Making Investment Decisions Financial Management Harvard Case Solution & Analysis

Introduction

The new ventureof Alexandria 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 has successfully obtained the right to sell the herbs in Switzerland for the period of five years. On the other hand, she will be selling all the 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. As 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be successful and will generate a huge pile of cash that can be used within the business for its expansion or can be withdrawn and can be used in some other ventures.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, which 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 while the balance amount will be breakeven point. By dividing the total fixed cost to contribution, break even number of jars will be calculated which is 1355.

The interpretation of this assumption will be that Alexandriahas to sell a minimum of 1355 jars in a month to recover the fixed overheads or else she will be in loss.Contribution is selling price less variable cost the word's contribution means how much amount is contributing toward fixed cost. Break even 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 advertising cost and assistant cost which will be hired specially for the packing purpose. Under the fixed cost,another cost that included rental is paid for special refrigeration of the herbal products. The cost model of the Xanderherbs is very simple which consist of import of the herbal product and sell it in Switzerland through online websites.

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

Alexandria will order herbal products after every two weeks and it will take almost two weeks for that product to be delivered. This needs to be managed properly in order to avoid a shortage of products during heavy or high demand seasons.Each order will cost up to 150 RON which contain 40 jars so the concept of economic order quantity or EOQ must be implemented.

Economic order quantity or EOQ is the amount of order that should be ordered so that order cost or holding cost must be minimized, and the formula for EOQ is as followMaking Investment Decisions Financial Management Case Solution

The mechanic of EOQ is first annual demand is determined and other variable such as ordering cost and holding cost is determined. By inputting the variable in the formula an amount of inventory is determined that should be ordered.

Buffer stock and safety stock should also be maintained so that in case if there is an unexpected demand herbal product should be delivered to clients. Online ordering of product can be forecasted using trend analysis and stock should be maintained as per this trend.

Although Julia requires special packing which cost CHF 12.50 per box  and additional an assistant would be hired assistant to wrap the boxes. It can be estimated that although there is an additional cost, but there is additional revenues are generated as well......................................

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