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Memo:
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·         With average of 3% of annual sales growth of the new stores without taking extra debt and 8x exit multiples at year 5. All scenarios shows financially worthwhile to proceed, however, NSO Pro Forma Scenario 2 with scenario 1 store expenses give the greatest NPV and IRR. Which shows the most desirable to proceed.
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·         Borrowing 1 million in first year and 0.5 million in second to forth year will provide the company operate with positive cash flow which generate greater NPV and IRR as follow:
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·         There are other assumption we could make to help generate higher cash flow such as percentage of annual sales growth. However, that might not be the most accurate way to determine if the business plan is worth investing in as the growth could change from different variation such as location of stores open, attraction of new customers, services, competitors, etc. Assumptions of sales growth are as follow:
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·         I think we should go into more detail on the debt repayment. The current assumption did not take in the consideration of loan payment such as the term of the loan. As there no information on the payment term and method. The end of year 5 cash flow will take a big hit as to pay off the debt that was take on throughout the 5 years. As there’s no payment was made throughout the years, interest expenses are high with the cumulated loan.
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·         Overall, it is a really good investment to grow the business with opening new stores the new five years with positive growth that end with positive NPV.
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