Making Investment Decisions Financial Management Harvard Case Solution & Analysis

Alexandria who is aged 60 wishes to open her own business, she wishes to import herbal products from the Romania and sell it in Switzerland.Alexandria was able to get exclusive right to sell the product in Switzerland.Alexandria will be able to get 40% from the retail sales price of 60 RON. Alexandria will sell same products in Switzerland at price of CHF25 per jar.

 Selling product online is growing worldwide,asit enablescustomers to buy at one click at home there is no need to go to stores in the shopping. Alexandria will also follow the same model and will spenda good amount for the development of its website and spend a good amount on marketing which will include social media website and other online marketing.

Alexandria’s venture will be successful depend upon a number of assumptions and which is analyzed using market analysis and financial. The exchange rate and longer stages alliance will play a vital role in the success of the business. Detail financial analysis such as cash flow projection, breakeven analysis and contribution make strong base to determine the viability of the venture.

Introduction

Alexandria’s new venture is lucrative in terms of profitability and cash generations as she will import herb from Romania and sell under his own brand name as Xanderherbs in Switzerland. She successfully obtainsthe right to sell the herbs in Switzerland for the period of five years. She will sell all herbal products through an online platform. She is willing to spend a good amount up to 15000 CHF to develop an online website which will sell the herbal products

She has spent a good amount on the research which concluded that there is a good market of its product and she will be able to sell up to 1500 jars per month. It is also expected that only one person can handle all the work and there is no need to hire extra staff.

Analysis

Detail analysis depicts that the venture will be successful and will generate a huge pile of cash that can be used within the business for its expansion or can be withdrawn and can be used in some other ventures.

The breakeven point is a point that is balanced between the fixed costs that is recovered through the contribution from the sales of products. The breakeven point can be calculated by deducting the variable cost from the selling price the balance amount will be breakeven point. By dividing total fixed cost to contribution, break even number of jars will be calculated which is 1355. (Brealey, 2009)

Interpretation will be that Alexandriawill haveto sell a minimum of 1355 jars in a month to recover the fixed overheads or else it will continuemaking losses

Contribution is selling price less variable cost; the wordcontribution means how much amount is contributing toward fixed cost. Breakeven shows the amount or number of gear that should be sold so that fixed cost is recovered. Fixed cost consists of salaries and social media advertisingcost and assistant cost which will be hired specially for the packing purpose. Under the fixedcost other cost that is included is; rental that is paid for special refrigeration of the herbal products. The cost model of Xanderherbs is very simple which consists of import of the herbal product and sell it in Switzerland through online websites.

Making Investment Decisions Financial Management Case Solution

On the revenue side in the beginningas Xanderherbs will able to sell a low quantity of jars, but there is growth after one year as it takes time for a new ventureto make a place in the market. Revenue is boosted by selling herbal jar to Julia. Julia isa friend of Alexandria and she has agreed to buy up to 100 boxes and each box contain 8 jars, a sale of 800 jars per month. Julia operates a chain of pharmacy in the Zurich area. This is an additional boost to sales and it can be analyzed that the majority of sales revenue generates from the Julia pharmacy

Alexandria will order herbal product after every two weeks and it takes almost two weeks for thatproduct to be delivered therefore,there should be a manage so that herbal products are not ordered in short when there is demand. Per order cost up to 150 RON which contains 40 jars so, therefore,a concept of economic order quantity or EOQ should be implemented.

Economic order quantity or EOQ is amount of order that should be order so that order cost and holding cost are minimized, formula for EOQ is as follows.................

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