Job Juma has recently been declared redundant. He is considering setting up a care home for the elderly, as he is aware
of an increasing need for this service with the ageing population. He has identified a large house, which he plans to
convert into the care home. Each resident will have a bedroom, there will be a common sitting room and all meals will
be provided in a dining room. No long-term nursing care will be provided. The large house is in a poor state of repair
and will require considerable structural alterations and repairs to make it suitable for use as a care home for the elderly.
This includes purchase of new furniture and fittings, decoration of the whole house and specialised equipment to allow
mobility of the clients.
Job Juma and his wife propose to work full time in the business, which he expects to be running six months after the
purchase of the house. Job Juma has already obtained some estimates of the conversion costs and information on the
income and expected running costs of the care home.
Job Juma has received about Sh.10,500,000 from his redundancy and expects to receive about Sh.17,000,000 from the
sale of his house. The owners of the house he proposes to buy are asking for Sh.12,000,000 for it, and Job expects to
spend Sh.7,500,000 on conversion. Conversion includes: building work, furnishing, decorations and equipment.
Job would like to obtain additional finance from the bank to undertake this project. He has prepared a draft capital
expenditure forecast, profit forecast and cash flow forecast which he has asked you to check before he submits them
to the bank.
Required:
Advise Job Juma on SIX elements that the bank credit department would verify in the:
(i) Capital expenditure forecast
(ii) Profit forecast
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