Financial Management Harvard Case Solution & Analysis

Financial Management Case Study Solution 

The case introduces the Assessment of New Venture by Kate. In which, she is considering to establish a retail business of nuts and Almonds. She has provided the initial data that would enable us to determine the viability of the project.The coated nuts would be acquired from Only nuts Inc. a US based producer of various flavor of nuts. Kate has been able to gain exclusive rights, to sell its products in Germany.Also, the US based corporation has agreed to give Kate a 42% discount,over their price of $26 per pound and the term would be for five years. However, it can be assessed that, an air freight expense would be incurred by Kate, to import the goods from the United State to Germany by Air. Furthermore, it can be assessed that, the exclusive right would be acquire through an upfront payment to the Only nuts Inc. which is yet unknown. Additionally, the new venture would require Kate, to make a significant amount of initial investment, to acquire a special refrigerator costing 5,250.In order to keep the nuts in good condition, she would also have to rent a small industrial room,incurring a monthly rent of 475 payable in advance. However, she was considering to spend 9,500 towards designing a website.But, she has already spend 6,500 on market study. Which had enabled her to determine that, the annual demand of nuts in Germany would be around 170 Kg of nuts on a monthly basis. Furthermore, it was also assessed that, Kate’s friend Gustav running his own operation in Berlin, has agreed to buy 40 boxes of Nut.Where each box contain 450 gram of nuts, at 25 per box on a monthly basis.

Furthermore, the case also give details, for the first year operations of the company.In which, an extensive detail of monthly demand are given. Which, in turn, would help us to evaluate the feasibility of the project, to identify and advice.Whether the project would be benefit for Kate or not.

Financial Management Harvard Case Solution & Analysis

 

 

Assumptions

To appropriately evaluate the feasibility of the new venture, and due to the unavailability of the data.Certain necessary assumption were taken, which are illustrated below.

  • At first, it was assumed that, the data provided in the case was fair and true.
  • The discount rate on which, the cash flows would be discounted was assumed at 10%. To make the necessary provision, for the concept of time value of money.
  • It was assumed that, the Gustav would start buying after year-1, because a detailed sales on a monthly basis was given for year-1 in the case.
  • It was also assumed that, the additional 18 kg per month requirement of Gustav would be fulfilled, by importing additional nuts from US based supplier.
  • It was assumed that, the advanced rent for three months, would be paid on the first month of year-1.
  • It was assumed that, in year-1 the sales would increase in equal increments on a monthly basis.In which the monthly increment amounts to 12.73 kg.
  • It was also assumed that, at the end of year-1 the annual demand would become 170 Kg from Germany.Therefore, it would remain constant over the next four years.
  • The Gustav demand would be an additional demand fulfilled through imports.
  • It was assumed that, Kate does not need to Borrow any loan, for the purposes of this new venture.
  • It was assumed that, Kate would acquire an additional one month of products, from US based supplier. To maintain an excess inventory used in times of crises.
  • It was further assumed that, no such crisis would occur in the next five years. Therefore, the inventory acquired initially, would be sufficient to keep the inventory at the threshold level.
  • It was assumed that, the excess inventory would amount to an average 118 kg in year-1, calculated based on the daily demand of products each month.
  • It was assumed that for year-2, the access inventory acquired would amount to 70 kg of nuts, at $15 from US based supplier.
  • It was assumed that, Kate would order the inventory, one week prior.Also, place order for the amounts of products that, would be needed to fulfill the demands of the subsequent month.
  • For the purpose of calculating the net present value of the project, the upfront payment of acquiring executive rights were excluded. Which would enable us to determine, the amount to payment.That would be appropriate to pay Only nuts Inc. which would not render the project unbeneficial............

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