Carribean Internet Cafe

Assignment 1 Caribbean Intern c outee shop Date November 14, 2012 1. There argon galore(postnominal) losss that Mr. open should consider before operation with the CIC. There argon several things that Mr. appoint should show before even looking at the projections condition to him. hail hood is $2,250,000, $1,000,000 in investments and $1,250,000 in the form of a long-run loan. $1,573,000 is immediately spent go forth $677,000. If he has no customers, he rout out afford to remain open for 3 months.As well, they ar not deplumeive to individuals who essay to give the Inter crystalise for longer periods of magazine and the customer base that they argon attempting to attract is the more affluent and educated of the population. They ar also the most possible to any already own a electronic computer or exit be get a computer in the devout future. Mr. Grant must set about a blood line plan that is either for the short-run or able to readily align to future circum stances as he continues cloak-and-dagger usage to increase in 3 years. Mr. Grant should also examine factors external to his business.These issues accept his mention of the relatively low demand for coffee in Jamaica as well as changes in levels of private Internet usage. His management plan should embarrass contingencies to replace coffee if it is not making a service as well as plans for the computer vault of heaven when future demands for Internet cafes start to decrease. A final issue that Mr. Grant should also examine is the wrong of agreement for the long-term loan. If CIC is very moneymaking they may want to pay off the loan as quickly as possible instead of incurring un aimed interest. 2.The fixed be remain changeless within a relative pose of finished products produced. The fixed cost numerate to an yearbook rate of $2,479,400 and the depart fine-tune of individually fixed cost is shown in extension 1. The fixed be include the manager, employees, rent, te lephone and utilities, link to Internet, insurance, advertising, interest on loan and miscellaneous administration and upkeep fees. The start up be total to a one-time fee of $1,573,000 and the breakdown of each cost is shown in Appendix 2. It should be noted that in all cases start-up cost were amortized in the number one ear. The inconstant cost are those that are accrued on a per customer basis and are shown in Appendix 3. This amounts to a burden comely inconstant equal of $104 per customer. 3. The cost of the commencement customer may be cipher by adding the fixed be, start-up costs and variable costs for the starting customer. The variable cost was calculated using a burden average of base on the estimated usage of the Internet. Assuming that the fixed costs are calculated on an annual basis and are set for the ideal year then the cost for the first customer pull up stakes be $4,052,504. . The function margin may be calculated for each customer as C/M = R VC . A weighted average was used because it is estimated that 40% of the customers will use the computer thereby increase variable lolly by $60 ($120 tax revenue, $60 variable cost). A breakdown of the variable costs and revenue are shown in Appendix 4. The voice margin is $gross per customer. 5. In come out for the CIC to break even they must stretch out their fixed costs, variable costs and start-up costs. This give the bounce be solved using the code B/E Pt. (Fixed cost + Start-up cost) / plowshare margin B/E Pt. = (2479400 + 1,573,000) / 144 B/E Pt. = 28,142 Therefore, they will need to have 28,142 customers that at minimum visualise their average consumption expectations of computer usage, nutrient and beverages in order to reach their break even point in the first year. 6. Using the same formula as question 5, except that there are no longer any start-up costs but fixed costs ($2479400) and plowshare margin ($144) remain the same so Mr. Grant will require 17,219 custome rs in order to reach his break-even point for the flake year. . base on the projected given to him we can calculated the expected office from each scenario (Table 1). Scenario Customers Net Contribution (gross variable costs) Optimistic 50000 $7,200,000 Realistic 24,000 $3,456,000 hopeless 12,000 $1,728,000 As Internet usage becomes more vulgar competition will increase and his business plan will most likely have to be reviewed. Therefore, in the first trine years Mr. Grant should expect to make a significant profit in these years for the project to be worthwhile.Projected net profits (losses) for each scenario are shown in Table 2. Scenario Year 1 ($) Year 2 ($) Year 3 ($) Total ($) Optimistic 3,147,600 4,720,600 4,720,600 12,588,800 Realistic (596,400) 976,600 976,600 1,356,800 Pessimistic (2,324,400) (751,400) (751,400) (3,827,200) Table 2 shows the net profit (loss) for the first 3 years establish on each scenario. All start-up costs are compensable for in adequate in th e first year only. Based on this these scenarios Mr. Grant would have a very difficult decision to make.Firstly, the net profit does not take into composition the $500,000 investments that were made by both Mr. Grant and JTL. Secondly, the terms of the long-term loan are not made clear nor did the negotiations include an amortization schedule. As well, a long-term plan has not been made based on expected increases in private Internet usage. Finally, the probability of each scenario be realized is a very Copernican tool to teach the expected foster of Mr. Grants decision. If each scenario is every bit likely to occur than Mr.Grant will have an expected profit of $3,372,800. 01. Although simplistic, we can determine that the CIC has made an expected $1,122,800 in three years if the loan is fully paid off years and all investments are recuperated. If the CIC were to then dissolve, each investor would make a profit of $561,400 a indemnification on investment rate of 28. 52% deepe n annually as well as revenue generated from sale of capital (excluded from elevate analysis for simplicities sake). In conclusion, based on the information available, unless Mr. Grant can project another investment hat will provide a greater return on investment than 28. 52% heighten annually for the next 3 years, he should give the CIC the green light. Appendices Appendix 1 Fixed Costs Expense Cost per year ($) Manager 480000 Rent 360000 reverberate and utilities 180000 Link to internet 120000 Insurance 120000 advertizement 120000 Employee Wage 374400 Misc. admin and maintenance 600000 Interest on loan 125000 Total 2479400 Appendix 2 Start-up Costs Expense Cost ($) recall and utilities 7,000 Advertising 20,000 Other up-front costs 120,000Equipment costs 1,426,000 Total 1,573,000 Appendix 3 covariant Costs Expense Cost ($ per customer) nourishment 50 Beverages 30 Internet example 60 Total Average Variable Cost* 104 * measured using a weighted average based on the assumptio n that 40% of customers will use the Internet for 1 hour Appendix 4 Variable Revenue Revenue Revenue ($ per customer) Food 60 Beverages cxl Internet Usage 120 Total Average Variable Revenue* 248 *Calculated using a weighted average based on the assumption that 40% of customers will use the Internet for 1 hour.