Memo on ZipCar Modifications - Essay Example

The following analysis has helped in arriving at some key findings, which can be of great help to not only improve the business but also can add weight to the concept to attract investment.

The revised financial projections for ZipCar have incorporated changes concerning subscription fees according to customers’ needs and have increased the per-mile charge in comparison with competitors. Considering the business potential and huge investment that is required for ZipCar to function as expected and to expand, it is also important that it minimizes costs wherever possible. One key area that incurs huge costs in obtaining cars on lease. As per the present projections, ZipCar would require $4,400/year to lease one car and would require an average of 50 cars per year, and is expecting to increase the number of serviceable cars every year. This would mean an increase in leasing costs. Moreover, there is also an apprehension that car companies might not find this business promising if they have to lease too many cars to one company.

The projections reveal between 10% to 25% growth every year. The NPV is calculated using three discount rate assumptions (10%, 15%, 20%) based on the projections (see Exhibit i). The growth of the business as shown in the revised financial plan does not indicate any uniformity; however the minimum growth rate is at 14%; hence, calculation of NPV with discount rates assumptions below, above, and at that point seemed logical in this case. With a similar notion, the terminal value of the business has been calculated (Exhibit i). These figures indicate that for an investment of $1.3 million to fetch a growth of at least 15% returns, it becomes necessary that the business maintains a steady growth rate at 10% over the next 5 years. To achieve this, it is also necessary that profitability is increased for which the below-described recommendation might be of some help.

Besides business expansion, profitability can also be increased by minimizing costs. One possible and implementable solution is to minimize costs incurred by leasing out cars, which attracts much of the investment. This can be done by leasing cars from individuals only every month (rent) rather than every year. Considering the risk factor, it would be better that ZipCar takes 30% of its cars from individuals that do not use their cars too often in exchange for money every month. While ZipCar can own the responsibility of these cars in case of damage, it can avoid maintenance of 30% of its cars as it already pays rent to the individuals. The fuel expenses will be borne by the customers. By doing so, ZipCar can save costs incurred towards leasing, maintenance, and insurance of 30% of the cars. Changes in financial projection if such a model is adopted have been shown in Exhibits ii and iii; the NPV and TV of the firm after incorporating this recommendation are included in Exhibit i.