finance of a new jewelery showroom

1

A Study Report

on

Start up Imitation Jewellery Business

(Radha Krushna jewelers )

Submitted to Prepared By

Prof. Rajshee Joshi Desai Vidhi - 15024

Jain Aayushi - 15043

Malek Arjuman - 15070

Mehta Monika - 15073

Rajpara Krunal - 15124

Submitted Date Shah Moksha - 15137

06-April-2016 Trivedi Unnati - 15173

MBA

Semester 2

(2015-2017)

N.R.Institute of Business Management

Ahmedabad

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Index :-

STAGE PARTICULAR

1 INTRODUCTION2 CAPITAL STRUCTURE3 ,4 COST OF CAPITAL & LOAN AMORTIZATION TABLE5 OPERATING STATEMENT ( EBIT-EPS RELATIONSHIP )6 CASHFLOW , NPV , IRR

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Stage - 1

Introduction :- We are starting up a new business of imitation jewellery in 4 different malls located in vastrapur,

law garden, drive in road, Raipur respectively.

Location :- We would like to open are shops in four different type of mall in Ahmedabad city i.e. Alfa mall ,

Central mall , Himalaya Mall, 10acers .

Rent :- The rent per shop is 20,000 RS per month which will be cost 2,40,000 RS yearly.

There are in total 4 shops to open so it will cost 9,60,000 RS rent yearly for 4 shops.

Salary of employees :- There will be 2 employes per shop in total there will be 8 employes equally divided in 4 shops.

The cost of per employe is 10,000 RS per month.

Total number of employes are 8 so in total employee will intake 80,000 RS per month.

Total Yearly employe will intake 9,60,000 RS.

Investment in Jewellery stock :- All the goods are important & have high quality.

Invesement of stock cost 4,00,000 RS per shop which cost in total of 16,00,000 RS for 4 shops.

Depreciation is 2,40,,000 RS ( scrap value is 1 lakh RS )

Furniture :- Furniture cost 1,50,000 RS per shop which cost in total of 6,00,000 RS for 4 shops.

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Depreciation = cost of furniture – scrap value / number of years which comes out be Rs. 80,000.

(furniture is 1,50,000 – scrap value is 30,000 RS = 1,20,000 / 5 year = 24,000 , operate in 4 mall

so 96,000 depreciation cost )

BROKER& DOWN PAYMENT :

Broken cost for all shop together 40,000 RS.

Down payment for all shop together 2,00,000 RS.

Maintenance :-

48,000 RS for all 4 shops.

Tax :-

60,000 RS for all 4 shops.

Electric machinery :-

Computer and printer , scaner, software expences for all 4 shops are 2,00,000

Computer – DELL desktop computer – 20,000 RS

Printer - Konica –minolta KM 1500w monochrome laser printer – 5000 RS

Software expenses – 25,000 RS

Depreciation on machinery that is 24,000 RS. ( scrap value is 20,000 RS )

Advertisement cost :-

Promotion per month cost is 12,000 RS.

Total cost will be 1,44,000 RS

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Rs.9,60,000 rent

Rs.9,60,000 salary

Rs.16,00,000 stock investment

Rs.6,00,000 furniture

Rs.2,40,000 broker & down payment exp.

Rs.48,000 maintenance

Rs.60,000 Tax

Rs.2,00,000 electric machinery

Rs.1,44,000 adv. & promotion exp

Rs.1,88,000 jewellery treys , boxes

Total Cost = 50,00,000 RS

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Radha Krishna jwellers provides different typrs of jwellery that is:

Necklaces

Armlets

Bracelets

Engagement Ring

Class Ring

Wedding Ring

Belly Chains

Brooches

Anklets

Our Product Range Salient Features:

Exclusive designs

Stone- studded

Perfect finish

Easy to maintain

Elegant looks

Durable

Available for every occasion in distinct size

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Services :

Our Sales &Service :-We are a full service jewelry store specializing in our customers’ needs, from a single watch

battery to an elaborate diamond ring. We always try to meet and exceed our customers’

expectations with our friendly, no pressure atmosphere.

Custom Jewelry DesignIn addition to selling fine jewelry crafted by some of the world’s leading manufacturers, the

jewelers at Quality Gem also specialize in fashioning custom jewelry. Our craftsmen can work

with you to create a truly unique piece for yourself or a loved one.

Services:

Custom Jewelry Design :

From creating the perfect engagement ring, to designing a pair of earrings that will complement

your favorite emerald necklace, our custom jewelry craftsmen are skilled in creating unique

pieces. With the help of our experts, you’ll be able to create any type of fine jewelry and

accessories imaginable, including one-of-a-kind rings, necklaces and bracelets. Whether you

have the exact design in mind, or if you’re still gathering inspiration and need help exploring, our

team will be able to provide as much guidance as necessary. These custom jewelry and design

services are available at every Jared. Just stop by your local Jared store and a member of our

team will be able to help bring your design to life.

On-Site Jewelry Repair :

A busy life can lead to neglected jewelry care. Even the extra careful person can over time

require some form of service to keep their jewelry free of prongs that “catch” or are worn thin.

This is where the E.G. Landis jewelry repair services can help. On-site GIA trained jewelers with

LaserStar technology training are capable of sizing rings, polishing tarnished metals, repairing

chains, replacing batteries and performing all other jewelry repairs on the premises.

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Appraisals :

Appraisals are vital when it comes to insuring and protecting your jewelry. We provide on-site

appraisals once a month to our customers. All appraisals are done by an independent Certified

Gemologist, so you can be confident of a professional appraised value. Please email or call to

find out our next appraisal date and to book an appointment.

Jewelry Cleaning and Inspection :

Landis Jewelers, our professional jewelers will check, clean, and polish your jewelry. Our

professionals will determine the right products to keep your pieces looking new. We always

recommend removing all jewelry before swimming, soaking in hot tubs, or exposing jewelry to

any cleaning products. Chemicals react with gold, especially white gold and weaken solder used

to keep connected pieces together. Never allow any jewelry to soak in any type of cleaner. To be

safe, use a mild liquid dishwashing soap and a very soft toothbrush.

Watch Repairs :

Watch De-magnetism

Complete Overhaul

Complimentary 5 Point Check-Up Included

Battery Replacement

Ultrasonic Cleaning

Sizing and Adjustment

Water and/or Moisture Damage

Broken Crystal, Crowns, Pins, Pushers

Complimentary 5 Point Check-Up Included

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Financing :

No interest on your purchase if paid in full within 12 months.

If the purchase balance is not paid in full in 12 months, or if you fail to make any

required minimum payment within 60 days of its due date, interest will be charged to

your account from the date of purchase at the APR for Regular Purchases (which is 17%

to 24.99% depending on the state). See the Regular Card Credit Terms disclosure below.

Available only for a total purchase of $500 or more.

20% Down Payment Required.

The required minimum payment for the plan is 1/12th of the purchase rounded up to the

nearest $5.00, but not lessthan $40.

Insurance :

Having worked with numerous insurance companies and hundreds of claims, We are happy

to advise you on your insurance claim estimate and prepare a reasonable quote for any piece of

jewelry or watch that you have lost. Our quotes are complimentary, so please email or call us to

arrange an appointment.

CORPORATE GIFTS :

"We can produce a "Corporate Incentive", "Employee Appreciation" or a "Milestone"

achievement gift at the most competitive prices. Ranging from a Luxury watch to a custom

designed Ring or Pin.

"We designed and made the above ring for The Last Door organization."

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Stage 2 We require 50 lakh capital for our newly establish jewelry business. Minimum 20 %

should be borrowed fund and 20 % should be equity fund is required.

From this 50 lakh capital we require 40 lakh capital equity and so on the other amount i.e.

10 lakh will be use for loan from yes bank because it has best interest rate that is 10.25

%.

From the equity that is 40 lakh would be divided among 5 people , each having a share of

rs 8 lakh . since each share cost rs 100.so each person has 8000 share.

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Stage 3 and 4 :- For loan,

YES bank interest rate is 10.25% and instalment amount is 263782Rs.

icicibank, interest rate is 11.49% and instalment amount is 273935 Rs.

city bank interest rate is 13.99% and instalment amount is 343170Rs.

We take loan from yes bank because they give loan at low rate compare to icici and city bank.

Below is the loan amortization table,

A B C D E

1000000 263782 102500 161282 838718

838718 263782 85968 177814 660904

660904 263782 67742 196040 464864

464864 263782 47648 216134 248730

248730 263782 25494 238288+10442 0

Reliance mutual fund return rate is 14%. So our cost of equity(ke) is 0.14.

Post tax kd = 0.1025(1-0.30) =7.18%.

Tax = 30%

Debt =10.25%

WACC = [ Ke *( E/V) + Post tax Kd ( D/V) =0.14* 4/9 + 0.0718* 5/9

= 0.062 + 0.0398

WACC = 10.18%

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Stage 5:- From the point of investment ,

5 partners investing Rs 8000 p.a. for 1 year amounting to Rs 4,80,000. So for four mall

it cost RS 19,20,000

Because of the fluctuation in the cost of input , eventually profit start declining showing a

decreasing trend in 2nd year .

Due to the dynamic business environment , instable sales of the firm , sales show a

instable or fluctuating trend in next 3 years . row materials plays an important role in it

like , diamond cut brass ball ,solder ,lariya, dhundhuru , and also trading of wire ,

chain ,glass beads , mina ball etc

Running expenses are those that respond directly and proportionately to changes in

activity level or volume such as employees salary , cleaner’s wage, raw materials,sales

commissions ,inventory, shipping cost , packaging change Year after Year ..

Fix expenses are those that do not fluctuate with changes in production level or sales

volume. i.e. rent, insurance premium , interest , payments on loan , management salary,

advertising ,depreciation on machinery remains same .

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1st year 2nd year 3rd year 4th tear 5th year

Sale 5000000 4500000 6000000 5500000 3000000

-V.C. 500000 400000 600000 300000 500000

Contribution 4500000 4100000 5400000 5200000 2500000

- F.C. 2000000 2000000 2000000 2000000 2000000

EBIT 2500000 2100000 3400000 3200000 500000

- Interest 102500 85968 67742 47648 25494

EBT 2397500 2014032 3332258 3152352 474506

- Tax (30%) 719250 604210 999677 945706 142352

PAT 1678250 1409822 2332581 2206646 332154

Divide by No. Of eq.

Share

80000 80000 80000 80000 80000

EPS 17.5 17.62 29.15 27.58 4.15

1 st year :-

DOL = CONTRIBUTION/EBIT DCL = DOL * DFL

= 4500000/2500000 = 1.8 * 1.25

DOL =1.8 times DCL = 2.25 times

DFL = EBIT/EBT

= 2500000/2000000

DFL = 1.25 times

14

In 2 ND year :-


= 4100000 / 2100000 = 1.95 * 1.04

DOL = 1.95 times DCL = 2.03 times

DFL = EBIT/EBT

= 2100000/2014032

DFL = 1.04 times

In 3 rd year :-


= 5400000 / 3400000 = 1.58*1.02

DOL = 1.58 times DCL =1.61 times

DFL = EBIT/EBT

=3400000 / 3332258

DFL = 1.02 times

In 4 th year :-


=5200000 /3200000 = *

DOL = 1.63 times DCL = 1.66 times

DFL = EBIT/EBT

= 3200000 /3152352

DFL = 1.02 times

15

In 5 th year :-


= 2500000 /500000 = 5*1.05

DOL = 5 times DCL = 5.25 times

DFL = EBIT/EBT

=500000 /474506

DFL = 1.05 times

16

Stage 6 :- NPV method,

Co = 50,00,000

Year Cash inflow I=10.18% P.V of cash inflow

1 1678250 0.909 1525529

2 1409822 0.826 1164513

3 2332581 0.751 1751768

4 2206646 0.683 1507139

5 332154 0.621 206268

NPV = P.V of cash inflow – Cash outflow

= 61,55,217–50,00,000

NPV = 11,55,217 RS

Her00e, NPV < 0 so this proposal is rejected.

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IRR method, I = [ LR + ( HR – LR ) [ HF- DF / HF – LF ]

n = 5

CI = A = 79,59,453

Co = PV = 50,00,000

k = 14%

PV = A * PVF(n,i)

50,00,000 = 79,59,453 * PVF(5,i)

i = 10%

conclusion :-

Here, i < k so we reject this proposal and we have to wind up our business after 5 year.

finance of a new jewelery showroom

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