Project Guidelines - Financial Proposal-A case entitled “Ice Cream-4-U” an

Project Guidelines - Financial Proposal

The term project is an individual one to prepare a financial analysis and report of an assigned case that is to be accomplished.

The task is to prepare a written proposal that a reader will use to determine if a proposed project should be approved. It is not a marketing document for a customer. It is not a research paper. Rather it is an applied exercise using the concepts of the course. Requirements of this project is a spreadsheet containing the financial analysis, and a written report concerning the project that includes the implications of the financial analysis including the consideration of risks.

A case entitled “Ice Cream-4-U” and a spreadsheet containing a data block for the case are provided. If a difference is found between the case and the data block, use the data block version. Some example reports from previous semesters will be posted..

Submit the financial analysis as a MS Word document and an Excel workbook in the assignment area of the course room. Submit the final report no later than the end of week 11

The final report should be 8-12 pages in length. The report should include a cover page, an executive summary, and the proposal. A table of contents is not necessary. The length limit of the report includes the cover page, executive summary, the proposal and appendices if any. The length does not include the separate Excel workbook. A length more than 12 pages will be penalized. The grading criterion is quality, not quantity.

While relevant financial statements should be in the Word document, condensed versions are often sufficient. A complete set of statements should be submitted in a separate Excel file.

“ICE CREAM-4-U”

The Ice Cream-4-U franchise has developed an automated Ice Cream kiosk that can serve 12 flavors of premium ice cream in cups of cones 24/7 with no wait staff. These small, refrigerated kiosks can be located in shopping centers, airports, athletic events, etc. Using a touch screen interface, customers can select a flavor, choose one or two dips, and specify a cup or a cone. Each kiosk will be leased for $50,000 per year.

The kiosks are standalone except for an electricity power source. Ice Cream-4-U has patented a serving system that includes their proprietary containers from which traditional ice cream scoops can be produced and inserted in cones or cups. The Ice Cream-4-U ice cream containers will be filled from standard ice cream containers using special machines and closely controlled temperatures at a central location. In each kiosk, sensors will be used to detect breakdowns and notify maintenance people immediately via a secure internet connection.

Ice Cream-4-U has performed some test marketing and found that each kiosk will service an average of 250 single dip servings per day at $1.00 each and 200 double dip servings at $2.00. For example, the revenue per year for 6 kiosks of the single dip serving is 250 cones per day* $1 per cone * 365 days per year * 6 kiosk = $547,500.

The cost of the ice cream is $0.10 per dip ($0.20 for two dips), and the container (cup with spoon, or cone) is $0.06 for both the single and double dip serving.

This being a retail sale makes it subject to a sales tax of 6% of the revenue. The sales tax is included in the price meaning it has to be deducted as a cost similar to the cones and cups.

Payment will be by credit card, debit card, PayPal, ApplePay, or dollar bills. The cost of the payment system is estimated to be an average of 1.5% of revenue.

Two employee categories will be used. A Service position will replenish and serve each kiosk three times each day that includes replacing empty ice cream containers, replenishing cleaning water containers, and performing cleaning and inspection. The other position is a full time maintenance position that will diagnose and fix breakdowns and perform preventive maintenance. Maintenance technicians will be contacted by the service technicians or via an automated networking system connected to sensors in each kiosk. Each position will be staffed with multiple full and part time people in a scheme to be determined later.

One service position can cover up to six kiosks. Therefore, the quantity of service technician positions increases by 1 each time that a multiple of six kiosks are added. For instance, one to six kiosks will require one of the service positions, six to twelve kiosks will require 2 of the service positions, etc. Each service position including wages and benefits for a 24/7 week is estimated at $3,000 per week.

Each maintenance position can cover up to 18 Kiosks. That is, one maintenance position can handle from 1 to 18 kiosks, and two maintenance positions are required for 19 to 36 kiosks, etc. Each maintenance position including wages and benefits for a 24/7 week is estimated at $5,000 per week. Besides maintenance tasks, maintenance positions will operate the machine at a central warehouse that fills the kiosk ice cream containers from standard ice cream containers.

Maintenance parts, utilities, networking other miscellaneous expenses are estimated to cost $3,000 annually for each kiosk. The space rental and fees for each kiosk location is estimated at $2,000 per month.

A central warehouse and office space will be leased at $50,000 annually. In the warehouse, an investment of $250,000 is needed for coolers, worktables, etc. Each service position will need a refrigerated truck that cost $60,000 each. Each maintenance position will require a truck at a cost of $40,000 each. Assume the trucks are purchased at the end of the year prior to when the service and maintenance positions are staffed. For instance, a truck that will start being used in period 1 will be purchased at the end of period 0. A truck that starts service in year 2 will be purchased at the end of year 1, etc. The warehouse equipment and trucks will be depreciated over 5 years using MACRS.

Working capital needs are as follows. Ice cream inventory starts in year 1 and will be the annual ice cream cost sales divided by 12 (one month’s worth). Repair part inventory will require $10,000 in year 0 and be constant at this amount for all future years. Wages payable will start in year 1, and in each year it will be the total annual cost of the service and maintenance positions divided by 52 (one weeks worth). Accounts payable will start in year 1, and in each year it will be the annual cost of ice cream divided by 12.

Jeremy is considering leasing 6 kiosks in year 1, 6 more in year 2 (total of 12), 6 more in year 3 (total of 18) and stay at this amount for years 4 and 5. A one-time cost for organizational startup costs (incorporation, legal, accounting, testing, training, etc.) are estimated at $100,000 in year 0. The salvage value of all the trucks and warehouse equipment at the end of year 5 is $160,000. The estimated value of the company if sold at the end of 5 years, in addition to the salvage value, is estimated at $100,000. Income taxes are estimated at 25%, capital gains taxes at 15%, and Jerry expects a 12% return on investment (MARR).

Prepare a report and make a recommendation for Jeremy. See instructions for details on requirement