Report on Financial Analysis on Wonderland Confectionaries

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Wonderland Confectionaries is a well – developed chain of restaurants that is willing to invest large sums of money into a theme park, based on the model of their competitor and surrogate company, Alice Limited. Given the facts, I will now try to establish whether the management’s decision to invest into this project is a well-documented and viable one. Further on, I will try to prepare a report analysing a few important aspects that managers should take into account when making such an investment appraisal, like the analysis of two main models used primarily when assessing the risk and return of one investment, the net present value model (NPV) and the capital asset pricing model (CAPM), along with each model’s limitations. Further on, I will make a brief theoretical description of the financial and non – financial issues each manager should be aware of, together with their applicability for our case study. In the end, because like any financial author describes, when making a project appraisal, a financial manager should consider real options as well, because it is a well-known and demonstrated fact that financial statements and analysis do not account for the uncertainty of each particular project, thus being limited to the expected, calculated outcomes, not considering the unexpected. Liabilities (in £ 1,000,000)| Year 1| Year 2| Year 3| Year 4| Year 5| Market Research| 0.40| 0.00| 0.00| 0.00| 0.00|

Operation Costs| 17.00| 17.85| 18.74| 19.68| 20.66|
Insurance Costs| 2.00| 2.12| 2.25| 2.38| 2.52|
Labor Costs (Employees)| 35.00| 37.45| 40.07| 42.88| 45.88| Construction Costs| 310.00| 250.00| 0.00| 0.00| 0.00| Advertising Savings| 3.00| 3.18| 3.37| 3.57| 3.79|
Total| 367.40| 310.60| 64.43| 68.51| 72.85|
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Revenues (in £ 1,000,000)| Year 1| Year 2| Year 3| Year 4| Year 5| Admission Fees| 131.40| 139.28| 147.64| 156.50| 165.89| Food and Drinks Fees| 73.00| 77.38| 82.02| 86.94| 92.16| Total| 204.40| 216.66| 229.66| 243.44| 258.05|

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Cash Flows (in £ 1,000,000)| Year 1| Year 2| Year 3| Year 4| Year 5| Revenues | 204.40| 216.66| 229.66| 243.44| 258.05|
Liabilities| -367.40| -310.60| -64.43| -68.51| -72.85| Net Operating Cash Flows| -163.00| -93.94| 165.23| 174.93| 185.20| Capital Allowances| -0.0600000| -0.0480000| -0.0384000| -0.0307200| -0.0245760| Net Taxable Cash Flows| -162.94| -93.89| 165.27| 174.96| 185.22| Taxation| 0.00| 0.00| -57.84| -61.24| -64.83|

+ Capital Allowances| 0.0600000| 0.0480000| 0.0384000| 0.0307200| 0.0245760| Capital Allowances| 0.30| 0.00| 0.00| 0.00| 0.00|
Net Project Cash Flows | -162.58| -93.84| 107.46| 113.76| 120.42| Discount Factors is 5%| 1.00| 0.95| 0.90| 0.86| 0.81| Discounted Cash Flows | -162.580000| -89.148000| 96.986311| 97.532225| 98.081406|

As seen in the calculations in the tables above, The Net Present Value equals £98 081 406. This is considered to have a very high level, as usually the net present value should be a positive value; the higher the net present value, the most likely the project is viable. However, when making all the above calculations, I did not take into account one important fact: * I considered a constant number of visitors for the entire duration of the project – 5 years, starting on the first day ending on the last day of the 5th year. Nevertheless, taking into account that Wonderland is just being built, it would obviously not bring so many visitors starting day 1. Of course, during the first period of time, until the project gets proper advertising, there would not be so many visitors; on the contrary, during vacations, the number of visitors would definitely be much higher. Similarly, at the end of the 5 years project, it is likely that the number of visitors would also be higher than that at its...
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