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Essay Available:
Pages:
3 pages/≈825 words
Sources:
2 Sources
Style:
APA
Subject:
Technology
Type:
Essay
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 16.2
Topic:

Interstate Travel Center

Essay Instructions:

The business plan is usually the first formal document a company presents to the world, and it is often crucial in establishing the image and identity of the company. One of the critical functions served by such plans is to present to potential lenders and investors the risk profile of the company -- basically, the chances that if you give them money, you'll get it back. The presentation of the company's financial statements is key to establishing current viability and survivability.

Lots of elements go into the creation and evolution of business plans, and the financials themselves are not self-revealing but must be evaluated in light of the whole company context. Here are three variations on advice about how to put such plans together; each has their own take on how to present and interpret financial data:

Darrell Zahorsky, Critical Steps to Writing a Business Plan About.com

BusinessTown.com, Creating your business plan.

As your case assignment for this module, you are to read the following three sample business plans:

Acme Consulting

Interstate Travel Center

Silvera and Sons

For this assignment I want you think in terms of being an investor and what interest rate you would require on your investment in each of the companies. The discount rate for determining net present value is related to risk in a business and the interest rate charged by investors. The article on buying a business by T. Berry, http://articles(dot)bplans(dot)com/index.php/business-articles/buying-a-business/buying-a-business-know-what-you-are-getting/ , talks about the discount rate and risk. You want to make sure that you charge a high enough interest rate to recoup your investment and make some money. Remember the higher the risk, the higher the interest rate (return on investment) you want to charge.

Case Assignment

The background information has further material on using financial data to assess risks and comparatively evaluate the future possibilities for companies. In addition, you may wish to seek out further information through your own research. When you have reviewed the advice and the plans. please prepare a short (3-5 page) paper discussing:

Which of these three projects do you think should have the highest discount rate reflecting risk inherent in the business plan? Which one do you think should have the lowest?

Please carefully explain your reasoning about each of the three businesses, with reference to the appropriate financial and other information. You do not have to perform calculations or determine a specific interest rate you would charge - that would be extremely difficult in an introductory course. A rating of high, medium and low will do.

Assignment Expectations

Use information from the modular background readings as well as any good quality resource you can find. Please cite all sources and provide a reference list at the end of your paper.

LENGTH: 3-5 pages typed and double-spaced.

The following items will be assessed in particular:

  1. Your ability to effectively reason about the relationship between busines risk and the discount rate;
  2. Some in-text references to modular background readings. 
Essay Sample Content Preview:

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Investment decisions rules are also referred to as capital budgeting techniques or investment criteria. A sound appraisal technique is required to determine the economic worth of investing in a project. The property of this technique should ensure the maximization of the investor’s wealth. Three common procedures are utilized in evaluating and they are the estimation of cash flows, the estimation of returns, and the application of the of a decision rule for a decision rule for making the choice (Moyer, McGuigan, & Rao, 2011).
According to the article by T. Barry, there are 10 factors that should be considered before making an investment choice. These are is the investor investing in a start-up company or the industry, does the company requires multiple financing, is the target market new to the investor, or the investor asking for a non-dilution clause. Moreover, is the investor requesting for unrealistic equity, does the investor want to eliminate lawyers and CPAs in the investment discussion, and does the investor what you to invest by a certain time without providing the reasons. (Barry, 2014)
Any investor’s aim is to maximize the wealth of his or her investment in any company with the discount rate and risk being the most important factors to consider. Looking at the three businesses; Acme Consulting, Interstate Travel Center, and Silvera & Sons, they all present lucrative investment opportunities for investment due to the solid backgrounds that they have, the lucrative profits that they possess, and the prospects for further increase in profitability. In determining the interest rate charged, the relationship between the discount rate and interest rate will be used as the criteria to determine the rate charged.
Discount rate has several meanings, however, for this purpose, discount rate is considered as the rate used when adjusting for the time value of money a concept representing the changes in the value of money overtime. The discount rate here represents the extra return demanded by an investor as compensation for taking risks that may not be materialized by the cash flow. Interest rate is the price charged to a borrower for money lent and this represents risk (Damodaran, 2012).
Acme – Consultation Company has several strengths such as while it is a new company its operations are professionally conducted by well experienced former marketers and offers high quality products and focuses on a particular market gap compared to the other generalists competitors. In addition, it intends to expand its market to cover the Larger Latin America, Far East, and Western Europe. This represents a lucrative investment opportunity for an investor. However, looking at the financials, the profits for the company seem to be extremely low compared to the value of investment required. In addition, the projected growth in profits is also minimal. The company is also ope...
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