# Toyota SA Helmet Online Store Project: Financial Analysis ## Given Data - **Initial Investment (Year 0):** R 1,200,000 (setup cost for online store) - **Annual Operating Costs:** - Year 1: R 500,000 - Year 2: R 1,500,000 - Year 3: R 300,000 - Year 4: R 200,000 - Year 5: R 100,000 - Year 6: R 100,000 - **Projected Sales Revenues:** - Year 1: R 0 (store setup year) - Year 2: R 3,000,000 - Year 3: R 1,000,000 - Year 4: R 600,000 - Year 5: R 400,000 - Year 6: R 100,000 - **Discount Rate:** 10% per annum --- ## 1. **Annual Cash Flows Calculation** \[ \text{Annual Cash Flow} = \text{Sales Revenue} - \text{Operating Cost} \] | Year | Revenue (R) | Operating Cost (R) | Net Cash Flow (R) | |------|:-----------:|:------------------:|:-----------------:| | 0 | 0 | 1,200,000* | -1,200,000 | | 1 | 0 | 500,000 | -500,000 | | 2 | 3,000,000 | 1,500,000 | 1,500,000 | | 3 | 1,000,000 | 300,000 | 700,000 | | 4 | 600,000 | 200,000 | 400,000 | | 5 | 400,000 | 100,000 | 300,000 | | 6 | 100,000 | 100,000 | 0 | > *Year 0: Initial setup only, no revenue. --- ## 2. **Discounted Cash Flows (DCF)** \[ \text{DCF}_n = \frac{\text{Net Cash Flow}_n}{(1 + r)^n} \] where \( r = 0.10 \) | Year | Net Cash Flow (R) | Discount Factor | Discounted Cash Flow (R) | |------|:-----------------:|:--------------:|:------------------------:| | 0 | -1,200,000 | 1.000 | -1,200,000 | | 1 | -500,000 | 0.909 | -454,545 | | 2 | 1,500,000 | 0.826 | 1,239,669 | | 3 | 700,000 | 0.751 | 525,792 | | 4 | 400,000 | 0.683 | 273,224 | | 5 | 300,000 | 0.621 | 186,570 | | 6 | 0 | 0.564 | 0 | --- ## 3. **Cumulative Discounted Cash Flows** | Year | Discounted Cash Flow | Cumulative DCF | |------|:-------------------:|:--------------:| | 0 | -1,200,000 | -1,200,000 | | 1 | -454,545 | -1,654,545 | | 2 | 1,239,669 | -414,876 | | 3 | 525,792 | 110,916 | | 4 | 273,224 | 384,140 | | 5 | 186,570 | 570,710 | | 6 | 0 | 570,710 | --- ## 4. **Discounted Payback Period Calculation** The discounted payback period is when cumulative DCF turns positive. - At end of Year 2: Cumulative DCF = -414,876 (still negative) - At end of Year 3: Cumulative DCF = 110,916 (becomes positive) ### Interpolation for Payback Period \[ \text{Payback Period} = 2 + \frac{|\text{Cumulative DCF at end of Year 2}|}{\text{Discounted Cash Flow in Year 3}} \] \[ = 2 + \frac{414,876}{525,792} \approx 2.79 \text{ years} \] --- ## 5. **Discounted ROI Calculation** \[ \text{Discounted ROI} = \frac{\text{Total Discounted Net Cash Inflows} - \text{Total Discounted Outflows}}{\text{Total Discounted Outflows}} \] - **Total Discounted Inflows:** Sum of positive discounted cash flows (Years 2-5) \[ = 1,239,669 + 525,792 + 273,224 + 186,570 = 2,225,255 \] - **Total Discounted Outflows:** Sum of negative discounted cash flows (Years 0-1) \[ = 1,200,000 + 454,545 = 1,654,545 \] - **ROI:** \[ \text{Discounted ROI} = \frac{2,225,255 - 1,654,545}{1,654,545} = \frac{570,710}{1,654,545} \approx 0.345 \text{ or } 34.5\% \] --- ## 6. **Summary Table** | Metric | Value | |-------------------------------|------------------------| | Discount Rate | 10% | | Discounted Payback Period | 2.79 years | | Discounted ROI (6 years) | 34.5% | | Cumulative Discounted Cash Flow (6 years) | R 570,710 | --- ## **Final Summary** - The online helmet store project for Toyota South Africa requires an initial investment of R 1.2 million and has projected annual net cash flows provided above. - Using a 10% discount rate: - The **discounted payback period** is **2.79 years**, meaning the investment is recovered before the end of year 3 in present value terms. - The **discounted ROI** over six years is **34.5%**. - The cumulative discounted cash flow by project end is **R 570,710**. - The project is financially viable, with a relatively quick payback period and a positive return on investment.

# Summary of Financial Analysis Steps ## 1. Annual Cash Flows Calculation The annual cash flows were calculated by subtracting operating costs from projected sales revenues for each year. The initial investment in Year 0 results in a negative cash flow, while subsequent years show a mix of positive and negative net cash flows. ## 2. Discounted Cash Flows (DCF) The discounted cash flows for each year were computed using a discount rate of 10%. This approach helped in reflecting the present value of future cash inflows and outflows. ## 3. Cumulative Discounted Cash Flows The cumulative discounted cash flows were tracked to assess the overall financial situation of the project over six years. This analysis indicated when the project transitions from negative to positive cash flow. ## 4. Discounted Payback Period Calculation The discounted payback period was found by determining when cumulative discounted cash flow became positive. This period was calculated to be approximately 2.79 years, indicating a relatively quick recovery of the initial investment. ## 5. Discounted ROI Calculation The discounted ROI was calculated by comparing total discounted cash inflows to total discounted outflows. The resulting ROI of approximately 34.5% indicates a favorable return on the investment. ## 6. Summary Table A summary table was created to consolidate key metrics like the discount rate, payback period, ROI, and cumulative cash flow. This table provides a clear overview of the project's financial viability and performance.