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Financial Management and Accounting Project

Introduction

The report provides critical evaluation of the finance and financial planning to substantiate the beneficial investment at the chosen destination in the hospitality industry. In proposing the business venture to the group of investors in this report, primary and secondary sources are used for comprehensive investment portfolio planning, development of financial documents, financial performance evaluation for decision making and planning and control of budgets. The financial consultancy and suggestions are given based on the maximum budget of 10 million. The portfolio is developed with an intention not to exceed the investment project above the estimated budget. 

1.  Overview of Proposed Organization- African Hotel Industry

Recent trends in the global hotel industry reveal that new venture companies in the hotel industry are selecting destination for their developments based on the highest occupancy rates or expensive room rates (Blitz & Blas, 2014). Africa is among one of the most expensive destinations and profitable location for the new ventures (PWC, 2015). According to the recently published Financial Times (FT) research, Africa has turned out as the new battleground for the global hotel industry. Sub-Saharan Africa is therefore chosen as a feasible destination for opening the new development venture. The rise of safari and wild tourism opportunities and destinations has been biggest attractions for the global tourists. According to the United Nation World Tourism Organization, tourist arrivals in Africa will lead 85 million by 2020 (Blitz & Blas, 2014). 

Therefore, with consideration on all these benefits and the growing demands of hospitality businesses in the region,‘Our Safari (OS) Hotel’ is proposed to be developed in Nairobi, capital city of Kenya. The extraordinary urban core of city, large game reserve Nairobi National park and David Sheldrick Wildlife Trust are the ultimate attractions for the global tourists (Hastings, 2014).

2. Start up table including all expenditures prior to your proposed business opening

OS Hotel will be a luxury hotel developed in the heart of city among some of the famous Kenyan luxury hotels such as Fairmont the Norfolk. Among the group of ten investors, each will share the investment of $1 million in the proposed project. First of all the land of hotel will be leased from the Nairobi’s government for the period of 10 years.

Operating lease is identified as feasible for the current project because the agreement between the Nairobi’s government and the OS Hotel business would be for a small portion of land’s life. The reason behind selection of 10 years period is to protect the capital from the potential loss. There is a possibility that in the coming decade, trends in the hospitality industry will further change due to the rise of millennium customers. To prevent investment from long-term block, a period of 10 year will assist in gaining enough profits. In case of higher profitably, the lease term would be extended further through a new contractual agreement with the Nairobi’s government. In case of unexpected loss after the end of operating lease contract (zero percent chances) the business will be windup. Since the land is financed for less than its useful life and lessee will have to return the land to the government at the end of lessees’ period, therefore rental lease expenses will be paid to the government. Order  assignment help for all your writing needs

 

START-UP

Summary of Start-up Expenses for OS Hotel

Start-up Expenses

 

Legal

$500,000

Stationery etc.

$10,000

Brochures

$20,000

Construction and Development

$1,000,000

First Lease payment

$20,000

Management and Staff recruitment

$400,000

Lodge Setup

$300,000

Storage Setup

$50,000

Insurance

700,000

TOTAL START-UP EXPENSES

$3,000,000

Start-up Assets

 

Cash Required

$500,000

Other current assets

$0

Long-term Assets

$6,500,000

TOTAL ASSETS

$7,000,000

Total Requirements

$10,000,000

 

 

3. Important Financial Assumptions

The financial business planning of the‘Our Safari’ Hotel is based on the set of following assumptions:

  • All construction and development costs would be depreciated over the period of 50 years. The assumption is based on the normal depreciation rate charged for calculating the useful life of the building.
  • Operating costs of OS Hotel will be maintained according to the industry standards.
  • Variable cost such as labor and raw material (food and non-food) will be increase annually at the rate of 2%.
  • Fixed costs of the business will increase annually at the rate of 2%.
  • OS Hotel will increase its revenue at the rate of 20% annually
  • Administrative and office expenses of business will increase at the rate of 1% annually
  • Lease payments would be made monthly at the fixed rate of $20,000 for the 10 years. The payment of first installment will only be paid out of the initial capital invested while the subsequent payments will be directed using the revenue and profits earned.
  • Earnings before interest and tax (EBIT) will increase by 5% annually.
  • All the net income or profit after payment of tax would be maintained in retained earnings account.
  • All the stated assumptions would be used in the subsequent assessment of the capital budgeting process, operating and financial leverage and analysis of the financial and portfolio risks and development of the forecasted financial statements.  

4. Capital Budgeting Process

An investment appraisal is necessary for planning and deciding about the worthiness and feasibility of an organization’s long term investments. Capital budgeting process is defined as the process through which the value of a project can be increased for the shareholders. 

4.1 The Capital Structure of Project (Debt / Equity)

A major portion of venture in ‘Our Safari Hotel’ business is financed by the equity of the investors. The group of ten investors will share equal amount of capital in the structure. There is not debt involved in the initial business structure.

Capital structure

Assets= Debt + Equity

10 million Assets= 0 + $10 million

4.2 Evaluation of Capital Expenditures

Capital expenditure is realized as the expenses incurred to improve the useful life of the capital asset or the funds invested to purchase the newly capital assets. From the start-up expenditure summary of the OS Hotel, high cost capital expenditures (CapEx) can be observed presented in the company’s funds. 

There are three of such capital expenditures. 

Construction and development= $1,000,000

Lodge Setup= $300,000

Storage Setup= $50,000 

All these expenditures will be incurred to develop a hotel building, which is a capital asset. There are numerous decision tools in the capital budgeting process that could be used for assessing the payback period of the initial investment in order to assess the acceptance or rejection decisions for the chosen venture. The total amount of the CapEx= $1,350,000. It is assumed that the cash saving from the CapEx would be $200,000 per year for the period of 10 years. 

4.2.1 Payback Period

For evaluating the payback method of the proposed OS Hotel, payback method is selected. The method measures the profitability of an investment venture by analyzing the duration needed for getting back the funds spent in an investment. Payback period is the most common and easily understandable method for planning the capital budgeting process. It also helps in determining the break-even point.

Cash inflow is the amount saved or earned periodically from the initial investment. Cash outflow represents the initial investment. The net cash flow is the total amount saved on earned after the end of specific period. Lastly, cumulative cash flow represents the amount of cash outflow subtracted by the net cash flow earned. It is expected that the proposed venture will be able to save 200,000 by investing in CapEx in the first year. However, such saving will increase at the rate of 5% annually. 

Year

Cash Inflow (5% increase annually)

Cash Outflow

Net Cash Flow

Cumulative Cash Flow

0

 

-1350000

 

 

1

200000

 

200000

-1150000

2

210000

 

410000

-940000

3

220500

 

630500

-719500

4

231525

 

862025

-487975

5

243101

 

1105126

-244874

6

255256

 

1360383

10383

7

268019

 

1628402

278402

8

281420

 

1909822

559822

9

295491

 

2205313

855313

10

310266

 

2515579

1165579

 

From the examination of the payback method calculation, it can be determined that by the end of six years and some months; the OS Hotel would be able to recover its initial investment. By this time, the hotel would be able to turn out its negative cash flow into positive cash flow and incur profit after recovery.

In assessing the investment portfolio based on the payback period, the investors however would acknowledge that the measure is not helpful in ascertaining the certainty of the cash flows occurring later in the project’s life. Despite, it helps the business in dealing with the financial liquidity problems. In summary, the capital budgeting process and planning reveal the‘Our Safari Hotel’ as a profitable venture.

Subsequently, the nest section of the report offers an understanding of the operating and financial leverages in the proposed OS Hotel project.

5. Operating and Financial Leverage

Leverage calculation and assessments are highly necessary for the determination of changes expected to occur in the earnings due to fixed costs, variable costs or earnings per share (Gallagher & Andrew, 2007). Therefore, three specific leverages are calculated in order to understand the situation. It will help the potential investors of the OS Hotel in assessing how they can use Leverage in increasing the returns.

5.1 Degree of Operating Leverage (DOL)

DOL is the leverage ratio based on effects of operating leverage on the EBIT. Operating Leverage is defined as the proportion off fixed cost to variable cost.

It can be determined that Degree of Operating Leverage is not high for the OS Hotel. It shows that with the small percentage change in the hotel’s revenue, the net operating income cannot be increased significantly. Such a low DOL makes the income predictable. The high DOL makes the earnings of venture unpredictable even when all the other factors remain unchanged. The figure calculated for DOL further substantiates that in the OS Hotel project, the proposed project would have low proportion of fixed operating costs in relation to the variable operating costs.

However, a balance between the Operating Leverage and Financial Leverage is highly necessary for gaining desired results.

 

5.2 Degree of Financial Leverage (DFL)

DFL is a value showing the relation between the percentage change of earnings per share (EPS) and the change or fluctuation in the operating income of the proposed venture (Gallagher & Andrew, 2007). The formula used to measure DFL for the OS Hotel project is given below.

The low DFL ratio further confirms that the EPS of the OS Hotel project would not be volatile. The value further shows stability in the company’s capital structure. Due to the stability in the operating income before interest and tax, the business will be able to keep its EPS stable too. With the help of such stability, it would be easier for the‘Our Safari Hotel’ in taking a significant portion of debt from the external sources in future. Thus, the DFL will help OS in minimizing the level of risks involved. The value of DFL is also a criterion, which can be used to compare the data of two or more companies with each other.

 

5.3 Degree of Combined Leverage (DCL)

DCL is a leverage ratio that could be used for summarizing the integrated effects of the previous two leverages i.e. DOL and DFL. In order terms, it can be used for determining the level of risk associated in the firm. The high DCL can help the investor in examining that the proposed venture would incur relatively more fixed cost. It is important to mention that DCL value is not steady, with the rise and fall in the firm’s revenue, the value of DCL keep fluctuating.

The low DCL leverage further confirms that the proposed venture will be feasible because with every increase in sales, the value of the degree of operating leverage will decline too and with the increase and improvement in the EBIT, the degree of financial leverage will decrease. Both of these situations will ultimately increase the value of investment for the stakeholders (Lee, 2006).

Thus, the operating and financial leverages of proposed OS Hotel venture have confirmed the feasibility of the investment in terms of stability, profitability as well as lesser amount of risk involved. For further substantiation, the next section presents the analysis of the financial and portfolio risks.

6. Analysis of the Financial and Portfolio Risks

6.1 Business Ratios

Financial business ratios offer greater insight in measuring the business performances of the new venture as well as existing business (Bragg, 2010). For evaluating the financial performances of the proposed‘Our Safari Hotel’, the main business ratios are calculated in this section with brief summary of each.

To measure the extent to which the business supports liquidity, current and quick ratios offer greater insights. Current ratio is obtained by dividing the current assets with the current liabilities (Bragg, 2010). OS Hotel will initially have cash as their current expense and management and staff salaries as their current liabilities. The CR of 1.25 i.e. ratio above 1 shows a good measure of company’s liquidity position. For investors, it would not be challenging to pay off their current liabilities from their current assets.

Table 1: Current Ratio

Year

Current Assets

Current Liabilities

Current Ratio

2017

500000

400000

1.25

On the other side, in context of short-term liquidity, the quick ratio of the company provides feasible results. It can be analyzed that after deducting the amount of inventories (storage setup expense) from the current assets, still OS Hotel will have 1.13 current assets for the payment of each current liability. Inventories are excluded from the calculation due to their inability to be convertible into easy cash.

Table 2: Quick Ratio

 

Year

Current Assets

Inventories

Current Liabilities

Quick Ratio

2017

500000

50000

400000

1.13

Moving on the profitability ratios, ROCE can be used for assessing the profitability level associated with the business venture. In the first year of its operation, OS Hotel will be able to make a low amount of profit. This efficiency of amount of capital employed can be increased with the rise in operating income or EBIT in the subsequent periods (Reilly & Brown, 2011).

Table 3: Return on Capital Employed

 

Year

Net profit before interest and tax

Shareholders' equity

Debt Liabilities

Capital Employed

ROCE

2017

200000

10000000

400000

10400000

0.02

Additionally, to measure the business solvency of the new venture, OS Hotel has calculated DER. It helps to predict how is the ability of the proposed venture in staying afloat in times of disturbances (Troy, 2008). The low DER ratio confirms that the proposed business will not be dependent on the amount of external debts in financing the business. The company will be able to use this evaluation in increasing its shareholders’ capital with the expansion of its business since the figure of DER above or near 1 is not identified as feasible.

Table 4: Debt / Equity Ratio

 

Year

Current Liabilities

Long Term Liabilities

Total Debt

Total Equity

DER

2017

400000

0

400000

10000000

0.04

After measuring solvency, gearing ratios are also important to evaluate the financial aspects of the company i.e. whether the venture will be able to operate as going concern or not (Bendrey et al., 1995). From the two calculated ratios, it can be examined that with low debt ratio and high equity ratio OS Hotel will be able to gather more funds from the potential investors in future.

Table 5: Debt Ratio

 

Year

Total Debt

Total Assets

Debt Ratio

2017

400000

$7,000,000

0.06

Table 6: Equity Ratio

 

Year

Total Equity

Total Assets

Equity Ratio

2017

10000000

$7,000,000

1.43

Lastly, assuming the market price of OS Hotel share of $50, the price earnings ratio of the business can be calculated. The outstanding share of company will be $10million divided by $50= $200,000. On the other hand, company is expected to earn profit of $200,000 by the end of year 1. Therefore, the price/earnings ratio of the OS Hotel would be:

Year

Market Value per Share

Earnings Per Share

P/E Ratio

2017

$50

1

50.00

Thus, it can be examined from the brief analysis of the business ratios of the OS Hotel that according to the chosen assumptions and industry’s trends, the proposed venture will be feasible for the business.

Buy Financial Management and Accounting Project

 

6.2 Break-even analysis

Break-even analysis is another important measure for determining the margin of safety in a new venture project. For the‘Our Safari Hotel’ breakeven point could help in examining the point where the estimated revenue would equal to the estimate total cost (both fixed and variable costs) (Negi & Gaurav, 2012). For the hotel business, the breakeven point can be determined using the number of customers where the business revenue strikes the business cost and helped in achieving equilibrium (Shapiro, 2008).

From the calculation of break-even analysis given below, it can be determined that the project will make be able to earn profits after 2280 customers. After this point, every additional customer will bring profit for the‘OS Hotel’. The revenue per customer is estimated based on the average price charged by the Nairobi luxury hotels (Booking.com, 2016). Revenue per night stay for a couple-room will be charged at the rate of $250 per room in the first year of operations. Variable cost is estimated to be $25. However, the mega project of OS Hotel will incur a huge amount of fixed cost.

 

Number of Customers

Revenue

Fixed cost

Variable Cost

Total Cost

500

125000

520000

12500

532500

1000

250000

520000

25000

545000

1500

375000

520000

37500

557500

2000

500000

520000

50000

570000

2500

625000

520000

62500

582500

3000

750000

520000

75000

595000

3500

875000

520000

87500

607500

4000

1000000

520000

100000

620000

4500

1125000

520000

112500

632500

5000

1250000

520000

125000

645000

6.3 Optimistic scenario

Like other investment appraisal methods, scenario analysis also appears as highly effective in considering the alternative possible outcomes of the possible future events. Optimistic scenario planning can be used to determine the future situations related with the better performance of the future investment compared with the estimated outcomes (Prasanna Chandra, 2011). Due to the improving situation of the travel and hospitality industries in Kenya, there is an expectation that businesses in the sector will further increase their price per room or visit with the increased demands. Despite high priced destinations, sub-Saharan Africa will remain an attractive destination for the locals as well as international visitors specifically from European and western countries. The rising trend of Safari tourism opportunities, increasing trends of animal documentaries, wild life games and pictures can lead to better outcomes. The increase demand will further motivate the suppliers to enter in the market and it is forecasted that variable cost of raw materials and labor will decrease with the passage of time. Optimistic scenario for the‘OS Hotel’ is therefore made based on the 40% rise in revenue rates and 20% decline in variable cost. In such situation, business venture will be able to achieve its break-even point earlier than the predicted point i.e. at 1572 customers.

 

Table 7: Optimistic Scenario

 

Number of Customers

Revenue

Fixed cost

Variable Cost

Total Cost

500

175000

520000

10000

530000

1000

350000

520000

20000

540000

1500

525000

520000

30000

550000

2000

700000

520000

40000

560000

2500

875000

520000

50000

570000

3000

1050000

520000

60000

580000

3500

1225000

520000

70000

590000

4000

1400000

520000

80000

600000

4500

1575000

520000

90000

610000

5000

1750000

520000

100000

620000

6.4 Pessimistic scenario

In contrary, in an investment analysis, a joint venture might encounter certain issues that could go wrong and ruin the entire financial estimation (Ralston, 2006). After making an estimation of the pessimistic scenario, the section will also detail the decision makers plan responses for dealing with it. There is a possibility that due to increase demand, competition will also increase among the Nairobi Hotels. In case the medium priced hotels of the country improve their performances, the rising demand will be diverted to such hotel class. The stiff competition can lead a significant price decline in the revenue rates and the significant price increase in the variable cost. In order to deal with such high competition effects, OS Hotel would need to upgrade its services and products with the newly changing demands and market trends (Shapiro, 2008).

Pessimist scenario for the‘OS Hotel’ is therefore made based on the 40% decline in revenue rates and 20% rise in variable cost. In such situation, business venture will be able to achieve its break-even point later than the predicted point i.e. at 4267 customers.

Table 7: Pessimistic Scenario

 

Number of Customers

Revenue

Fixed cost

Variable Cost

Total Cost

500

75000

520000

15000

535000

1000

150000

520000

30000

550000

1500

225000

520000

45000

565000

2000

300000

520000

60000

580000

2500

375000

520000

75000

595000

3000

450000

520000

90000

610000

3500

525000

520000

105000

625000

4000

600000

520000

120000

640000

4500

675000

520000

135000

655000

5000

750000

520000

150000

670000

 

Subsequent to the examination of the scenario planning, the next section of the report presents the set of forecasted financial statements for the first 5 years of operations.

7. Set of Forecasted Financial Statements

7.1 Income statements for the first 5 years of operations

The income statement for the first five years of the business is based on assumptions developed at the start of the portfolio and the additional information gathered from other investment measures used in the study. It is assumed that Os Hotel will make revenue of 1million. It is noteworthy to examine that according to breakeven analysis assumption, company will be able to make $1 million revenue after serving 400 customers for single night stay. However, in reality there is a possibility that some customers stay for two or more nights. Therefore, they will be charged accordingly. The variable cost incurred will be according to the figures mentioned in break-even analysis i.e. for 1 million revenue, variable cost of $100,000 would be needed.

The revenue is estimated to be increased at the rate of 20% on incremental basis. COGS (variable cost) are expected to be increased at the rate of 2%. COGS only include the food service of $25 per head. All the other costs are included in fixed cost for a hotel room. Likewise, the construction and development cost of Hotel is depreciated using single line method. Lease payments are also fixed based on $20,000 per month annually i.e. 240,000. Management and staff expense is a fixed expenditure and therefore it will increase incrementally at the rate of 2%.

 

 

Annual Increase

 

2017

2018

2019

2020

2021

Revenues

  

$1,000,000

$1,200,000

$1,440,000

$1,728,000

$2,073,600

Cost of Goods Sold

  

100000

102000

104040

106120.8

108243.216

Gross Profit

  

$900,000

$1,098,000

$1,335,960

$1,621,879

$1,965,357

 

      

 

Cost Incurred

      

 

Start-up cost

 

$3,000,000

    

 

 

      

 

Operating Expenses

      

 

 

      

 

Stationery etc.

2%

 

$10,000

$10,200

$10,404

$10,612

$10,824

Depreciation on Hotel Building and Construction

10%

 

$27,000

$27,000

$27,000

$27,000

$27,000

Other Depreciation

  

$110,000

$110,000

$110,000

$110,000

$110,000

First Lease payment

  

$240,000

$240,000

$240,000

$240,000

$240,000

Management and Staff recruitment

2%

 

$400,000

$408,000

$416,160

$424,483

$432,973

Total operating cost

  

$787,000

$795,200

$803,564

$812,095

$820,797

 

      

 

EBIT

  

$113,000

$302,800

$532,396

$809,784

$1,144,560

Tax _20%)

  

$22,600

$60,560

$106,479

$161,957

$228,912

 

      

 

 

      

 

 

      

 

Net Profit

 

 

$90,400

$242,240

$425,917

$647,827

$915,648

 

7.2 The Balance Sheet for the first five years

The five years estimated balance sheet of the company reveals that company will be able to maintain its total assets and total equity with the help appropriate handling of the assets and liabilities. It can be examined that all the capital expenditure proposed to be incurred on the construction and development of the hotel building will be charged as an asset in account of Hotel Building. Using the single line method of depreciation, hotel building is depreciated. Other fixed assets such as fixtures and furniture are also estimated accordingly. It is expected that for every year approximately $5000 inventory would be left in the ending stock (Walton & Aerts, 2006).

On the other side, there are no fixed or current liabilities estimated. Therefore, total amount of capital invested along with the profit transferred to the retained earnings account will be ultimately treated as the business equity (Fridson & Alvarez, 2011).

 

 

2017

2018

2019

2020

2021

 

    

 

Hotel Building

1350000

1350000

1350000

1350000

1350000

Less: Depreciation

27000

54000

81000

108000

135000

Book Value

1323000

1296000

1269000

1242000

1215000

Other Fixed Assets

5500000

5390000

5280000

5170000

5060000

Less: Depreciation

110000

110000

110000

110000

110000

Book Value

5390000

5280000

5170000

5060000

4950000

Net Fixed Assets

6713000

6576000

6439000

6302000

6165000

 

    

 

Cash

2672400

3661240

3981916.8

4340827.1

4745647.7

Stock

5000

5000

5000

5000

5000

Prepaid

700000

   

 

 

    

 

Current Assets

3377400

3666240

3986916.8

4345827.1

4750647.7

 

    

 

Total Assets

10090400

10242240

10425917

10647827

10915648

      

Long Term Liabilities

0

0

0

0

0

Short Term Liabilities

0

0

0

0

0

Tax Creditors

    

 

 

    

 

Total Liabilities

0

0

0

0

0

 

    

 

Capital Employed

10000000

10000000

10000000

10000000

10000000

Profit/Loss

90400

242240

425916.8

647827.14

915647.68

Total Equity

10090400

10242240

10425917

10647827

10915648

 

7.3 Cash Budgets for the first five years

The third important financial statement of the proposed business would be cash budget. Cash budget is a kind of cash flow statement that incorporates into account total cash inflow and cash outflow expected during a forecasted period (Albrecht et al., 2007). A Detailed analysis of the budget will take account of the situations when in order to avoid negative cash flows, company would be needed to invest additional cash or when the cash will be in access. The five year forecasted cash budget indicate that to keep its liquidity position at higher focus, the business would be needed to make additional cash investments if all the expenditures will remain constant (Albrecht et al., 2007; Graham & Coyle, 2000).

 

 

2017

2018

2019

2020

2021

Opening Balance

3,275,800

2672400

3661240

3981916.8

4340827.14

 

 

1510040

$850,241

$897,006

$951,618

Add: Total Depreciation

137000

137000

137000

137000

137000

Total Available

3,412,800

4319440

4648480.8

5015922.42

5429444.86

 

    

 

Less: Expenditures

    

 

Stationery

$10,000

$10,200

$10,404

$10,612

$10,824

Depreciation

$240,000

$240,000

$240,000

$240,000

$240,000

Management and Staff

$400,000

$408,000

$416,160

$424,483

$432,973

Less: profit

    

 

Total Outflow

$650,000

$658,200

$666,564

$675,095

$683,797

 

    

 

Closing Balance

2672400

3661240

3981916.8

4340827.14

4745647.68

 

 

8. The Journalizing and Posting Process of all business transaction prior to the opening

Before opening the proposed hotel venture, investors must record all the business transaction through a formal financial process. The transactions are recorder first in the general journal register. Each entry must be recorded with its date, amount and narration. After recording all the entry, business can transfer these general journal entries into the ledger. These ledgers are needed to be maintained for each separate account item such as different types of assets, expenses, incomes, liabilities and equity (Bendrey et al., 1995).

The ledger helps in finding out the balances of the ledger accounts and formulates a trail balance based on it. A trail balance may be prepared anytime i.e. periodically at the end of a duration. Normally, like other business, OS Hotel business will also prepare it at the end of the year. The balance will help the company in enabling the financial accountant to verify that double entry system has been used. It is important to note down that journalizing the preliminary expenses is a very complex and challenging process. Errors made during journalisation compounds themselves if not identified and corrected on spot. The overall process of the inclusion of entry in the accounting is based on extracting transactions from the source business document.

These general journals, ledgers and trail balances will be helpful for the accountant in making the formal financial statements easily. He will be able to identify the most frequently appearing transactions. The simplified process will also help in tracing the errors in the financial business aspect later on. All the preliminary expenses and transactions occurring before the business must be recorded through a continuous and ongoing process. Thus, the daily activity will help in ensuring that the financial aspects of newly formed business in recognizing the corresponding transactions. This will also help in computerizing the accounting and finance system with the help of adjusting entries. These adjusting entries help the business in maintaining the balance in the financial statements.

Conclusion

Thus, it can be summarized that the new venture of‘Our Safari Hotel’ will help the business in achieving a competitive place among the hospitality industry participants of Kenya. The investment of $10 million will be enough for the proposed venture. The initial investment portfolio justifies the venture as a successful and profitable business opportunity. Due to the increasing demand of global and European travelers as well as attractiveness of the home residents Kenyan hospitality is expected to become the high priced destination. The benefits of such trends are expected to be earned within the coming years. It can be summarized that the proposed hotel destination and the forecasted financials substantiate the OS Hotel feasible to invest project with no initial requirements of the external debts. It would be suggested to the group of investors, who have approached consultancy agency that go for the investment and reap long-term benefits of investment. They will be able to recover their initial capital expenditure in just six years. The selection of Kenya will therefore be beneficial both for the international customers who lack enough resources to encourage their travel in the sub-Saharan region. Additionally, the proposed venture would also be profitable and beneficial for the investors. Lastly, the effectiveness of the proposed venture can be evident from the analysis of capital budgeting process and planning as well as operating and financial planning aspects. Payback period, leverages and financial statements analysis, all of these portfolio items have confirmed that new venture would be an ultimate success and if not then would not be a complete failure.