"Caribbean Internet Cafe" Nicols Domingo Ptzsch Teacher: Jose Olivares Financial Control Section 1 April 13, 2012

Master in Finance David Grant, MBA Graduate Business School Richard Ivey in London, always had a dream. He wanted to be his own boss and felt that this opportunity could make the opening a Internet Caf in Kingston, their place of origin. David wanted to innovate with new concept of coffee in Jamaica, seeing in him the perfect vehicle to surf the Internet and use computer programs easily, while customers could listen to music, relax, have a good wine and socialize in one place. David could see a clear potential in the business, because it is a sector largely untapped. Regarding competition, there are many cafes in Kingston but

none of these provide internet service, they will focus on other types of entertainment, such as Caribbean music, traditional drinks, restaurant and outdoor seating. The Internet Caf aims Caribbean establish a European style, offering premium coffee, wine imported fruit juice, baked goods and pastries. The Local plans three distinct areas, one room cabins with computers, a wine lounge with comfortable chairs, and finally, coffee area with tables and chairs. It will also have service printers, scanner and the latest office software. Segment target market are students and professionals with an income medium high, between 18 and 35. The following analysis aims to show all data needed to be taken into account in order to manage the Caribbean Internet Cafe business. To begin, David requires an initial investment of $ 1,573,000, plus you need to cover a cost fixed monthly $ 204,217 for your company, CIC. No doubt that the issue David management is based on a cost comparison versus benefits. The important thing here is whether the company will be profitable and

how long payback achieved commissioning up. To address these management problems financial, David has to consider three categories of costs: in First, the initial costs required for implementation business, and second, the monthly fixed costs resulting from the operations, and finally, variable costs which occur with visit each client in-house. There is also a course, this is the loan of JTL ("Jamaica Telecommunications Limited" company for which David worked as a computer engineer) for launching a five-year loan with principal payable at maturity and 10% annual simple interest payable. Another important fact is that students would be employees would work part-time for 15 hours per day (coffee work six days a week) and it would take two workers, by Thus, the monthly need would: 2 worker 15 hours a day x 24 days of the month is equal to 720 hours of paid work per month to $ 40 per hour, giving us a fixed cost equal $ 28,800 monthly for wages of employees.

Detail figures Monthly fixed costs: - Part time employees Salary: $ 28,800 - Manager: $ 40,000 - Rent of the premises: $ 30,000 - Telephone and Accounts Utilities: $ 15,000 - Rent link to Internet: $ 10,000 - Insurance Company: $ 10,000 - Advertising: $ 10,000 - Maintenance costs: $ 50,000 - Interest of Loan: $ 10,417 CF TOTAL: $ 204,217 Variable costs / consumer: - Drinks: $ 50 - Food $ 30 - Internet (40% of $ 60) (Annex 1; 1) $ 24 Total CV $ 104

Initial Costs: 1 - Equipment: $ 573,250 - Hardware: $ 392,000 - Software: $ 15,750 - Furniture: $ 330,000 - Other: $ 115,000 - Advertising initial (before the opening): $ 20,000 - Initial deposit for utilities: $ 7,000 - Legal costs in advance: $ 120,000 TOTAL C. Initial $ 1,573,000 Funding Proper $ 500,000 Shares 2 $ 500,000 Deuda3 $ 1,250,000 Annual Interest $ 125,000 Monthly interest (Annex n 1, 2) $ 10,416.6667 First year: with start-up costs: 1 Caribben Internet Caf, page 5, Exhibit 1.

2 Ibid, page 4, JTL invest in actions to keep 50% of the business (partners). 3 Ibid, JTL will also provide long-term loan. - Total size of the target segment in Kingston: 20,000 - Assuming a case where 20% of the CIC will target segment, at least once a month (24 days), this gives me a number of 4000 monthly consumer. - Assumption 2: Of the 4,000 people occupy 40% computers (1 hr), 30% eat in place and the other 30% will beverages. (Keep in mind that the same person can take, eat and use the internet, but for Sn I will simplify the analysis consistently with the assumption # 2) Costs and Expenses: Case 1 Monthly fixed expense $ 204,217 Variable cost 60,000 drinks Variable cost 36,000 food 38,400 Variable cost internet Total Variable Cost $ 134,400 Total monthly cost $ 338,617

147,000 Initial Investment Total initial investment $ 1,573,000 Income (Annex n 1, 3) 57,600 Internet 72,000 Food Beverages 168,000 Total Revenues $ 297,600 Contribution margin (Annex 1, 4) 132 RES Sales revenue 297,600 - Variable costs (134,400) = Mg. Opercional 163,200 - Fixed Expense (204,217) = Income before taxes (monthly) (41,017) Annually (if demand remains constant the first year): 3571200-1612800 - 2450604-147000 = ($ 639,204)

newly designated amount, the first year of operation.

Point of balance: (Fixed costs / mg. Unit contribution) = 2,597,604 / 132 = 19. 679 customers. Monthly average: 1,640 customers Daily average: 68 customers Second Year, No start-up costs: 2,450,604 / 132 = 18,565 customers annually 1,547 customers per month 64 customers a day Sensitivity Analysis Scenario 1: 50% of the market, and 5 visits per year. Usefulness: 132 mg. market x 20,000 x 50% x 5 views - 2,597,604 = $ 4,002,396 Scenario 2: 30% of the market and 2 visits per year. Usefulness: 132 x 20,000 x 0.3 x 2 - 2,597,604 = ($ 1,013,604) DATA Market: 20,000 Fixed Costs year 1: 2,597,604

Fixed costs Year 2: 2450604 Contribution margin: 132 Realistic Scenario: Market share: 40% Views: 3 per year Year 1 Year 2 Total Contribution: $ 3,168,000 $ 3,168,000 Income: $ 570,396 $ 717,396 Pessimistic Scenario: Market share: 30% Views: 2 per year Year 1 Year 2 Total Contribution: $ 1,584,000 $ 1,584,000 Income: ($ 1,013,604) ($ 866,604) Conclusions: In conclusion, we see that CIC is a profitable business that makes profits realistic scenarios positive. As in any business, the first year is the most

difficult, as there is the need to cover costs initial investment. Anyway, David was right to want exploit a potential category in Kingston, Jamaica. He knew appreciate opportunities not get to see anyone. After this thorough analysis I can finish case saying that the business has a future and it should be done Annex No 1 1) Using the Internet (using its total capacity): $ 100,800 (5 computers x 14 hours per day x 6 days a week (84 hrs. Week) x 4 weeks is equal to 1,680 hours required of Internet monthly, at $ 60 per hour per computer is a total of $ 100,800 monthly) However, the internet is a variable cost because you pay for what you use. 2) Monthly Interest: 10% per year / 12 months = 0.008333333 0.0083333333 x $ 1,250,000 = $ 10,416.6667 3) Income: -Internet: 1600 x $ 36 = $ 57,600 -Drinks 1200 x $ 60 = $ 72,000

- Food: 1200 x $ 140 = $ 168,000 4) Contribution margin: (140-50) + (60-30) + (36-24) = 132