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Interim Assignment
The Interim Assignment is to make a profit and loss statement for the first and second years, which you will see is part of the required content of your final assessment paper.
MNGT7903: FINANCIAL MANAGEMENT
General Instructions ñ Please read carefully
1. You are required to complete the assessment outlined below and submit your completed
final document through the RKC Online Campus by the end of Unit 6. Your grade will be
based 100% on this final document, to which you will also receive written feedback.
2. In addition you must upload part of your draft of the above document by the end of Unit 3
(see Interim Assignment, below). This draft will not be graded, but you will receive feedback
on your submission and it is an important way for you to monitor your progress.
3. Please ask any questions about the interim assignment and final assessment in the Forum.
Final Assessment
The final assessment is as follows.
You have been asked by your 60 year old uncle Carlos to help him assess a new venture. It is
Friday night, and he needs the work finished by Sunday, in preparation for an early Monday
morning meeting, so you know that he will not be able to give you any more information than he
already has (and you will be unable to contact him over the weekend), and therefore you may
need to rely on your own assumptions and estimates for some of the analysis.
Carlos lives in San JosÈ, Costa Rica, and recently took early retirement (from a company he
joined 35 years ago), and left the company with a lump sum (tax paid) payment of 240 million
Costa Rican ColÛn (CRC). Surprisingly, rather than being depressed by his new state of
independence, he is tired of corporate life and excitedly contemplating a new career as a retailer
of a range of gourmet chocolates. He is confident that he can set up a business to import
chocolates from Switzerland and sell them in Costa Rica. Even though Costa Rica grows cacao,
there is a thriving market for foreign chocolate within the country. Carlosí wife, who he met at
business school in the USA, is pleased with his passion for this possible new venture, but
concerned that it might turn into a financial disaster. She has suggested that he develop a financial
plan to evaluate the venture and its viability.
After a couple of hours with Carlos you have assembled the following information from him:
– EigerChoc SA (owned by a classmate from university), an established manufacturer of fine
Swiss chocolates, is prepared to give him exclusive rights to sell their products in Costa Rica for
a five year period in exchange for an upfront payment for the rights;
– The chocolates retail in Switzerland for an average of CHF 60 per kilogramme, and EigerChoc
is prepared to sell the chocolate to Carlos at a 40% discount to this price;
– EigerChoc would ship to Carlos on receipt of payment for each order;
– Carlos has found out that freight from Switzerland via air courier would cost on average CHF 7
per kg and that the time from him placing an order to receiving the goods in San JosÈ would be
three weeks (including the factory time in Switzerland);
– Carlos plans to order from Switzerland monthly (to maximise the shelf life in Costa Rica) and
intends to maintain a minimum stock of four weeksí worth of sales to ensure that he will be able
to supply a suitable range of products to customers;
– He will buy a special refrigerator at a cost of 2.3 million CRC.to keep the products in good
condition, and has found a small industrial room he can rent nearby at a cost of 250,000 CRC per
month (payable monthly in advance, plus an initial three month deposit);
– Carlos will sell the products throughout Costa Rica by internet only, and is planning to spend
1.1 million CRC with a website designer to develop the site;
– He has already spent 1.8 million CRC on a market study that told him that once established,
demand would be about 500 kg a month, although in the first year sales would start at only 200
kg in the first month before building up slowly to the full level at the end of the first year;
– The above study assumed an average selling price of 40,000 CRC per kg (ignore any impact of
sales taxes in your calculations);
– Packaging and shipping in Costa Rica would average 1,500 CRC per kg, and Carlos is not
intending to charge that to the customer;
– All sales would be by credit card only, with the credit card company taking 0.5% per sale and
remitting the monthly balance to Carlos five days after the end of each calendar month;
– He believes that one person could run the operation at a total cost (including social charges) of
310,000 CRC per month;
– Carlos has found out that, if necessary, he could borrow up to an additional 50 million CRC at
6% p.a.;
– Carlosí marginal tax rate on investment or earned income is 30%, payable one year in arrears;
he has also told you that he can invest any available cash for a return after tax of 3% per annum.
Carlos also has a friend, Luciana, who runs a small chain of delicatessens in the San JosÈ
area. Luciana is interested in the venture and she has suggested that if it goes ahead Carlos
could package chocolates in boxes decorated with views of Switzerland, and she would
commit to buy one hundred boxes per month (each containing 550 gm of chocolates) from
him (which would be in addition to the internet sales outlined above, and would start
immediately), at a price of 10,500 CRC each. To do this Carlos would need to buy-in boxes
and wrapping paper at a price of 600 CRC per box and hire an assistant specifically to pack
and deliver the boxes, at an additional cost of 90,000 CRC per month.
Carlos remembers discussions on discounted cash flow analysis at business school (although
he admits that he did not fully understand it, unlike his wife who was a distinction student).
He has asked you to prepare an analysis while he is away to help him with the decision,
making clear any assumptions that you make; the analysis should not exceed 4,000 words
(excluding the content of exhibits, headings, etc), or a total of 30 pages (everything included),
and should include:
– A summary of all assumptions and estimates that you have made for your analysis,
including justifications where appropriate;
– A break even analysis;
– A Balance Sheet at start-up (to show the initial capital) and at the end of the first year
– A Profit and Loss Statement for the first and second years;
– Monthly cash flow for the first year of operation;
– Annual cash flow thereafter;
– A clear explanation, in plain English, of how much cash the venture will need to get started;
– Any sensitivity analysis that you think would be helpful;
– The most that Carlos could offer EigerChoc as an upfront fee for the exclusive rights for the
five year period which would leave him no better or worse off than if he did not undertake the
venture, and the amount you suggest he should actually offer them;
– Conclusions and recommendations;
– A critical reflection of the analysis that Carlos has asked you to prepare ñ what, if anything,
would you do differently in a financial analysis of this opportunity, and why?
Carlos has explained that he is going to be out of town for a wedding so will be unable to
provide any assistance at all, but as he pointed out before leaving ìyou should find this easy
with computers and the internet to helpî.
Your report should demonstrate skills of critical reflection, effective communication and
balanced judgement; note that this is not a market report.
Scripts that are excessively long (i.e. exceeding the word or page limit) will not be read
beyond that point. Do not put your name on the paper.
The overall structure should be as follows:
1. Cover Page (1 page)
2. Table of Contents/List of Exhibits (1 page)
3. Executive Summary
4. Main Report (within the 4,000 word limit as above)
5. Exhibits (if any)
6. List of references.
The data in your answer should be clearly laid out in tabular format so that your approach and
answer are both plainly evident.
Submissions should be machine readable and in MS-Word format only; submit only one file,
and include any Excel analysis as images, not embedded files.
Grading will be based on the following breakdown:
– Assumptions, estimates and sensitivity analysis:
– Cash flow and DCF analysis:
– Other financial details (break even, balance sheet, etc):
– Critical reflection:
– Referencing and presentation:
20%
25%
30%
15%
10%
Interim Assignment
The Interim Assignment is to make a profit and loss statement for the first and second years,
which you will see is part of the required content of your final assessment paper.
The Interim Assignment is not graded, but you will receive feedback on your submission.
You may, if you wish, make any changes to your interim analysis for your final assessment
submission.
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