ZipCar Essay Example | Topics and Well Written Essays - 1000 words

ZipCar - Essay Example Based on the case and financial projections, it is clear that main value drivers of ZipCar include its resources (cars), targeting the right customer segments and operating costs. 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 has incorporated changes with respect to subscription fees according to customers’ needs and has 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 is 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 num ber of serviceable cars on a yearly basis. This would mean 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 on a yearly basis. 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 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 similar notion, the terminal value of 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 next 5 years. In order to achieve this, it is also necessary that profitability is increased for which the below described recommendation might 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 a monthly basis (rent) rather than yearly basis. Considering 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 of money on a monthly basis. 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 model is adopted has been shown in Exhibits ii and iii; the NPV and TV of the firm after incorporating this recommendation is included in Exhibit i. Exhibit i NPV= Net present value DR = Discount Rate TV= Terminal value of investment Exhibit ii. Recommended model: Exhibit iii: Comparison between original, revised and recommended