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Essay: Important Assumptions on Business Plan | Term Paper Queen

Sample Essay

The financial statements of this business plan have been prepared based on various assumptions. It is assumed that the company sales will grow at an average rate of 8% in the initial years of business due to increasing demand in Light Emitting Diodes. The company will sell its products with a gross profit margin of 30 percent and a net profit margin of 24 percent.

The tax rate applied to the earnings of the company would be 30 percent. The company will use the straight line method for depreciating its fixed assets at an appropriate rate. The rate of depreciation for plant and equipment has been estimated at 10 percent per annum. The overall growth rate applied for forecasting financial statements is 10 percent. An assumption has been made that the initial capital required will be funded entirely from issue of ordinary shares and short term liabilities and the company will not issue any long term debt in the first three years of business. The company will purchase all assets required for the first three years of business at startup and no additional assets will be acquired in the second and third years of business. The discount rate applied for evaluating the project through capital budgeting techniques is also 10 percent.

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