General Instructions –  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 it is an important way of monitoring your progress, and you will receive feedback with respect to the topic(s) covered in the interim assignment. 3. Please ask any questions about the interim assignment and final assessment in the Forum. Final Assessment 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. Fanny remembers lectures on discounted cash flow analysis at business school (although she admits that she did not fully understand them, unlike her husband who was a distinction student). She has asked you to prepare a financial analysis while she is away to help her 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 25 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 Profit and Loss Statement for the first year of operations and Balance Sheet at the end of the first year; - 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 Fanny could offer Choc-O-Lay as an upfront fee for the exclusive rights for the five year period (which does not include any chocolate purchases) which would leave her no better or worse off than if she had not undertaken the venture, and the amount you suggest she should actually offer them; - Conclusions and recommendations; - A critical reflection of the analysis that Fanny has asked you to prepare – what, if anything, would you do differently in a financial analysis of this opportunity, and why? Fanny has explained that she is going to be out of town for a wedding so will be unable to provide any assistance at all, but as she pointed out before leaving “you will find this easy with computers and the internet to help”. 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 by more than 10%) will not be read beyond the point of the word limit; there is no minimum word limit. 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 or PDF 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: 25% - Cash flow and DCF analysis: 25% - Other financial details (break even, balance sheet, etc): 25% - Critical reflection: 15% - Referencing and presentation: 10% Interim Assignment The Interim Assignment is to develop a Profit and Loss Statement for the first year of operations which you will see is also part of the required content of your final assessment paper. You should clearly explain any assumptions in this P&L Statement and you may, if you wish, make any changes to your P&L Statement for your Unit 6 final assessment submission. The Interim Assignment is not graded. Academic writing You have seen so far aspects related to a more general view of the programme. This unit's aim is to familiarize you with aspects of writing in an academic setting, such as your required essays for the different modules in the MBA in Finance and Sustainability programme. There is a plethora of resources on and off the web on academic writing in English. As with most things, going through an important part of the literature can take a lot of time, but some items are more important than others, and those are the ones we shall present here. A critical skill at Master level is bibliography (or reference) management. Most word processing programs (such as Microsoft's Word versions, or OpenOffice and LibreOffice) come with built in Bibliography managers, you may find these articles useful depending on your version of program: 1. Ms Word: http://office.microsoft.com/en-us/word-help/create-a-bibliography-HA010067492.aspx 2. OpenOffice / LibreOffice: http://wiki.services.openoffice.org/wiki/Documentation/OOoAuthors_User_Manual/Writer_Guide/Creating_a_bibliography

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