New Life Training: Training Centre, Financial Evaluation, And Operations

Overview of New Life Training

The case explains about the new life training plc. It is a growing company and the company has issued the share capital worth f £50 million in the market. The paid up share capital per share is f £ 1 million. The company is planning to enter into the market to diversify the market and enhance the revenue of the company. The case explains about the new project of the company in which the tuition services would be provided by the business all over the UK.  The tuition services would be provided by the company in 3 ways which are franchise training, student session and private hire. For these services, company has hired 4 full time tutors and 2 FTW administration costing expenses.

The case explains that the project would run for 10 years and in those 10 years various changes would occur into the financial performance and non financial performance of the company. In the report, the performance of the new project has been evaluated along with the performance of the overall company.

The case evaluation takes the concern on total cash flow, capital budgeting techniques, gearing ratio, WACC etc of the new project and the company to measure that whether the project would offer higher returns to type company or not. It explains that why or why not the project should accepted by the company. It measures the performance of the new project on the basis of various appropriate techniques so that a better conclusion could be papered about the project and the company could get rid of sudden changes and risk in the operations.

In the report, firstly the case has been evaluated on the basis of operation and regulatory performance of the company. Further the statistical tools have been used by the company to measure the performance. Lastly, he study has been conducted by the comapny to measure the case that whether it should be accepted or not.

The current scenario of the case explains that new life training plc is a new and growing company in the market. The capital structure of the company explains about 50% gearing ratio which explains that the debt amount and the equity amount of the case is equal. The issued share capital of the company is worth £50 million in the market. The paid up share capital per share is of £ 1 million and the total retained earnings of the company are £ 10 million. It explains that the total share price of the company is £ 60 million. So, the debt amount would also be equal to the equity amount of the company which would be £ 60 million.

WACC calculations of New life (Book Value)
	Price	Cost	Weight	WACC
Debt	6,00,00,000	6.00%	0.55	3.27%
Equity	5,00,00,000	10.00%	0.45	4.55%
	11,00,00,000	Kd	7.82%

The Proposed Training Centre

The regulator and operational factors of the company explains that various changes have occurred into the position of the company in last 5 years. In 5 embarked years, the company has registered itself into the London stock exchange and the total capital of the company is £ 11,00,00,000 (Nobes and Parker, 2008). It explains that the capital of the company is quite strong and the company has managed the optimal capital structure in terms of risk.

However, it has been found that the cost of debt of the company is 6% and the cost of equity of the company is 10%. It explains that the huge shares of equity amount would offer huge cost to the company and thus the company should reduce the level of the equity amount to manage the cost and the performance of the company in the market. The case explains that the management of the company has taken better decision to manage the performance and the profitability of the company (Titman and Martin, 2014). This suggestion would also help the company to reduce the level of cost due to which the performance of the company could be managed and the company could achieve the makeable heights in the market.

The Moles, Parrino and Kidwekk, (2011) of the company explains that the main mission of the company is to grab the entire UK market, the company has planned various new projects to manage the operation an activities of the company at entire UK market. The performance and the new tactics of the company have helped the company to not only manage the operations as well as enhance the performance of the company. On the basis of the study, it has been recognized that the new projects must be invested by the company to manage the performance and achieve the common goal of the company,

Currently, it has been recognized that the company is involving in the yoga activities and planning to focus on the school kids for the tuition, the age limit f the student is 5-18. The company is expecting the tuition mart to grow rapidly. For this project the company has built a new building which would cost £ 11,00,000 and the reserve for the other activities and cost of the building would be £ 1,00,000. The case  also briefs that the entire amount would be raised by the company through debt amount so that the cost of the company could not be higher as well as the optimal capital structure of the company could be maintained (Lee and Yue, 2017).

Income and Expenditure Projections

The case explains that the tuition services would be provided by the company in 3 ways which are franchise training, student session and private hire. For these services, company has hired 4 full time tutors and 2 FTW administration costing expenses. The case briefs that the total time period of the project is 10 years and the revenue and the expenses of the company would be changed a lot in last 10 years (Madhura, 2011). In the report, the performance of the new project has been evaluated along with the performance of the overall company.

The fees of the company would be different according to the franchise training, student session and private hire. However, it has been found that the maximum limited of the activities of the company is 600 which would be achieved by the company from 4^th year to the end. It explains that the market opportunity of the project s quite higher (Horngren, 2009).

However, the study has been performed over the financial impact of the project on the business on the basis of total income, revenue etc of the company. The income and expenditure projection of the company is as follows:

Income and expenditure evaluation is a study in which the total revenue form a particular project is studied as well as the total expenses of the particular project is identified to measure the performance of the company. This process leads to the total profit or loss of the project (Hillier, Grinblatt and Titman, 2011). The income and expenditure process has been conducted by the company to measure the performance of the new project and to evaluate that whether the project should be accepted or not.

For the process, firstly, total income of the new project of the company has been identified and it has been recognized that there are 3 types of the business which offers the below incomes to the company:

		Project A
		Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Revenues
Franchise training		86400	172800	345600	345600	345600	345600	345600	345600	345600	345600
Student session		30400	39600	44000	132000	132000	132000	132000	132000	132000	132000
Private hire		18000	18000	18000	6400	6400	6400	6400	6400	6400	6400
Total cash inflow		134800	230400	407600	484000	484000	484000	484000	484000	484000	484000

It explains that the total revenue of the company is 1,34,800 at initial level and in the end of the years, it reach to the 4,84,000. It explains that the revenue of the company would be better in next years. Further, it has been evaluated that the performance of the project would be better (Arnold, 2013).

 Further, the total expenses of the project have been evaluated to measure the performance of the company. On the basis of the study, it has been recognized that the total cash outflow of the company is as follows:

Expenses (Fixed)		10950	10950	10950	10950	10950	10950	10950	10950	10950	10950
Full time equivalent		60000	60000	60000	60000	60000	60000	60000	60000	60000	60000
FTE administration cost		36000	36000	36000	36000	36000	36000	36000	36000	36000	36000
Total cash outflow		106950	106950	106950	106950	106950	106950	106950	106950	106950	106950

Financial Evaluations

It explains that the total expenses of the company is 1,06,950 at initial level and in the end of the years, it is same. It explains that the revenue of the company would be better in next years (Baker and Nofsinger, 2010). Further, it has been evaluated that the performance of the project would be better. On the basis of the study, it has been recognized that the profit of the new project of the company is lesser in the initial stage and it eventually enhances in next year’s, the below is thee calculation of the profit of the company:

		Project A
		Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Initial Outlay	1200000
Revenues
Franchise training		86400	172800	345600	345600	345600	345600	345600	345600	345600	345600
Student session		30400	39600	44000	132000	132000	132000	132000	132000	132000	132000
Private hire		18000	18000	18000	6400	6400	6400	6400	6400	6400	6400
Total cash inflow		134800	230400	407600	484000	484000	484000	484000	484000	484000	484000
Expenses (Fixed)		10950	10950	10950	10950	10950	10950	10950	10950	10950	10950
Full time equivalent		60000	60000	60000	60000	60000	60000	60000	60000	60000	60000
FTE administration cost		36000	36000	36000	36000	36000	36000	36000	36000	36000	36000
Total cash outflow		106950	106950	106950	106950	106950	106950	106950	106950	106950	106950
cash flow	1200000	27850	123450	300650	377050	377050	377050	377050	377050	377050	377050
Total cash flow	-1200000	27850	123450	300650	377050	377050	377050	377050	377050	377050	377050

 It explains that the performance of the project would be better in the market. The case explains that the project would offer positive returns to the company. The investment into the company would be profitable in terms of yearly activities (Bierman, 2010).

The contribution margin of the company has been measure further to evaluate the performance of the company. The contribution margin point explains about the sales less variable cost of the company which is dividend by the total sakes amount of the company. It explains about the minimum profit of the company in terms of daily operations, contribution margin per unit measures the variable cost and total sales of the company only (Besley and Brigham, 2008). The contribution margin of the company is as follows:

	Per Unit Amounts
Selling price	$1,34,800.00
Variable costs	96,000.00
Contribution margin	$   38,800.00
Contribution margin %	28.78%

(Brooks, 2015)

It explains that the contribution margin of the company is 28.78%. Further, the breakeven point of the company has been measure further to evaluate the performance of the company (Brigham and Daves, 2012). The break even point explains about the minimum sales and the minimum sales unit which must be sold out by the comapny to reach over a point where the cost and the revenue of the company could be similar. It explains about the point where the company does not have to face any loss as well as no profits are entertained by the company (Brown, 2012). The breakeven level of the company is as follows:

Cost-Volume-Profit Relationships – Breakeven
	Per Unit Amounts
Selling price	£1,34,800.00
Variable costs	96,000.00
Contribution margin	£   38,800.00
Contribution margin %	28.78%
Total fixed costs	£       10,950
Breakeven in amount	£       38,043

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It explains that the breakeven amount of the new project is £ 38,043. In the evaluation process, it has been assumed that only overhead cost is the fixed cost of the company. Other cost is variable which changes with the changes of umber of working days and other factors. The case explains that the company should at least serve the services worth £ 38,043 to reach over the breakeven point company does not have to face any loss as well as no profits are entertained by the company. 

Conclusion and Recommendations

In the report, it has been found that the company would raise the funds through debt amount for the new project. The WACC of the company explains that the cost of debt of the company is lower than the cost of equity of the company and the optimal capital structure of the company also explains that the debt amount should be higher by the comapny to manage the capital structure position of the company. Thus the debt fund is best option for the project.

However, it has been found that the company could use the retained earnings to raise the funds as in this source the cost of the company would be lower as well as the risk level of the company would be lower. It explains that the alternative source of finance is retained earnings.

Further, the case has been evaluated on the basis of the capital budgeting techniques. Capital budgeting techniques are an evaluation method of new projects. These techniques evaluate the total cash outflow an total cash inflow of a new project and evaluates that whether the project would offer higher returns to the company or not. This explains that the project is beneficial for the company or not.

In these techniques, the profit of the project is evaluated on the basis of present value factors so that the total profit of the company has been evaluated, further, the payback period of the company explains about the total time period in which the amount would be got back by the company. And the accounting rate of return explains about the total profit of the project in terms of the initial outlay of the project.

Firstly, the net present value of the company has been calculated to measure the performance of the company, the present value of the company explains about the total cash inflow of the company less by the total cash outflow of the company (Gibson, 2011). It takes the concern of present value factor and measure that the company should invest into the project or not. This investment evaluates about the net profit of the company in present scenario. It examines that hat would be the worth of total profit after 10 years in current time. The present value calculations of the company are as follows:

Calculation of net present value (Project A)
Years	Cash Outflow	Cash Inflow	Factors	P.V. of Cash Inflow	P.V. of Cash Outflow	P.V.
0	12,00,000		1	0.00	1200000	-1200000
1	27,850	1,34,800	0.943396	127169.81	26273.58491	100896.23
2	1,23,450	2,30,400	0.889996	205055.18	109870.0605	95185.12
3	3,00,650	4,07,600	0.839619	342228.82	252431.5374	89797.28
4	3,77,050	4,84,000	0.792094	383373.33	298658.9157	84714.42
5	3,77,050	4,84,000	0.747258	361672.96	281753.6941	79919.26
6	3,77,050	4,84,000	0.704961	341200.90	265805.3718	75395.53
7	3,77,050	4,84,000	0.665057	321887.64	250759.7847	71127.86
8	3,77,050	4,84,000	0.627412	303667.59	236565.8346	67101.75
9	3,77,050	4,84,000	0.591898	286478.86	223175.3157	63303.54
10	3,77,050	4,84,000	0.558395	270263.07	210542.7506	59720.32
NPV= Total Cash Inflow-Total cash outflow			-412838.69

The above table explains that the net present value of the company is -412839. It explains about huge loss to the company. On the basis of income and expenditure calculations, it has been found that the net profit of the company is positive but the current worth of that amount is negative (Davies and Crawford, 2011). It explains that the project is not a god option for the company to invest as the initial outlay of the company is quite higher.

Further, the discounted payback period of the company has been calculated to measure the performance of the company, the discounted  payback period of the company explains about the total time period in which the total invested amount would be get back by the company (Damodaran, 2011). It takes the concern of present value factor and measure that the company should invest into the project or not. This investment evaluates about the total time period of the company in getting back the invested amount. It examines that what would be the worth of total amount after 10 years in current time. The discounted payback period calculations of the company are as follows:

Calculation of Discounted Payback Period (Project A)
Years	Cash Outflow	Cash Inflow	Factors	P.V. of Cash Inflow	P.V. of Cash Outflow	P.V.	C.F
0	12,00,000		1	0.00	1200000	-1200000	-1200000.0
1	27,850	1,34,800	0.943396	127169.81	26273.58491	100896.23	-1099103.8
2	1,23,450	2,30,400	0.889996	205055.18	109870.0605	95185.12	-1003918.7
3	3,00,650	4,07,600	0.839619	342228.82	252431.5374	89797.28	-914121.4
4	3,77,050	4,84,000	0.792094	383373.33	298658.9157	84714.42	-829407.0
5	3,77,050	4,84,000	0.747258	361672.96	281753.6941	79919.26	-749487.7
6	3,77,050	4,84,000	0.704961	341200.90	265805.3718	75395.53	75395.5
7	3,77,050	4,84,000	0.665057	321887.64	250759.7847	71127.86	146523.4
8	3,77,050	4,84,000	0.627412	303667.59	236565.8346	67101.75	213625.1
9	3,77,050	4,84,000	0.591898	286478.86	223175.3157	63303.54	276928.7
10	3,77,050	4,84,000	0.558395	270263.07	210542.7506	59720.32	336649.0
				14.94

 (Davies and Crawford,  2015)

The above table explains that the discounted payback period of the company is 15 years. It explains about worst condition of the project. On the basis of calculations over the discounted payback period, it has been found that the payback period of the company is higher than the total time period of the investment of the company. It explains that the project is not a god option for the company to invest as the total time period of the company is quite higher (Damodaran, 2012). It suggests that the project should not be accepted by the company

Lastly, the accounting rate of return of the company has been calculated to measure the performance of the company, the accounting rate of return of the company explains about the total percentage which is calculated on the basis of total cash inflow of the company and the initial outlay (Gapenski, 2008). It takes the concern of present value factor and measure that the company should invest into the project or not. This investment evaluates about the total accounting rate of return of the company in getting back the invested amount. It examines that what would be the worth of total amount after 10 years in current time (Gourevitch et al., 2016). The accounting rate of return calculations of the company are as follows:

Calculation of Discounted Payback Period (Project A)
Years	Cash Outflow	Cash Inflow	Factors	P.V. of Cash Inflow	P.V. of Cash Outflow	P.V.	C.F
0	12,00,000		1	0.00	1200000	-1200000	-1200000.0
1	27,850	1,34,800	0.943396	127169.81	26273.58491	100896.23	-1099103.8
2	1,23,450	2,30,400	0.889996	205055.18	109870.0605	95185.12	-1003918.7
3	3,00,650	4,07,600	0.839619	342228.82	252431.5374	89797.28	-914121.4
4	3,77,050	4,84,000	0.792094	383373.33	298658.9157	84714.42	-829407.0
5	3,77,050	4,84,000	0.747258	361672.96	281753.6941	79919.26	-749487.7
6	3,77,050	4,84,000	0.704961	341200.90	265805.3718	75395.53	75395.5
7	3,77,050	4,84,000	0.665057	321887.64	250759.7847	71127.86	146523.4
8	3,77,050	4,84,000	0.627412	303667.59	236565.8346	67101.75	213625.1
9	3,77,050	4,84,000	0.591898	286478.86	223175.3157	63303.54	276928.7
10	3,77,050	4,84,000	0.558395	270263.07	210542.7506	59720.32	336649.0
				14.94

The above table explains that the accounting rate of return of the company is -34.40%. It explains about worst condition of the project. On the basis of calculations over the accounting rate of return, it has been found that the accounting rate of return of the company is lower than the expected amount (Higgins, 2012). It explains that the project is not a god option for the company to invest as the accounting rate of return of the company is quite higher. It suggests that the project should not be accepted by the company.

On the basis of further evaluation, it has been found that the project of the company should not be accepted by the company as the performance of the project is not at all good. He project is offering the loss to the company and if the company would invest into the project than the comapny not only face the loss from the project but the company also have to bear the higher cost of capital (Bromwich and Bhimani, 2005). On the basis of this evaluation, it has been recognized to the company that the project should not be accepted by the company.

The break even analysis of the project explains that the minimum sales must be of £38,042.78. And on the basis of the evaluation, it has been found that the sales and the revenue of the company are higher than this level which explains that the project is quite good choice. On the other hand, the income and expenses statement also brief about the same (Brigham and Houston, 2012).

Further, it has been evaluated that the net profit of the company is positive but the current worth of that amount is negative. It explains that the project is not a god option for the company to invest as the initial outlay of the company is quite higher. In addition, discounted payback period, explains that the payback period of the company is higher than the total time period of the investment of the company. It explains that the total amount of investment would be got back by the company after the completion of the project which is of no worth.

Lastly, the accounting rate of return of the company is -34.40%. It explains about worst condition of the project (Brigham and Ehrhardt, 2013). On the basis of calculations over the accounting rate of return, it has been found that the accounting rate of return of the company is lower than the expected amount.

Recommendation and Conclusion

On the basis of the above evaluation, it has been recognized that the new life training plc is a growing company and the company has registered itself in the London stock exchange to raise the capital. The company is planning to invest into the new project. The case explains about the new training project to the students of the company in which the tuition services would be served to the students of the country.  The capital structure position of the company includes debt and equity amount. Gearing ratio of the company is 50% which explains that the debt amount and the equity amount of the case is equal. The issued share capital of the company is worth £50 million in the market. The total retained earnings of the company are £ 10 million. It explains that the total share price of the company is £ 60 million. So, the debt amount would also be equal to the equity amount of the company which would be £ 60 million.

The company is evaluating a new project to invest and enhance the market base of the company. The new project of the company explains that the project would run for 10 years in which the training session would be provided by the company to the students of the age of 5 years to 18 years. The case explains about the various revenues and the expenditure of the company. For evaluating the project of the company, capital budgeting techniques have been evaluated and it has been found that the performance of the project is not at all good and it must not be accepted by the company.

The net present value technique explains that the net profit value of the company is in minus. It explains that the project is not a good option for the company to invest as the project is offering the loss amount to the company as well as it has been found that the initial outlay of the company is quite higher, it directly impacts on the net present value of the company. In addition, discounted payback period, explains that the payback period of the company is 15 years and the total time period of the project s 10 years which is of no worth. It explains that the payback period is higher than the total time period of the investment of the company. It leads to a conclusion that the project would not be accepted by the company. If the company would invest into the project than huge loss would be faced by the company.  

Lastly, the accounting rate of return of the company has been evaluated to measure the performance of the project and make a decision about the project acceptance. The case explains that the ARR of the company is -34.40%. It explains about worst condition of the project. On the basis of calculations over the accounting rate of return, it has been found that the accounting rate of return of the company is lower than the expected amount.

The above study and the evaluation explain that the project should not be accepted by the company as it would lead to the company towards the loss and the growing phase of the company would also be affected

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