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Business Plan
Prepared For
Mr. SADIR ZAIDI
Instructor of corporate finance
Director of Faculty of Life Sciences and Business Management
University of Veterinary and Animal Sciences (UVAS)
Lahore

Prepared By
Mr. KHAWAR NADEEM
Mr. YASIR LATIF
Miss. FAIZA MUNEER
Mr. AMIR HUSSAIN
Miss. SARA FARID
Students of MBA 2nd Semester (sec B)
Session (2008-2010)
University of Veterinary and Animal Sciences (UVAS)

June8, 2009

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 To My Mother And my beloved MSB.

Y.L

To My Beloved Parents.

K.H
To My Beloved Parents.

F.M

To My Beloved Parents.

S.F

To My Beloved Mother.

A.H

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First of all thank to whom who is most merciful and kind to all of his creations with out any
discrimination and who make us able to Prepare this project

We are proud on following personalities for being our friends and relatives that guidance helps us in
the preparation of this project

➢ Mr. Haseeb who provided us some useful information related to our topic.
➢ Mr. Ali who provided us some useful information related to our topic.

In the end Special thanks to our parents and teachers specially Mr. ZAIDI (Our corporate finance
instructor) whom unlimited efforts are there in our personality

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5- Outfall Road
University of Veterinary and Animal Sciences
Lahore
January 28, 2009
Mr.Sadir Zaidi
Director
Department of Livestock Business Management (FLBS)
University of Veterinary and Animal Sciences (UVAS)
5, Outfall Road
Lahore
Dear Mr. ZAIDI
First of all we would like to thank to Mr. ZAIDI who has given us a good opportunity
of working on project to increase our of business planning skills on garments

“SAVVY GARMENTS”
In this report we have given the introduction of business, products of garments, financial analysis.This
is our first experience to do work on business plan, we learn much from it. We hope in future Mr.Zaidi
will provide us more chances of such good experiences.

Yours sincerely
Student of FLBS (UVAS)

Mr. KHAWAR NADEEM Miss. FAIZA MUNEER Mr. YASIR LATIF

Roll no. 00 Roll no. 31 Roll no. 44

Mr. AMIR HUSSAIN Miss. SARA FARID

Roll no. 06 Roll no. 42

Table of contants

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 Synopsis
Introduction: we started the garments business in Lahore city with high quality of the products. We want
to increase and stabilize the business in the market by the good behave with the customers.

Sales forecasting: then we do the work on the forecasting of the business, we forecast the cost of the
business first variable and as well as the fixed cost of the business. After forecasting the cost of the
business do the work on the sales of the business with the help of the data that is taken form the market
and implement it and make the sales for the business

On the basis of above data we prepare the projected income statement of the business.

Capital budgeting: in business plan the first task is capital budgeting in which we do the 6 type of
analysis NPV, IRR, ARR, PI, discounted payback, payback. By this we check the feasibility of the
project.

OCF: then we calculate the operating cash flow of the business by using the different techniques like
bottom up approach, top down approach, and tax shield approach.

Scenario analysis: after this we do the scenario analysis and check the feasibility of the project in the
different scenario like base case, best case, and worst case.

Sensitivity analysis: in this analysis we used different scenario to check the feasibility of the project by
change only one variable among the four variables (units, price, VC, FC) and other remains the same.

Break even analysis: in this analysis we check the break even of the project by the different way like
accounting break even, cash breakeven and financial breakeven.

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Introduction
Tag line:
“You were savvy garments, you look savvy”

Mission:
Satisfy the customer on the low prices and with high quality of product.
Business nature:
We started a trading concern business in the Lahore city.

Products:
We have the following products in men’s garments:

1) Casual shirts
2) Dress shirts
3) Dress pants
4) Jeans
5) Suits
6) ties

Objective:
We have the following objective in this field:
✔ Increase the sales up to 5%
✔ Increase the branches

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 ✔ Do work socially
✔ Maintain the standard of the products in the market
Location:
Kareem market, Kareem Block, Allama Iqbal town, Lahore.

Features:
We have the following features in this business:
➢ We provide good standard of products and suitable prices
➢ Friendly environment for customers
➢ Good return of customer money

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 ✔

PROJECT FORCASTING
Variable cost:
➢ Variable cost per unit:

Shirts per unit Rs.290

Pent per unit Rs.475

Suits per unit Rs.1800

Tie per unit Rs.80

➢ Per month variable cost Rs.476100

➢ Per year variable cost Rs.5713000
➢ Per year Variable FOH cost
Maintenance & repairs Rs.20700
Miscellaneous expenses Rs.55920
Electricity charges Rs.78840 Rs.155460
total variable cost Rs.5868660
Fixed cost:

➢ Per month:

Rent Rs.14600
Salary of sales man Rs.18000

➢ Per year:
Rent per year Rs.175200
Salary per year Rs.216000

➢ Total fixed cost Rs.391200

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Sales for the year
Sale price per unit

Price per shirt Rs.450

Price per pent Rs.650

Price per suit Rs.2500

Price tie Rs.180

Sale per day Rs 22950

Sale per month RS.688500

Sale per year Rs.8262000

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 SAVVY GARMENTS
INCOME STATEMENT
From 2009 to 2013
2009 2010 2011 2012 2013

Sales 8262000 8427240 8342967 8593256 8851053

Cost 6259860 6322458 6366715 6411282 6475394

Deprecation 90000 90000 90000 90000 90000

EBIT 1912140 2014782 1886252 2091974 2285659

Income tax 478035 503695 471563 522994 571415

Net income 1434105 1511086 1414689 1568980 1714244

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Capital budgeting
Capital budgeting is most important issue in the budgeting of any kind of business. In this way take the
decision how chose the finance operations in the business.

We present and compare a number of different approaches used in practice. Our primary goal is to
acquaint you with the advantages and disadvantages of the various approaches. As well as we see, the
most impotent concept in this area is the idea of net preened value. Capital budgeting has the following
tools.

✔ Net present value

✔ The pay back rule
✔ The discounted payback
✔ The average accounting return
✔ The internal rate of return
✔ The profitability index

Net present value:

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An investment is worth undertaking if it creates value for its owners. In the most general sense, we create
value by identifying an investment worth more in the marketplace then it costs us to acquire. How can
something be worth more then its cost?

Calculation of NPV of the project;

NPV = - initial cost + PV of future cash flows

= - 1500000 + 1524105 + 1601086 + 1504684 + 1658480 + 1804244

(1.21)1 (1.21)2 (1.21)3 (1.21)4 (1.21)5

= - 1500000 + 4672053

NPV = Rs.3172053

NPV decision rule;

An in vestment should be accepted if the net present value is positive and rejected if it is negative.

Decision:

The present value of the expected cash flow is Rs.4672053, but the cost of getting those cash
flow is only Rs.1500000, so the NPV is - 1500000 + 4672053 = Rs.3172053. This is positive so based
on the net present vale rule, we should accept this project.

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The payback rule
It is very common in practice to talk of the payback on a proposal investment. Loosely, the
payback is the length of time it takes to recover our initial investment or get “get our bait back”.

Rule;
Based on the payback rule, an investment is acceptable if its calculated payback period is less
then some pre specified number of years.

Years Cash Flow

0 -1500000
1 1524105
2 1601086
3 1504689
4 1658980
5
1804244

Pay back = -1500000

1524105

Pay back = 0.984 years

Decision:
The initial cost of the project is Rs. 1500000 and the cash flow of the first year is Rs. 1524105. So
the payback period is 0.984 years. And this is the positive sign for the project.

Discounted payback rule

We see that one of the shortcomings of the payback period rule was that it ignored time value. There is
the variation of payback period, the discounted pay back period, fixes the particular problem. The
discounted pay back period is the length of time until the sum of the discounted cash flow is equal to the
initial investment.

Rule:

Based on the discounted payback rule, an investment is acceptable if its discounted payback is
less then some pre specific number of years.

1st year = - 1500000 + 1524105

(1.21)1

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 = -1500000 + 1259591 = - 240409

2nd year = - 240409 + 1601086

(1.21)2

= 240409 = 0.2198
1093563

Discounted payback = 1+ 0.2198 = 1.2198 years

The Average Accounting Return

Another attractive, but flawed, approach to making capital budgeting decisions invoves the
average accounting return (AAR). It defines as;

= Average net income

Average book value

= 1528621
750000
= 203.8 %

The Internal Rate of Return

We now come to the most important alternative to NPV, the internal rate of return, universally
known as the IRR. As we will see, the IRR is the closely related to NPV. With the IRR, we try to find a
single rate of return that summarizes the merits of the project. Furthermore, we want this rate to be an
“internal” rate in the sense that it depends only on the cash flows of a particular investment, not on rates
offered elsewhere.
The IRR on an investment is the required return that results in a zero NPV when it is used as the discount
rate.
Rule:
Based on the IRR rule, an investment is acceptable if the IRR exceeds the required return. It
should be rejected otherwise.

0 = - 1500000 + 1524105 + 1601086 + 1504689 + 1658980 + 1804244

(2.007472) (2.007472) (2.007472) (2.007472) (2.007472)
0 = - 1500000 + 1499999.35
0=0

IRR= 100.7472
The internal rate of return of the project is much higher then the required rate of return. So we prefer to
accept this project.

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The Profitability Index
Another tool used to evaluate projects is called profitability index (PI), or benefit cost ratio. This
index is defined as the present value of the future cash flow divided by the initial investment. If a project
has a positive value of NPV, then the present value of the future cash flow must be bigger then the initial
investment.

PI = PV of future cash flow

initial investment
= 4672053
1500000
PI = 3.114702

The result of calculation tells us that per rupee invested, Rs.3.114702 in value or Rs.2.114702 in NPV
result. The profitability index thus measures “bangs for the buck,” that is, the value created per rupee
invested.

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Approaches to calculate OCF

There are the following approaches to calculate the OCF of the project.

1. Bottom Up Approach:
Because we ignoring any financing expenses, such as interest, in our calculations of
project OCF, we can write project net income as:

OCF = Net Income + Depreciation

1st year = 1434105 + 90000

= 1524105

2nd year = 1511086 + 90000

= 1601086

3rd year = 1414689 + 90000

= 1504689

4th year = 1568980 + 90000

= 1658980

5th year = 1714244 + 90000

= 1804244

This is bottom-up approach. Here we start with the accountant’s bottom line and add back any
noncash deduction such as depreciation. It is crucial to remember that

2. Top Down Approach

Perhaps the most obvious way to calculate OCF is:

OCF = sales – cost – taxes

1st year = 8262000 – 6259860 – 478035

= 1524105

2nd year = 8427240 – 6322458 – 50 3696

= 1601086
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 3rd year = 8342967 – 6366715 – 471563

= 1504689

4th year = 8593256 – 6411282 – 522994

= 1658980

5th year = 8851053 – 6475394 – 571415

= 1804244

This is just as we had before

This is the top down approach, the second variation on the basis of OCF definition. Here we start at the
top of the income statement with sales and work our way down to net cash flow by subtracting costs,
taxes, and other expenses.

3. Tax Shield Approach

The third variation on our basis definition of OCF is the tax shield approach. This approach will
be very useful for some problems, we consider in the next section. The tax shield definition of OCF is:

OCF = (Sales – cost) x (1 – T) + depreciation x T

1st year = (8262000 – 6259860) x (1 – .25) + 90000 x .25

= 1501605 + 22500

= 1524105

2nd year = (8427240 – 6322458) x (1- .25) + 90000 x .25

= 1601086

3rd year = (8342967 – 6366715) x (1- .25) + 90000 x .25

= 1504689

4th year = (8593256 – 6411282) x (1- .25) + 90000 x .25

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 = 1658980

5th year = (8851053 – 6475394) x (1- .25) + 90000 x .25

= 1804244

This is just as we had before.

This approach views OCF as having two components. The first is what the project’s cash flow would be if
there were no deprecation expense.

After tax salvage value

After tax salvage value is define as:

= Salvage value – T (salvage – book value)

So the value of the project is

= 40000 - .25 (40000-

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Scenario Analysis
The basic form of what-if analysis is called scenario analysis. In this case we have some
confidence in proceeding with the project. If a substantial percentage of the scenarios look bad, then the
degree of forecasting risk is high and further investigation in order.

There is number of possible scenarios we can consider. A good place to start is with the worst case
scenario. This will tell us the minimum NPV of the project. If this turns out to be positive, we will be in
good shape. While we are at it, we will go a head and determine the other extreme, the best case. This
puts an upper bound on our NPV.

Information or base case;

Number of units 14040

Price per unit 938

Variable cost 418

Fixed cost 391200

Take the 5 % change on the either side.

Upper & lower bounds:

Upper Lower

Number of units 14742 13338

Price per unit 985 891

Variable cost 439 397

Fixed cost 410760 371640

Best & worst case:

Best Case Worst Case

Number of units 14742 13338

Price per unit 985 891

Variable cost 397 439

Fixed cost 371640 410760

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 Income statement
Detail Base Best Worst
Sales 13169520 14520870 11884158
Cost 6259920 6224214 6266142
Depreciation 90000 90000 90000
EBIT 6819600 8206656 5528016
Income tax (25%) 1704900 2051664 1382004
Net income 5114700 6154992 4146012

Calculation of OCF:
OCF = EBIT = depreciation – taxes

Base;

OCF = 6819600 + 90000 – 1704900

OCF = 5204700

Best case:

OCF = 8206656 + 90000 – 2051664

OCF = 6244992

Worst case:

OCF = 5528016 + 90000 – 1382004

OCF = 4236012

Calculation of NPV:
NPV = - initial investment + PV of future cash flow

Base:

NPV = -1500000 + 15228848

NPV = 13728848

PV = 5204700 (2092598)

= 15228848

Best case:

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 NPV = -1500000 + 18272722

NPV = 16772722

PV = 6244992 (2092598)

= 18272722

Worst case:

NPV = -1500000 + 12394486

NPV = 10894486

PV = 4236012 (2.92598)

= 12394486

Sensitivity analysis

Sensitivity analysis is a variation on scenario analysis that is useful in pinpointing the areas where
forecasting risk is especially severe. The basic idea of the sensitive analysis is to freeze all of the variables
except one and then see how sensitivity our estimate of NPV is to change in the one variable.

If our NPV estimate turns out to be very sensitive to relatively small change in the projected value of
some component of project cash flow, then the forecasting risk associated with that variable is high.

Change in units: (5%)

Base Best Worst

Number of units sold 14040 14742 13338

Price per unit 938 938 938

Variable cost 418 418 418

Fixed cost 391200 391200 391200

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 Income statement
\

detail Best Worst

Sales 13827996 12511044
Cost 6553356 5966484
Depreciation 90000 90000
EBIT 7184640 6454560
Income tax 1796160 1613640
Net income 5388480 4840920

Best case:

OCF = 7184640 + 90000 – 1796160

OCF = 5478480

NPV = -1500000 + 160299236

NPV = 14529923

Worst case:

OCF = 6454560 + 90000 – 1613640

OCF = 4930920

NPV = - 1500000 + 14427773

NPV = 12927773

Change in selling price (5%)

Base Best Worst

Number of units sold 14040 14040 14040

Price per unit 938 985 891

Variable cost 418 418 418

Fixed cost 391200 391200 391200

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 Income statement
Detail Best Worst
Sale 13829400 12509640
Cost 6259920 6259920
Deprecation 90000 90000
EBIT 7479480 6159720
Income tax 1869870 1539930
Net income 5609610 4619790

Best case:

OCF = 7479480 + 90000 – 1869870

OCF = 5699610

NPV = -1500000 + 16676945

NPV = 15176945

Worst case:

OCF = 6159720 + 90000 – 1539930

OCF = 4709790

NPV = -1500000 +13780751

NPV = 12280751

Change in variable cost (5%)

Base Best Worst

Number of units sold 14040 14040 14040

Price per unit 938 938 938

Variable cost 418 397 439

Fixed cost 391200 391200 391200

Income statement
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 Detail Best Worst
Sales 13169520 13169520
Cost 5965080 6554760
Depreciation 90000 90000

EBIT 7114440 6524760

Income tax 1778610 1631190
Net income 5335830 4893570

Best case:

OCF = 7114440 + 90000 – 1778610

OCF = 5425830

NPV = -1500000 + 15875870

NPV = 14375870

Worst case:

OCF = 6524760 + 90000 – 1631190

OCF = 4983570

NPV = -1500000 + 14581826

NPV = 13081826

Change in fixed cost (5%)

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 Base Best worst
Number of units sold 14040 14040 14040
Price per unit 938 938 938
Variable cost 418 418 418
Fixed cost 391200 371640 410760

Income statement
Detail Best worst
Sales 13169520 13169520
Cost 6240360 6279480
Depreciation 90000 90000
EBIT 6839160 6800040
Income tax 1709790 1700010
Net income 5129370 5100030

Best case:
OCF = 7173160 + 90000 – 1793290
OCF = 5469870
NPV = -1500000 + 16004730
NPV = 14504730
Worst case:
OCF = 7169724 + 90000 – 1792431
OCF = 5467293
NPV = -1500000 + 15997189.9
NPV = 14497189.9

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Break-even analysis
It will frequently turn out that the crucial variable for a project is sales volume. If we are thinking,
of a new product or entering a new market.
Break-even analysis is a popular commonly used tool for analyzing the relationship between sales
volume and profitability. There are varieties of different break-even measures. And we have
already seen several types.

a. Accounting break-even :
Numerically we notice that the break-even level is equal to the sum of fixed cost an depreciation,
divided by price per unit less variable cost per unit. This is always true.

Q = FC + D
P–v

Q = 391200 + 90000
938 – 418

Q = 925.3846

b. Cash Break-even analysis:

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 Q = FC
P–v

Q = 391200
938 – 418
Q = 752.31
c. Financial breakeven:
The last case we consider is that of financial break-even, the sales level that results in a
zero NPV. To the financial manger, this is the most interesting case.

Q = FC + OCF
P–V
Q = 391200+5204700
938 – 418
Q = 10761.34

Operating leverage:
It is the degree to which a project or firm is committed to fix production cost. a firm with low
operating leverage have the low fixed costs compared to a firm with high leverage.

DOL = 1 + FC
OCF
DOL = 1 + 391200
5204700
DOL = 1.075

So the project has the low degree of the operating leverage so the fixed cost of the project is also low.

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 Appendix
Take information from Mr. Hasseb the owner of the desire Garments.

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 Bibliography
➢ Fundamental of corporate finance written by the Ross Westerfield Jordan
➢ Investipedia
➢ Google
➢ Different shops of the kareem block market

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