Jacquelin Watts



-599%-1947%-176%?Assignment 2Step 7The contribution margin is the revenue that remains after a business sells a product, or a service, and deducts its variable costs. The contribution margin is used to cover fixed costs, and any revenue remaining is attributed to profit. Contribution margins can be calculated for individual products or for a product line, and are useful for determining which products or services are contributing the most to a firm’s profit. Negative contribution margins should always be avoided as they indicate that the product, or service, is not profitable, at the current selling price. Crowdspark Limited is an online publishing company that sells photographs, videos and news stories to its clients, including Associated Press (AP), Getty Images and Australian Associated Press (AAP), and many other news agencies around the world. Crowdspark’s media content is sourced through crowdsourcing, where amateur and professional photographers can send their media online to Crowdspark, via the Newzulu app. If the crowdsourced media is chosen for publication and/or licensing, the photographer or news writer will receive payment from Crowdspark. Crowdspark Limited on-sells a limited number of products to its clients, whose prices vary according to size, type of publishing license and medium (print, website or television). To determine whether Crowdspark’s products are profitable contribution margins have been calculated for the following three products:Small Editorial Licensed Image (website or print)Commercial Licensed Print AdvertisementCommercial Licensed Website AdvertisementSmall Editorial Licensed Image (website or print)Contribution Margin = Sales Revenue – Variable CostsCM = $100 – ($50 Commission + other variable costs $20)CM = $100 - $70CM = $30Commercial Licensed General Advertisement (website, print, television)Contribution Margin = Sales Revenue – Variable CostsCM = $1000 – ($500 Commission + other variable costs $200)CM = $1000 - $700CM = $300Commercial Licensed Digital AdvertisementContribution Margin = Sales Revenue – Variable CostsCM = $600 – ($300 Commission + other variable costs $200)CM = $600 - $500CM = $100Crowdspark do not list any prices on their website, other than stating that they will split the sale price of the media 50/50 with the photographer or news writer. To get an idea on pricing I researched the prices that Getty Images use, as Getty is the market leader in licensed images. As the market leader, Getty’s prices are high so I lowered them for Crowdspark. Crowdspark also sells images to Getty, which I estimated would be at a lower rate than the price Getty sells its images on its website, for example, Getty sells a small editorial image or web video for $200. As a company that operates predominantly online I would estimate that Crowdspark do not have many variable costs other than marketing, wages, and commission (50% of the sale price). Similarly, I would not expect them to have significant fixed costs, but perhaps they did because at the 30 June 2016 Crowdspark had $588,088 of property, plant and equipment. At the 30 June 2017 Crowdspark had reduced its property, plant and equipment to $97,004. Property, plant and equipment all have fixed costs attached to them, for example, rent, insurance, interest expense, utilities and depreciation. Crowdspark has been operating at a loss over the last three years and by decreasing fixed costs this would leave a greater contribution margin for profit. I would estimate that contribution margins would be similar between products. Differences in sales price could occur in relation to the content of the media, for example a crowdsourced photograph of a celebrity would probably fetch a higher price than a landscape photograph. It is not clear whether Crowdspark edit the media they receive, and if they do this would increase their variable costs (wages). Even though editorial media has the lowest contribution margin Crowdspark should include these in its product line as they are the cheaper alternative for small businesses. However, Crowdspark face a market constraint with editorial media from cheaper stock photography websites, like iStock.Crowdspark, like Getty Images, are in a niche market that will pay a premium for high quality images, which limits their market to large companies. They face competition from stock photography websites that sell editorial images at a much lesser cost, between $5 to $36, which may be more attractive to small businesses. This market constraint should be considered when Crowdspark are working out their contribution margins. Crowdspark also relies on crowdsourced material which can be considered a resource constraint, and should be considered alongside contribution margins. Additionally, Crowdspark may not have the crowdsourced media a business is looking for at any given time. No guidelines are given to what type of photography or media can be sent to Crowdspark, which leaves a lot of uncertainty as to whether they will have the right product on hand. Crowdspark are operating at a loss, so market and resource constraints could be producing negative contribution margins. Looking at Crowdspark’s financial ratio’s will help pinpoint why Crowdspark has had a negative profit margin over the last four financial years. ReferencesDean, T. (2017, April 11). The Cost of Commercial Image Licenses – Average Getty Prices [web blog post]. Retrieved May 23, 2018, from Images. (2018). Plans and Pricing. Retrieved from 8What’s Going on Crowdspark?Crowdspark Limited continues to operate at a loss in 2018, and is not keeping up with its peers in the online publishing industry, who on average are profitable and are generating positive earnings (Lombardo, 2018). On the 4th May, 2018 Crowdspark’s (ASX:CSK) share price dropped 25% to 5.1c, and their quarterly figures showed a decrease in sales from $868,000 to $340,000 (Yeo, 2018). Crowdspark’s expenses are currently higher than its sales and its earning loss is at -$8.24M (Lombardo, 2018). Working out Crowdspark’s financial ratios for the last four financial years, will give a clearer picture of ‘what’s going on with Crowdspark’. Profitability RatiosNet Profit Margin (NPM) The net profit margin is a ratio of earnings to revenue (net profit divided by revenue). It shows how much profit (or loss) each dollar of sales generates, or how much profit it gets to keep after it pays all its expenses (or how much excess it spent per dollar of sales). Even though Crowdspark is making a loss, the net profit margin (or negative profit margin) can still provide useful information. It shows how much extra Crowdspark spent for each dollar of sales (as shown in the following table). Net Profit MarginExcess spending per $1 of revenue2017-421.08%$4.212016-599.44%$5.992015-1946.60%$19.472014-176.44%$1.76The net profit margin also shows how efficient Crowdspark have been in reducing their loss. In 2016 the amount Crowdspark spent for every $1 of revenue ($5.99) decreased dramatically from 2015 ($19.47). In 2017 the negative profit margin has decreased by a further $1.78. Return on Assets (ROA) The return on assets (ROA) shows how efficiently a firm is using its assets to generate income or profit (net income divided by total assets). It determines how much profit is being generated for each dollar of assets. Like money in the bank, it is a measure of the return on investment (assets). In a business the purpose of assets is to generate revenue and profit, and consists of debt and equity used to finance the business operations (assets = liabilities + equity). Crowdspark has had a negative ROA for the last four financial years (as shown in the following table). In the 2017 financial year, every dollar that Crowdspark invested in assets resulted in a loss of net income by $1.80.Return on AssetsNet Loss per $1 of Assets2017-179.6%$1.802016-138%$1.382015-196.2%$1.962014-83.1% 83c?Crowdspark’s negative ROA may suggest that they are investing a high amount of capital (debt and equity) into financing the company, while simultaneously receiving little income. Even though Crowdspark went through significant restructuring in the 2017 financial year their ROA has resulted in a greater loss than in the 2016 financial year, because they sold assets (closed several offices and reduced staff numbers)..?Efficiency (or Asset Management) RatiosDays of InventoryThe days of inventory, or inventory turnover in days, shows how long it takes a firm to turn its inventory into sales (inventory divided by average daily cost of goods sold).Crowdspark do not have any inventory recorded in their balance sheet, so it is not possible to work out the days of inventory. One reason that Crowdspark may have no inventory is that it incurs no costs for its media until it is sold, as the crowdsourced material remains the property of the photographer, or news reporter, until it is sold by Crowdspark. Total Asset Turnover Ratio (TATR)The total asset turnover ratio shows how efficiently a firm is turning its assets over to generate revenue (net sales divided by total assets). It indicates how much revenue a firm is generating for each dollar of assets, including buildings, equipment, cash and inventories. In 2017, Crowdspark turned over its assets 0.43 times to generate revenue, or for every dollar of assets they generated 43c. Crowdspark has been slowly increasing its asset turnover ratio since 2015 from 0.10, to 0.43 in 2017, which suggests they are more efficiently using their assets to generate revenue. However, their asset turnover is still very low, which may be contributing to their negative profit margin. The negative profit margin may also be contributing to the low turnover of assets. Furthermore, the balance between Crowdspark’s profit margin and its asset turnover may also be influenced by product demand and cheaper competition. Crowdspark’s prices may be too high, which reduces their product demand and results in fewer sales. If Crowdsparks sales increase then their assets would turn over more quickly. Financial investments, such as stocks and bonds, are also assets and increasing the amount of investment turnover can ultimately achieve a higher profit margin. Crowdspark, as an online publishing service industry is not an asset intensive industry, so their asset turnover should be higher.Liquidity RatiosCurrent RatioThe current ratio, or working capital ratio, measures a firm’s ability to pay for its short-term obligations (bills) from its current assets (current assets divided by current liabilities). Crowdspark has enough assets to cover its liabilities, and this has been increasing over the last four financial years from 0.20 in 2014, to 2.75 in 2017. A current ratio of 2 is preferable, and Crowdspark have had a current ratio of greater than 2 for the last two financial years. At present Crowdspark has enough assets to cover its liabilities if it faced liquidation. However, it is important to note the type of current assets a firm has, and whether they can be quickly converted to cash if necessary. A firm with a high current ratio may not be any safer than a firm with a low current ratio if its assets cannot be readily turned into cash, or are of an inferior quality. Crowdspark’s current assets mainly consist of cash, and cash equivalents, so if cash was the only current asset considered Crowdspark would still be able to pay its obligations in 2017 (cash $5,001,740 divided by current assets $2,086,648 = current ratio of 2.39). Financial Structure RatiosDebt/Equity Ratio (D/E Ratio) The debt/equity ratio, compares a firm’s total liabilities with its shareholders’ equity, and reveals a firm’s debt as a percentage of its total market value (total liabilities divided by total equity). It shows how much a firm depends on borrowed funds and its ability to meet its financial obligations. A firm that is highly leveraged (carries a lot of debt) compared with its equity, is less likely to provide a return to its shareholders. However, some debt can be advantageous to raise capital to expand and grow the firm, and potentially increase profits. Over the last three years Crowdspark’s debt/equity ratio has been steadily climbing from 33.2% in 2015, to 64.3% in 2017. A 64% D/E ratio shows that for every dollar of equity Crowdspark has 64c worth of debt. There was a big jump in the ratio from 2016 (38%) to 2017 (64.3%) indicating that Crowdspark have been aggressive in financing its growth with debt. Aggressive leveraging (attempting to increase value by using debt to finance projects) can be risky, as it also increases interest expense, and Crowdspark’s expenses are already exceeding their revenue. In 2014, Crowdspark had a negative D/E ratio of -230% suggesting that its liabilities exceeded its assets.Equity RatioThe equity ratio measures the amount of equity in a firm, compared to the amount of assets a firm owns (equity divided by total assets). It indicates what percentage of a firm’s assets are owned by investors, and therefore safe if the firm was to go bankrupt. A higher percentage indicates that most of the business is owned by its shareholders, rather than being leveraged or owned by the bank through debt. Crowdspark’s equity ratio has decreased from 75% in 2015, to 60% in 2017, suggesting they are taking on more debt to finance their operations. In 2014 Crowdspark had a negative equity ratio as their total equity on the balance sheet was -$1,066,143. However, between 2014 and 2015 Crowdspark’s equity ratio increased from negative 76% to positive 75%, after they raised capital by offering shares, and their total equity on their balance sheet increased to $10,915,511. A firm can increase its equity by issuing new shares, or by making a profit, and decrease its equity by buying back its own shares, buying assets or by operating at a net loss. Crowdspark increased its equity by buying new shares in 2015, but has still been operating at a net loss, over the last four financial years, which will also be contributing to their decrease in equity. Market RatiosEarnings per Share (EPS)The earnings per share (EPS) shows how much of a firm’s profit can be allocated to one share (net income divided by number of issued ordinary shares). EPS breaks down a firm’s profit (or loss) on a per share basis, and shows what the market is willing to pay based on a firm’s net income. Over the last four years, Crowdspark’s EPS has been negative, suggesting they are operating at a loss, rather than generating profit for its shareholders. A net loss will result in a lowering of the value of stock. However, sometimes a firm may spend years operating at a loss as it develops new products, and its EPS will slowly move towards being positive. This may be the case with Crowdspark as their EPS is slowly moving towards being positive over the last four years, and their net loss has also been decreasing. In 2017 Crowdspark developed an app for android and IOS, and updated its online platform so users can access social media sites for uploading their content to Crowdspark.Dividends per Share (DPS)The dividends per share (DPS) shows how much net income is distributed to shareholders as dividends (dividends divided by number of issued ordinary shares). Crowdspark has not paid any dividends in the last four financial years as it has been operating at a loss. Crowdspark’s EPS has also been negative over the last four years as there is no profit to put towards shares. Price Earnings Ratio (P/E Ratio)The price earnings ratio measures a firm’s current share price relative to its per share earnings (market value per share divided by earnings per share). It is the amount an investor can expect to invest in a firm to receive $1 of the firm’s earnings, for example, a P/E ratio of 20 would indicate that an investor is willing to pay $20 for $1 of current earnings, or alternatively it would take the investor 20 years to make $1. A positive P/E ratio shows that the company is making a profit, while a negative P/E ratio shows the company is making a loss. For the last four years Crowdspark’s EPS value has been negative which shows that Crowdspark is losing money, which also directly affects the P/E ratio. ?.Ratios based on Reformulated Financial StatementsReturn on Equity (ROE)The return on equity, or return on net worth, shows how much of a firm’s net income (profit) is returned to its shareholders and investors (net income (CI) divided by shareholders’ equity). The ROE is like the ROA, but the ROE also considers financial leverage, or debt. The fundamental accounting equation states that assets = liabilities + equity, so if a firm had no debt its assets and equity would be the same (ROA = ROE). However, if a firm is leveraged (takes on debt) the ROE would rise above the ROA. Increasing debt increases a firm’s assets, but decreases equity (equity = assets – liabilities). Crowdspark has a negative net income (more debt and operating expenses than revenue) which has a large impact on ROE, when compared to ROA, as they have no cash left to pay their equity holders. They are also borrowing a lot of money, with their 2017 debt/equity ratio at 64%, which creates a large difference between ROA and ROE (see table below). Return on Assets (ROA)Return on Equity (ROE)2017-179.6%-295.01%2016-138%-190.47%2015-196.2%-261.41%2014-83.1% 108.08%Over the last four financial years Crowdspark’s ROE has fluctuated from positive 108% in 2014 to negative 295% in 2017. In 2017 Crowdspark has lost 295% of its total shareholder equity. Their loss has increased further since 2016 (190%). ?Return on Net Operating Assets (RNOA)The return on net operating assets (RNOA), shows how much operating income a firm has in relation to its operating assets (operating income (OI) divided by net operating assets (NOA). It is useful for determining a firm’s long-term ability to create value for its equity owners, by using its assets to create profit. The RNOA is like the ROA, except the RNOA considers operating liabilities and operating assets (NOA), rather than total assets (including financing and investing). If a firms RNOA is higher than its ROA this suggests a better return on assets. In 2017 Crowdspark’s RNOA was considering higher than its ROA suggesting a better return on assets (as shown in the following table). Return on AssetsReturn on Net Operating Assets2017-179.6%n/a2016-138%-425.9%2015-196.2%-374.2%2014-83.1%-4975.4%In 2017, Crowdspark closed several offices and reduced its employees from 84 to 29 which reduced its operating costs significantly. The cash from the sales of assets of $5.7 million meant that Crowdspark’s financial assets increased significantly. However, it also meant that operating liabilities (OL) were higher than operating assets (OA), resulting in net operating liabilities (NOL), rather than net operating assets (NOA) as seen in previous years. This meant that for 2017 I was unable to calculate RNOA as Crowdspark had NOL, instead of NOA. Net Borrowing Cost (NBC)The net borrowing cost (NBC) shows the average interest rate a firm is paying for its financing, including interest costs (net financial expenses (NFE)/net financial obligations (NFO). Crowdspark only had NFO in 2014, and in the remaining years they had net financial assets (NFA). In 2014, Crowdspark had an interest rate of 0.99%, which was an excellent interest rate.As Crowdspark had NFA from 2015 to 2017, I could calculate net financial income (NFI). However, in 2016 and 2017 Crowdspark had NFE rather than NFI, so I could only calculate NFI for 2015. In 2015, Crowdsparks NFI was 14.65%, which is most likely a result of selling 85.7 million shares at $0.042, and raising $3 million, in 2015.Profit Margin (PM)The profit margin (PM) shows how much profit (or loss) a firm makes, after paying for variable costs, but excluding financial expenses (operating income (OI) divided by sales). The PM takes a wider look at costs compared to the NPM, and is a better indication of how well a firm’s operations are contributing to profit. Firm’s with high PM’s can be more competitive by lowering prices, are better able to survive economic downturns and pay for all their costs. Crowdspark has had a negative PM over the last four years, and shows only a slight improvement when compared with its NPM (see table below). Net Profit MarginProfit Margin2017-421.08%-416.34%2016-599.44%-586.01%2015-1946.60%-1909.55%2014-176.44%-174.79%This suggests that Crowdspark’s business operations (operating income and expenses), rather than its financial expenses, are contributing the most to its current loss, and it is requiring a large amount of finances to sustain operations. It is useful to pinpoint where costs can be decreased to generate more profit, and Crowdspark’s PM has decreased substantially from -1909% in 2015, to -416% in 2017. Asset Turnover (ATO)Like the total asset turnover ratio (TATR), the asset turnover (ATO) shows how efficient a firm is turning assets over to generate revenue. However, it differs to the TATR by only considering operating assets and operating liabilities (sales divided by operating assets (NOA). The ATO measures the number of sales generated for each one dollar of assets, excluding financial assets such as cash (see table below for Crowdspark’s comparison of TATR and ATO).Total Asset Turnover RatioAsset Turnover20170.43 n/a20160.23 0.7320150.10 0.2020140.4728.47In 2017, Crowdspark’s TATR meant that for every dollar of assets they were generating 43c of revenue. However, as they had no net operating assets (NOA) in 2017, the ATO could not be calculated. In 2014, the ATO was a healthy 28.47, indicating that for every dollar of operating assets Crowdspark was generating $28.47. This was probably due to Crowdspark having fewer operating assets in 2014, but more sales when compared with their operating assets (see table below). When operating assets are separated from financial assets it is a much better indicator of how operating assets are generating revenue for a firm. Sales NOAATO20172,491,706n/a n/a20162,779,2423,823,952 0.7320151,511,4777,713,943 0.202014653,11022,94428.47Economic Profit (or Loss)Economic profit (or loss) refers to the difference between a firm’s revenue and its economic costs, or opportunity costs. (RNOA - cost of capital) x net operating assets (NOA). The key drivers of economic profit (or loss) are the RNOA, the cost of capital and the NOA. Furthermore, the RNOA is driven by the PM and the ATO. The RNOA should cover the cost of capital (WACC). Accounting profit (or loss), as shown on a firm’s income statement, does not consider the opportunity costs a firm loses or gains by making one decision over another, which may have led to more (or less) revenue. Economic profit is a measurement of opportunity cost, and suggests that firms should make returns above their cost of capital.Crowdspark have made an economic loss from 2014 to 2016 inclusive, and in 2017 they had net operating liabilities rather than net operating assets, so the economic profit could not be determined. The economic loss suggests that Crowdspark have been unable to add value for its shareholders, over and above its cost of capital. The cost of capital was set at 10% (WACC) as I was unable to locate a different WACC in Crowdspark’s annual reports.Crowdspark’s economic loss does not differ much to its accounting loss and was slightly greater than in all years, except for 2014, where the economic loss was a slight improvement on the accounting loss.Economic LossAccounting Loss2017n/a-10,492,0002016-16,668,918-16,659,8382015-29,633,759-28,534,5652014 -1,143,854 -1,152,329.The key drivers of economic profit (or loss) are the RNOA (driven by PM and ATO), the cost of capital and the NOA (see table below for Crowdsparks key economic and accounting drivers). PMATORNOACost of Capital (WACC)NOANOL2017 -416.34% n/an/an/a n/a-$7564382016 -586.01% 0.73 -425.9%-42.59%$38239522015-1909.55% 0.20 -374.2%-37.42%$77139432014 -174.79%28.47-4975.4%-497.54% $22944Firms create value for their equity holders by achieving an RNOA greater than its cost of capital. In 2014 to 2016, Crowdsparks RNOA could not cover its cost of capital which was fuelled by large negative profit margins, suggesting that Crowdspark are relying more on finances than on operations to fund its business. This is a concern for Crowdspark because if they are not making the sales necessary to sustain the business, they may eventually run out of cash to fund their business operations. ReferencesLombardo, T. (2018, March 27). Dilution Ahead For Crowdspark Limited ASX:CSK Shareholder [web blog post]. Retrieved May 23, 2018, from , M. (2018, May 4). Lunctime Small Cap Wrap: Who’s Jumping Higher and Who’s Falling [web blog post]. Retrieved May 23, 2018, from 9Capital Investment DecisionIn Crowdsparks 2017 annual report they stated that future developments included developing its technologies further, and expanding its customer base around the world. Crowdspark has a website where amateur and professional photographers and news reporters can send their media (photographs, video’s and reports) to Crowdspark. Crowdspark uses the crowdsourced material sent to them to on sell to their clients. If media is purchased by one of Crowdspark’s clients the photographer or news reporter receives 50% commission from the sale. As far as I can tell Crowdspark are in the ‘driving seat’ as to who buys their crowdsourced media. To develop their technology further, and to expand their customer base, I propose Crowdspark: (1) set up a new website for stock photography, called iSpark, where they can offer lower prices, and customers can buy editorial licenced photographs directly from the website. Cashflow would be generated by users being able to purchase licenced editorial stock photography directly from the website, and the main operating expense would involve staff maintaining and supervising the website.(2) undertake a worldwide marketing campaign using their Facebook logo ‘Capture Newsworthy Events Near You, Upload Your Photos and Videos, Get Published, Get Paid’. Marketing can be considered a capital investment, rather than an expense, when it is viewed as being able to create revenue. Through a successful marketing campaign Crowdspark can direct customers to their website and mobile applications and increase their customer base, which will directly lead to an increase in revenue, as they will have more content to offer their clients. Operating expenses would be minimal and primarily involve marketing staff conducting research on the results of the advertising campaign.The following table shows the estimated cash flows that the two projects are expected to realise over a 10-year period.iSpark WebsiteMarketing CampaignOriginal Cost $40,000$800,000Estimated Useful Life10 years10 yearsResidual Value$40,000$800,000Estimated Future Cash Flows31 May 2019+$5,000+$400,00031 May 2020+$10,000+$200,000 31 May 2021+$20,000+$100,00031 May 2022+$20,000+$100,00031 May 2023+$20,000+$100,00031 May 2024+$20,000 +$ 50,00031 May 2025+$20,000 +$ 50,00031 May 2026+$20,000 +$ 50,00031 May 2027+$20,000 +$ 50,00031 May 2028+$20,000 +$ 50,000Which Capital Investment should Crowdspark Choose?When making capital investment decisions firms use a combination of methods to determine the best project to pursue. You can use the payback period to narrow down your options, and then apply the NPV method. Alternatively, you can use the NPV method to select the most financially viable project and then consider payback periods to see what project produces a quicker return on capital. The IRR should be used in conjunction with the NPV and the payback period to help choose the most profitable project over time. Payback PeriodThe payback period method shows how many years it takes to recover the initial capital investment amount. If a project can be paid back within an allocated time, for example 5 or 10 years, then the project is worth considering. The main disadvantage of the payback period is that it does not consider the time value of money, for example two projects could have the same payback period but may generate cash earlier on, or later in the project. It also does not consider inflation and the cost of capital, as it considers a dollar today the same as a dollar in the future. Net Present Value (NPV)The net present value method shows the present value of a capital investment based on expected cashflow in future years. The value of future cashflows is discounted at a rate, for example 10%, to reflect what they are worth in the present day. NPV considers the time value of money (opportunity cost), inflation and the cost of capital, unlike the payback period method. If the NPV is a positive number, then the project is worth considering. The NPV is helpful for deciding whether a project is financially viable by showing the total amount of gain or loss a project will produce. It allows you to consider the opportunity cost, and whether another opportunity, for example, investing money in the bank would generate a similar return. A negative NPV suggests the project will lose money. The main disadvantage to the NPV is that it is based on assumptions of cashflow and discount rate.Internal Rate of Return (IRR)The internal rate of return method provides a rate of return for expected cashflows from a capital investment, and is useful for determining the most profitable projects. The IRR only considers future cashflows and ignores potential costs, associated with the project, that may affect future profit. It also assumes that future cashflows can be reinvested at the same amount as the original IRR. It also does not consider the size of the capital investment projects. A project that requires significantly less capital may have a much higher IRR, than a costlier capital investment. However, the more expensive capital investment with the lower IRR may generate higher cashflows and more profit. RecommendationiSpark Stock Photography WebsiteThe NPV for the website project after 10 years is $60,992, from an initial investment of $40,000. The payback period is 6 years and the IRR is 33%.. Worldwide Marketing CampaignThe NPV for the marketing campaign after 10 years is $155,494, from an initial investment of $800,000. The payback period exceeds 10 years and the IRR is 17.2%.The marketing campaign has a healthy IRR of 17.2%, that exceeds the cost of capital (10%) and the NPV indicates that it will make a profit of $155,494. However, it’s payback period exceeds 10 years, compared to the payback period of the website project, which is 6 years. The website project also has an excellent IRR of 33%, that exceeds the cost of capital (10%) by more than 3 times. Additionally, the website has an NPV of $60,992.I would recommend to Crowdspark that they pursue the iSpark website project, as this is the better project overall, based on the NPV, IRR and payback period methods combined.Feedback ReceivedThe feedback I received was very helpful, and made me think more deeply about what the numbers were telling me about my firm. I suspected there would be some errors in my calculations that involved NOA, as I had NOL in 2017, so it was good to hear from Rahul about my error, as it impacted several other ratios including my economic profit (loss). Similarly, as I had PEER FEEDBACK SHEET: ASS#2 Step 7-10 Feedback From: Rahul SinghFeedback To: Jacqui Watts . J My Comments Step 7 Identify three products or services of your firm Estimate selling price, variable cost & CM Commentary – contribution margins Constraints – identify & commentary You may want to comment on why some products and services have low contribution margins (severe competition, “me -too”) and others have very high margins (unique, sophisticated services).Also, touch on constraints the firm operates within – competitive pressures from unorganized sector of free-lancers, niche market, capital and management (folks who can run it profitably).Step 8 Calculation of ratios?Ratios – commentary (blog)?Calculate economic profit?Commentary – drivers of economic profit (blog) All ratios correctly calculated, except RNOA for 2017 is “not relevant”, as NOA is negative. Showing as a high RNOA reflects a fantastic return which is not the case.The ratios are well explained. You might wish to relook at the 2017 commentary for Economic Profit considering the RNOA was “not relevant” (-ve NOA and -ve OI should not be reported as high RNOA).Step 9 Develop capital investment decision for your firm Calculation of payback period, NPV & IRR Recommendation & discussion center182880There are errors in your payback period for both optionsYou may like to comment on strengths and weakness of the models and why you would prefer iSpark despite its lower “created value” (lower NPV).4000020000There are errors in your payback period for both optionsYou may like to comment on strengths and weakness of the models and why you would prefer iSpark despite its lower “created value” (lower NPV).Step 10 Individual feedback with other students Overall ASS#3 Feedback GivenGiving feedback was informative and consolidated the concepts behind the ratios. I found when I looked at other firms who were making a loss I could better understand my firm. My firm has a large amount of total assets (operating and financial) compared to some other firms which puts it in a better position, as it can use these assets while it tries to improve its sales. ................
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