Competencies
Interpret how the components of a balance sheet and income statement communicate the financial position of an organization.
Interpret the components of a cash-flow statement to describe the liquidity of an organization.
Evaluate financial ratios to differentiate profitability and liquidity across organizations.
Analyze leverage and activity ratios to review operating performance across organizations.
Determine current values of cash streams utilizing discounted cash flow techniques.
Critique organizational investments using forecasting scenarios.
Student Success Criteria
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Scenario
You recently went to a dealership for an oil change on your vehicle as no independent oil change companies or auto repair shops are within 50 miles of your home. You paid $170 for this oil change on your Chevy Camaro. Given your entrepreneurial spirit and frustration with the cost of the oil change, you have an idea for a mobile oil change company. You have completed a marketing survey to determine potential interest in such a company. The results of the marketing survey suggested that 40% of vehicle owners would entertain using a mobile oil change company for oil changes if such a company existed.
You live in a town that has 20,000 registered vehicles, of which 15,000 are taken by their owners to the dealerships for oil changes. Most owners take their vehicles into the dealership three times a year. You will need a truck, supplies, tools, and insurance to start this business and must gain funding from investors. Pro forma financial statements, a financial plan, and a business plan are required for all potential investors and creditors. Prepare a 10-15 slide PowerPoint presentation with the above information to present to potential investors and creditors.
Instructions
Using PowerPoint (or similar), you have been asked to develop a feasibility study presentation to determine the feasibility of this idea of a new company. Your feasibility study presentation should include the following:
Develop a conservative forecasted sales budget based on the survey results. Make sure your price is less than what the dealership charges.
Identify fixed and variable costs for each oil change. Using these values, develop an operating budget to determine the contribution margin for an individual oil change, and the total amount for the forecasted sales budget.
Develop a proforma income statement, balance sheet, and statement of cash flows for the first year of business.
Based on these proforma financial statements, calculate all profitability, liquidity, and solvency ratios.
Based on a 40-hour work week, estimate how many oil changes one person can realistically perform. Given the projected sales forecast, develop a capital investment proposition for additional trucks with anticipated useful lives of 5 years. Use the discounted cash flow method at an interest rate of 6%.
