Starting up and operating a health club offers a unique set of financial problems. Most capital expenditure is within the first few months, however, if the club is marketed to plan then it is the first few months that creates the largest income streams. Income can be generated from a number of sources, Joining Fee revenues are one off payments that are taken in the month of joining Aurora. Membership In come revenues are monthly subscriptions for the use of the facility. Income can also be generated from ancillary services such as Personal Training, Beauty Treatments, Bar/food sales and studio hire. It must be noted that the financial forecasts and membership sales forecasts are based on previous knowledge o f the industry. Aurora Cashflows 2http://pandawritings.com/health-care-organizations-and-financial-ratios/016 2017 2018 2019 £ £ £ £ PBIT 1572 1680 1800 1925 Depreciation 500 525 551 578 Capital Expenditure 705 735 771 809 Decrease(Increase) in Net working Assets (125) (310) (195) (342) Interest Paid 725 725 725 725 Tax Paid 512 550 588 630 Debt is expected to be 30% of equity Aurora borrows at 8% gross and pays tax at 35% Aurora has a beta of 1.35 The risk free rate is 5% The equity risk premium is 6% Required Question One Prepare a financial statement which shows Aurora’s net operating cash flow and its free cash flow and explain the difference between the two cash flows and explain how contingency management can be applied to the firm’s strategic objectives. (25 marks) Question Two Using a strategic model of your choice explain how Aurora’s expansion plans will affect the flow of funds through the business and outline how the model assists in developing a better financial plan for the future. (25 marks) Question Three The company has ambitious expansion plans for the future. This involves opening new facilities in Black Heath. Outline the key environmental factors which make this area an ideal location for the business and critically evaluate how the principles of Value and Risk and CAPM relate to any future investment decision. (25 marks) Question Four In an ever changing market place advise the company as to how it should respond to such changes and how it should go about initiating change within the organisation. (25 marks)
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