Accounting Caribbean Cafe Student Data
Autor: Gaurav Khaitan • February 15, 2016 • Case Study • 705 Words (3 Pages) • 1,119 Views
- Case Background
In 1996 David Grant was evaluating a prospect of opening an internet café in Kington, Jamaica. JTL (Jamaica Telecommunication ltd) an ISP wanted to partner with David and proposed to invest similar amounts to David’s Contribution and provide additional loans if those would be required for operating activities.
- Problem Statement
- David is contemplating on his decision to proceed with this Business Venture or Not?
- In context to current market situation of Jamaica and cybercafé industry in Jamaica, should David accept the JV proposal from JTL and proceed with plans?
- Decision
After evaluating the industry and other factors (as analyzed in sections below), suggestion for David is to not partner with JTL and not pursue the Caribbean Internet Café Business idea. The reasons being a low profitability Index ratio indicated in section 6 for Realistic estimations provided by external market research firm.
Even if David would like to continue, he will have to get into this line of business keeping in mind that in first year he would just be able to cross the break even and would not be able to make much profits. He will have to sustain in this line of business with a long term prospective of atleast 5 years in mind with an expectation that the internet usage adoption will increase and segment of customers using internet will increase from 40% and upwards.
- Industry analysis
- SWOT analysis
- Quantitative analysis
- Profitability and ROI
Below are the projected cash flows for the first year in lieu to various scenarios of Customer inflow (Scenario: Optimistic, Realistic, Pessimistic).
Optimistic | 50% of segment |
Percentage of Segment | 10000 |
No. of visits per customer | 5 |
No. of customers who will use a computer | 20000 |
|
|
SCF |
|
Revenues |
|
Internet Usage | $2,400,000.00 |
Food Sales | $3,000,000.00 |
Drink Sales | $7,000,000.00 |
Total Revenue | $12,400,000.00 |
|
|
Expenses- Variable |
|
Food | $1,500,000.00 |
Drinks | $2,500,000.00 |
Internet Service Costs | $1,200,000.00 |
Total variable expenses | $5,200,000.00 |
Net Contribution | $7,200,000.00 |
|
|
Expenses- Fixed |
|
Manager's salary | $480,000.00 |
Students' wages | $345,600.00 |
Rent | $360,000.00 |
Utilities | $180,000.00 |
Internet link lease | $120,000.00 |
Insurance | $120,000.00 |
Marketing | $120,000.00 |
Miscellaenous | $600,000.00 |
Interest | $125,000.00 |
Other Miscellaenous | $147,000.00 |
Depreciation | $284,031.00 |
Total Fixed Expenses | $2,881,631.00 |
|
|
Earnings Before Tax | $4,318,369.00 |
Tax@35% | $1,511,429.15 |
|
|
Net Income | $2,806,939.85 |
Add: Depreciation | $284,031.00 |
Net Cash Flow | $3,090,970.85 |
|
|
Profitability Index | 3.1 |
|
|
Return on Investment |
|
David | 618% |
JTL | 618% |
...