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Business Management Worksheet

Cash Flow Forecasts

Mumbai Entertainment Hub (MEH)

Raj Sony, a multi dollar business entrepreneur owns Mumbi Entertainment Hub (MEH)
private limited in Mumbai. MEH is famous for its ambience, customer service, cleanliness of
the shopping, entertainment, leisure areas, and all in one experience. Movie lovers can watch
all most all Indian languages and genre of movies under one roof.
MEH provides a complete shopping and leisure experience for all. Though it is slightly away
from busy Mumbi city, people love to travel as it offers a complete weekend holiday and
shopping experience for all ages.
Impressed by the growth of Mumbai Entertainment Hub (MEH), Sony is planning to open a
new Hub in Bangalore called ‘Bangalore Entertainment Hub (BEH). Though there are many
premium malls in Bangalore, this unique experience is missing in these malls. Private survey
revealed that people are looking for different shopping experience. Since, infrastructure and
property prices are very high in Bangalore, Sony has to depend on external sources of finance.
Apart from a few leading private banks, Sony also met business angels, who could provide a
huge finance for the proposed project. The central government has hinted that the interest
rates on long term loans will increase gradually.
To support the loan application, the finance department of MEH has forecasted the following
revenues and expenses for the first 4 month the operations of BEH.
• Opening bank balance $ 0. 4 million (June 2022)
• Loans from banks and business angels $ 1 million (June 2022)
• Infrastructure investment $ $0.8 million each for three months from June 2022
• Staff monthly salary $ 300, there are 20 staff members.
• Annual building insurance $ 1200 paid in two equal instalments, paid every January
and June.
• Monthly loan repayment $0.2 million. The repayment starts from September 2022
• Utilities and other bills $ 500 per month.
• Other operating expenses $ 300 per month.

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• Monthly revenues from the Entertainment Hub $ 0.3 million. But it increases to $0.8
million from August 2022
• Revenues from other streams $ 20 000 per month. It increases by $ 2 000 from
September.
(Note: Forecast figures are examination purpose only, may not reflect realities)
Questions:
(a) Define the term internal growth [ 2 marks]
(b) Define the term business angel [ 2 marks]
(c ) Prepare a monthly cashflow forecast for the first four months of
operations of Bangalore Entertainment Hub [ 6 marks]
(d) Comment on the projected cash flow forecast of the entertainment hub [ 2 marks]
(e) Identify and explain two limitations of cashflow forecast for Mumbai
Entertainment Hub (MEH) as a planning tool. [ 4 marks]

(a) Define the term internal growth [ 2 marks]

Internal growth, or organic growth, occurs when a business decides to expand
business activities using its own resources. This can be done by launching
new products and/or entering new markets, changing the current marketing mix,
training employees, improving production or operation facilities, etc. Businesses do
this in order to improve their chances of increasing their customers, revenues and
profits.

MEH is planning to open a new entertainment hub in Bangalore called Bangalore

Entertainment Hub (BEH), this is an example of internal growth.

( Note: Case application or refence is not needed)

(b Define the term business angel [ 2 marks]
)
A business angel investor is an individual who provides capital, typically in the form of
a small amount of equity, to a business that is still in its early stages but a huge growth
potential. The investment is usually made through equity or convertible debt. This
type of investment is usually not subject to securities regulations and provides the
opportunity for a much more hands-on role in developing the company.

For instance, Raj Sony, contacted business angels for an additional fund.

( Note: Case application or refence is not needed)

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(c Prepare a monthly cashflow forecast for the first four months

) of operations of Bangalore Entertainment Hub [ 6 marks]
Answer is given on the following page
(d Comment on the projected cash flow forecast of the [ 2 marks]
) entertainment hub
Forecast cash looks very positive from the beginning and has been increasing from
month to month. Hence, BEH will not have any cash flow or liquidity issues. However,
the influence of the external factors (STEEPLE) should be studied carefully.
Unexpected changes in the economy, poor market research, breakdown of production
facility, etc., will make forecast inaccurate.

(e) Identify and explain two limitations of cashflow forecast for

Mumbai Entertainment Hub (MEH) as a planning tool. [ 4 marks]
Cash flow forecast can be affected by external factors such as social, technological,
economic, ethical, political, legal and environmental ( STEEPLE) skewing the forecast
cashflows. A significant increase in competition or excessive government regulation
can quickly change expected cash flows. Two limitations of cash flow forecast include:
Unexpected changes in the economy.
As mentioned above, external factors are highly dynamic and no business can
influence. Even when you research the data carefully during the preparation of a cash
flow forecast, there will always be circumstances or events that will influence the
trajectory of an organization that fall outside of the control of the company. For
instance, as mentioned in the stimulus, increasing interest rate could affect negatively
cash flow of MEH. The closing cash balance for the month of September forecasted $
1 054 200, may not become reality.
It can lead to improper decisions from the management team
Management which uses a long-term cash flow forecast as the basis of their
investment decisions can produce adverse results. An organization might decide to
make a significant investment (MEH is planning for a huge investment) in new
entertainment hub because there is a robust cash flow anticipated in the future. Then
the improved output levels would create more revenues, allowing the company to

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push scalability. If there are unexpected changes to the cash flow, or the estimate is
flawed due to failure of operation facility, demotivated employees’, poor market
research, etc, then the decisions made could put unnecessary stress on the future
financial health of MEH.

(c) Prepare a monthly cashflow forecast for the first four months of
operations of Bangalore Entertainment Hub [6 marks]

Cash flow forecast for Bangalore Entertainment Hub- June to September

Details June ($) July ($) Aug ($) Sept ($)
Opening bank balance (A) 400 000 912 600 425 800 439 000
Cash inflows:
Entertainment Hub 300 000 300 000 800 000 800 000
Other streams 20 000 20 000 20 000 22 000
Loans (bank business angles) 1 000 000 - - -
Total cash inflows (B) 1 320 000 320 000 820 000 822 000
Cash outflows:
Infrastructure investment 800 000 800 000 800 000 -
Staff salary 6 000 6 000 6 000 6 000
Building insurance 600 - - -
Loan repayment - - - 200 000
Utilities and other bills 500 500 500 500
Operating expenses 300 300 300 300
Total cash outflows (C) 807 400 806 800 806 800 206 800
Net cash flow (D = B-C) 512 600 (486 800) 13 200 615 200
Closing balance (E= A+ D) 912 600 425 800 439 000 1 054 200

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