Carribean Internet Cafe

1263 Words Apr 15th, 2013 6 Pages
Assignment #1:
Caribbean Intern Café

Date: November 14, 2012

1. There are many issues that Mr. Grant should consider before proceeding with the CIC. There are several things that Mr. Grant should examine before even looking at the projections given to him. Total capital is $2,250,000, $1,000,000 in investments and $1,250,000 in the form of a long-term loan. $1,573,000 is immediately spent leaving $677,000. If he has no customers, he can afford to remain open for 3 months. As well, they are not attractive to individuals who seek to use the Internet for longer periods of time and the customer base that they are attempting to attract is the more affluent and educated of the population. They are also the most likely to either
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Therefore, in the first three years Mr. Grant should expect to make a significant profit in these years for the project to be worthwhile. Projected net profits (losses) for each scenario are shown in Table 2.

Scenario | Year 1 ($) | Year 2 ($) | Year 3 ($) | Total ($) | Optimistic | 3,147,600 | 4,720,600 | 4,720,600 | 12,588,800 | Realistic | (596,400) | 976,600 | 976,600 | 1,356,800 | Pessimistic | (2,324,400) | (751,400) | (751,400) | (3,827,200) |
Table 2 shows the net profit (loss) for the first 3 years based on each scenario. All start-up costs are paid for in full in the first year only.

Based on this these scenarios Mr. Grant would have a very difficult decision to make. Firstly, the net profit does not take into account the $500,000 investments that were made by both Mr. Grant and JTL. Secondly, the terms of the long-term loan are not made clear nor did the negotiations include an amortization schedule. As well, a long-term plan has not been made based on expected increases in private Internet usage. Finally, the probability of each scenario being realized is a very important tool to determine the expected value of Mr. Grant’s decision. If each scenario is equally likely to occur than Mr. Grant will have an expected

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