You have just completed a boot camp organised in conjunction with the SUSS Impact Startup Challenge in Sustainability. A key theme, during the boot camp, was the need to achieve a balance between the profit-oriented nature of a business while ensuring the sustainability of the environment and the earth’s limited non-renewable resources. Spurred by the knowledge gained and motivated by the sharing from various founders and mentors, you are considering starting your own venture upon graduation. Furthermore, coupled with the numerous reports in recent years about the worsening climate change and excessive waste generated by consumerism, you are convinced that a business in its pursuit of financial goals must also play its part, no matter how small, to minimise waste, reduce its carbon footprint and contribute to a sustainable future for all.

During the boot camp, one of the mentors invited aspiring entrepreneurs to contact him for future funding opportunities. Being keen to seize this opportunity, you decided to apply what you have learnt from the boot camp to develop a preliminary start-up proposal to pitch to the mentor.
You are to construct a business model canvas and analyse the opportunities for launching a sustainability-focused business or a business with sustainable practices. In your report, you should appraise in detail each section of the business model canvas. The report should also include a detailed financial analysis to demonstrate the financial viability of the venture.

Guidelines and Assumptions

1. The business concept must not be a (i) Franchise, (ii) Wholesaler/Distributor or (iii) F&B-related (where the primary business activity includes dine-in or takeaway such as restaurants, cafes, pastries and confectioneries, bakeries, food kiosks, etc.).

2. The proposed business must operate out of a rented unit that is located at Sunset Way (operating as a home-based business is not permitted). The unfurnished vacant unit of 1,000 square feet is available for rent at $8,000 per month for the entire unit, fixed for a minimum 3-year lease. The landlord has also offered you the option to rent half the unit (500 square feet) at $5,000 per month.

3. In deciding the space required, you need to consider the current requirements of the proposed business, the maximum foreseeable operating capacity and ability to accommodate future expansion of the business. Changes to the space leased during the tenancy term is not permitted.

4. Rental deposit required is equivalent to 2 months’ rental, to be paid together with the first month’s rental upon commencement of the lease. Sub-letting is not allowed by the landlord.

5. The first month of operations is the gestation period of the new business, e.g., staff recruitment, renovation, staff training and etc. The first revenue can only be received by the new business from the second month onwards in the financial forecast.

6. The depreciation for any capital investment is a straight line over three (3) years.

7. You managed to pool together $30,000 as your initial equity capital. The investor is willing to invest between 50% to 75% of the balance of capital
required as his equity stake (you will need to propose the amount). The remaining shortfall in capital will be extended as a loan to the business at the
start, with only interest payable each month (see further for cost of debt) and the full repayment of the principal on the 36th month.

8. The following Cost of Capital (Weighted Average Cost of Capital, WACC) formula must be used (no marks will be awarded if any other WACC formula
is used):

WACC = E/V * R_{e +} D/V * R_d x (1 - T_c)

 

9. Specific Tax Exemptions, Credits and Reliefs (e.g., Tax Exemption Scheme for New Start-Up Companies), Concessions, Rebates, Loss-Carrying Forward and similar Schemes are to be ignored in computations.

10. Assumptions made must be supported by appropriate references shown in the appendices. All sources must be properly cited in the text, and included in the reference list.

Questions:

(a) Executive Summary

(b) The Business Model

(b) (i) Business Model Canvas

(b) (ii) Analysis of the Business Model Canvas Components based on Research Data

(c) Sustainability Actions and Goals

(d) (i) 3-Year Pro-forma Income Statement (1st to 3rd year on monthly basis)

(d) (ii) 3-Year Pro-forma Cash Flow Statement (1st to 3rd year on monthly basis)

(e) Total Capital Required, Sources and Justification

(f) Expected Financial Returns: Valuation (based on the discounted cash flow method), NPV and IRR (Cost of Equity at 8.0% (R_e), Cost of Debt (R_d) at 5% and Corporate Tax Rate (T_c) at 17%)

(g) Percentage Shareholding Offered to Investor

Transcribed Image Text:

Re = Cost of Equity Rd = Cost of Debt E = Funding from Equity D = Funding from Debt / Loans V = E + D (i.e., total funding) E/V = Percentage of Financing that is Equity D/V = Percentage of Financing that is Debt Tc = Corporate Tax Rate Re = Cost of Equity Rd = Cost of Debt E = Funding from Equity D = Funding from Debt / Loans V = E + D (i.e., total funding) E/V = Percentage of Financing that is Equity D/V = Percentage of Financing that is Debt Tc = Corporate Tax Rate

Answer rating: 100% (QA)

a Executive Summary Provide a concise overview of your business idea highlighting its sustainability focus and financial viability Include key points such as the problem you aim to solve your target m... View the full answer