from its rivals offering. Due to the increased business profitability of this industry, it might be easy for the other new entrants to enter into this new business. It is analyzed that it might be hard for Cockatoo Real Estate Private Limited to cover its interest payment from the available cash inflow by setting up new open up its pilot branch Camper down in 9 other inner suburban branches when opening up 9 other suburban branches in Sydney.
The main marketing plan to acquire a pipeline of the properties to be marketed would be to become official pipeline marketers. It would allow company to use attributable model which will be used to revenue back up line through all the activities that involved in creating the lead’s journey through the marketing funnel,
The lead, prospects and customers would be three key themes for the marketing plan to acquire a pipeline of the properties to be marketed
Tope of funnel- Generate leads
It would be one by reaching as many clients as Cockatoo Real Estate Private Limited could. It would be done by using the strategic alliance, using online marketing and joint ventures in Sydney.
Middle of funnel- Nurturing prospects
Focus on business to business so that that existing business organization who is already working in this industry could outsource their work to Cockatoo Real Estate Private Limited.
Bottom of funnel- Converting leads to clients
After finding the potential clients from the undertaken sources, Cockatoo Real Estate Private Limited should focus on converting the leads into clients.
This marketing plan focuses on keeping every concerned person of team vigilant about the steps taken marketing initiatives. The markeing measures which could be used by management would be competitor’s sales, available opportunity and potential clients.
After that, management could use the possible marketing channels to communicate with the clients in market. This could be use of online marketing, cyber computing system and loyalty card approach to spread the information about the offered service to clients.
Another marketing plan to acquire the pipeline of properties to be marketed would be entering into the strategic alliance such as joint venture, merger and amalgamation. It would allow Cockatoo Real Estate Private Limited to easily grab the potential market in effective manner.
The risk management plan for setting up new 10 branches in Sydney would be as below.
Identify the risk- The management of Cockatoo Real Estate Private Limited would need to identify the risk of the particular project such as arrangement of the finance, marketing risk, operation risk and other related risk which may be found due to the internal and external busienss factors.
Assess the risk- In this case; Cockatoo Real Estate Private Limited might face risk of setting up coordination in the process and arranging the proper capital for financing the new project. These risk falls under high probability of the risk case (Ibn-Homaid, and. Tijani. 2015, 80-86).
Formulate the risk management plan- In order to mitigate these risks, Cockatoo Real Estate Private Limited could either transfer this risk by taking the insurance cover or reduce the risk by lower down the financial leverage of project.
Implementing the risk management strategies- Cockatoo Real Estate Private Limited needs to lower down the debt portion and also needs to take the insurance cover to eliminate the uncertainty.
Follow up- This is the end step which helps Cockatoo Real Estate Private Limited to consistently check-up the undertaken programs and strategies
Conclusion
After analysing all the required details and information of the marketing plan and forecasted future cash flow projections, it could be inferred that Cockatoo Real Estate Private Limited should expand its business in Sydney. As per the projection, it would be beneficial for company to strengthen its business outcomes if it accept the proposal to set up opening up of pilot branch in Camper down and if successful will open 9 other inner suburban branches in Sydney over the next 12 months.
References
Chapman, Chris, and Stephen Ward. 2013. Project risk management: processes, techniques, and insights. Wiley,
Damodaran, Aswath. Damodaran., 2016. security analysis for investment and corporate finance. 2nd ed, Australia: John Wiley & Sons,
Hartmann, Thomas, and P. Driessen. 2017 “The flood risk management plan: towards spatial water governance.” Journal of Flood Risk Management 89 (1) 459-470
Hartmann, Thomas, and Tejo Spit. 2016 “Legitimizing differentiated flood protection levels–Consequences of the European flood risk management plan.” Environmental Science & Policy 55 : 361-367.
Ibn-Homaid, Norra-Tome., and I. A. Tijani. 2015 “Financial analysis of a construction company in Saudi Arabia.” International Journal of Construction Engineering and Management 4, no. 3: 80-86.
Lin, Chi-Chen, An-An Chiu, Shaio Yan Huang, and David C. Yen. 2015: “Detecting the financial statement fraud: The analysis of the differences between data mining techniques and experts’ judgments.” Knowledge-Based Systems 89 (1) 459-470.
Uechi, Lisa, Tatsuya Akutsu, H. Eugene Stanley, Alan J. Marcus, and Dror Y. Kenett. 2015 “Sector dominance ratio analysis of financial markets.” Physica A: Statistical Mechanics and its Applications 421 : 488-509.
Vogel, Harold L., 2014.. Entertainment industry economics: A guide for financial analysis. Australia: Cambridge University Press,
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