Case study You have been asked by your 58 year old aunt Fanny to help her assess a new venture.  It is Friday night, and she needs the work finished by Sunday, in preparation for an early Monday morning meeting, so you know that she will not be able to give you any more information than she already has (and you will be unable to contact her over the weekend), and therefore you may need to rely on your own assumptions and estimates for some of the analysis where appropriate.   
Fanny lives in Chicago, USA, and recently took early retirement (from a pharmaceutical company she joined 30 years ago), and left the company with a lump sum (after tax) payment of $475,000. Surprisingly, rather than being depressed by her new state of independence, she is excitedly contemplating a new career as a retailer of a range of gourmet chocolates. She is confident that she can set up a business to import chocolates from France and sell them in the USA. Her husband, who she met at business school, is pleased with her passion for this possible new venture, but concerned that it might turn into a financial disaster. He has suggested that she develop a financial plan to evaluate the venture and its viability.   
 
 
After a couple of hours with Fanny you have assembled the following information from her:  - Choc-O-Lay SA, an established manufacturer of fine chocolates with unusual and innovative flavours (owned by one of Fanny’s university colleagues), is prepared to give her exclusive rights to sell their products in the USA for a five year period in exchange for an upfront payment for those rights;  - The chocolates retail in France for an average of Euro 95 per kilogramme, and Choc-O-Lay is prepared to set the selling price to Fanny at a 27.5% discount to this price;  - Choc-O-Lay would ship to Fanny on receipt of payment for each order;  - Fanny has found out that air freight from France via courier would cost on average €18 per kg and that the time from her placing an order to receiving the goods in Chicago would be three weeks (including the preparation and packing time in France);  - Fanny plans to order from France monthly (to maximise the shelf life in the US) and intends to maintain a minimum stock of four weeks’ worth of sales to ensure that she will be able to supply a suitable range of products to customers;  - She will buy a special refrigerator at a cost of $5,250 to keep the chocolates in good condition, and has found a small industrial room she can rent nearby at a cost of $420 per month (payable monthly in advance, plus an initial three month deposit);  - Fanny will sell the chocolate throughout the USA by internet only, and is planning to spend $3,500 with a website designer to develop the site;  - She has already spent $6,500 on a market study that told her that once established, demand would be about 750 kg a month, although in the first year sales would start at only 75 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 $120 per kg (ignore any impact of sales tax in your calculations), and noted that the market was price sensitive and that the forecast volume could be doubled if Fanny would price the chocolates at a 10% lower price;  - Packaging and shipping in the US would average $2 per kg, and Fanny is not intending to charge that to the customer; - All sales would be by credit card, with the credit card company taking 1% per sale and remitting the monthly total to Fanny five days after the end of each calendar month;  - She believes that one person could run the chocolate operation part-time at a total cost (including employer’s social charges) of $2,650 per month;  - Fanny believes that if necessary she could borrow up to an additional $50,000 at 8% p.a.;  - Fanny’s marginal tax rate on investment or earned income is 30%, payable one year in arrears;  she has also told you that she can invest any available cash at an after tax 4% per annum.   
Fanny also has a friend, Mitch, who runs a small chain of delicatessens in the Chicago area.  Mitch is interested in the venture and has agreed that if Fanny would package the chocolates in boxes decorated with views of Paris, he would buy one hundred tins (each containing 550 gm of chocolates) from her per month (which would be in addition to the internet sales outlined above, and would start immediately), at a price of $62 each.  To do this Fanny will need to buy in tins and wrapping paper at a cost of $1.75 per box, and hire an assistant specifically to pack and deliver the boxes at an additional cost of $750 per month.    

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