Hattieto Case Study & Report Writing - A Business to Import Geodes from Uruguayand Sell, Marginal Tax - Accounting Assignment Help

Assignment Task

Hattieto Case Study 

You have been asked by your 65year old aunt Hattieto help her assess a new venture. It is Friday night, and she needs the work finished by Sunday, in preparation for an early Monday morning meeting, so you know that she will not be able to give you any more information than she already has (and you will be unable to contact her over the weekend), and therefore you may need to rely on your own assumptions and estimates for some of the analysiswhere appropriate. Hattielives nearManchester, England, and recently took early retirement (from a universityshe joined 30 years ago), leaving themwith a lump sum (after tax) payment of £450,000. Surprisingly, rather than being depressed by her new state of independence, she is tired of the bureaucratic life and excitedly contemplating a new career as a retailer of geodes1and other decorative stones. She is confident that she can set up a business to import geodes from Uruguayand sell them in Europe. Her husband, who she metin the USAat business school, is pleased with her passion for this possible new venture, but concerned that it might turn into a financial disaster. He has suggested that she develop a financial plan to evaluate the venture and its viability.

A geode is a spherical rock with a hollow cavity lined with crystals
After a couple of hours with Hattieyou have assembled the following information from her: -Colada Geodes, an established supplier of geodes and similar stones based in Artigas(and owned by one of Hattie’suniversity colleagues), is prepared to give her exclusive rights to sell their products in the UKfor a sixyear period in exchange for an upfront payment for those rights; -The geodes sell in Uruguayfor an average of 350 Uruguayan Peso (or $U for short) per kg, and Colada Geodes is prepared to sell them to Hattieat a 45% discount to this price; -Colada Geodes would ship to Hattieon receipt of payment for each order; -Hattiehas found out that freight from Artigasto Manchester, via Montevideobytruck and air freight,would cost on average $U 200per kgand that the time from her placing an order to receiving the goods in Manchesterwould be fourweeks (including the preparation and packing time in Uruguay); -Hattieplans to order from Colada Geodes monthly and intends to maintain a minimum stock of one month’sworth of sales to ensure that she will be able to supply a suitable range of products to customers; -She will buy a special jig and tools at a cost of£3,500 to break open and polish the geodes, and has found a small industrial room she can rent nearby at a cost of £300 per month (payable monthly in advance, plus an initial security deposit of three months rent, refundable at the end of her tenancy ifthere is no damage);-

Hattiewill sell the geodes throughout the UKby internet only, and is planning to spend £4,000with a website designer to develop the site; -She has already spent £ 3,000 on a market study that told her that once established, demand would be about 750 kg a month, although in the first year sales would start at only 50 kg in the first month before building up slowly to the full level at the end of the first year; -The above study assumed an average selling price of £35per kg (ignore any impact of sales taxes in your calculations); -Packaging and shipping in the UKwould average £ 5.50per kg, and Hattieis not intending to charge that to the customer;-All sales would be by credit card, with the credit card company taking 1.2% per sale and remitting the monthly total to Hattietwoweeksafter the end of each calendar month; -She believes that two part-time studentscould run the geode operation at a total cost to her (including employer’s social charges) of £ 1,500per month; -Hattiebelieves that,if necessary,she could borrow up to an additional £ 40,000 at 7% p.a.

The effective overall marginal tax rate on profitfrom a company set up to undertake this activity would be 28%, payable one year in arrears; Hattie has also told you that she can invest any available cash at an after tax 3% per annum.Hattiealso has a friend, Ian, who runs a small chain of gift shops in the Lake District. Ianis interested in the venture and has agreed that if Hattiewould mount six different geodes in glass-fronted cabinets for wall mounting, he would buy 6such cabinets (each containing 1.5 kg of geodes on average) from her per month (which would be in addition to the internet sales outlined above, and would start immediately), at a price of £45(paid immediately) per completed cabinet. To do this Hattiewould need to buy-in cabinets and mounting accessories at a cost of £ 7per cabinet and hire a part-time assistant specifically to assemble the cabinets, at an additional cost (including employer’s social charges) of £200 per month. Ianplans to sell the cabinets at £ 75each

Hattieremembers lectures on discounted cash flow analysis at business school (although she admits that she did not fully understand them, unlike her husband who was a distinction student). She has asked you to prepare an analysis while she is away to help her with the decision, making clear any assumptions that you make; the analysis should not exceed a total of 25 pages (everything included), and should include: -A summary of all assumptions and estimates that you have made for your analysis, including justifications where appropriate; -

A break even analysis;-A Profit and Loss Statement for the first year of operations and Balance Sheet at the end of the first year;-Monthly cash flow for the first year of operation; -Annual cash flow thereafter; -A clear explanation, in plain English, of how much cash the venture will need to get started;-Any sensitivity analysis that you think would be helpful; -The most that Hattiecould offer Colada Geodesas an upfront fee for the exclusive rights for the sixyear period (which does not include any geodepurchases) which would leave her no better or worse off than if she had not undertaken the venture, and the amount you suggest she should actually offer them; -Conclusions and recommendations;-A critical reflection of the analysis that Hattiehas asked you to prepare;

how you have evaluated the attractiveness of the venture and what, if anything, would you do differently in a financial analysis of this opportunity, and why? Hattiehas explained that she is going to be out of town for a wedding so will be unable to provide any assistance at all, but as she pointed out before leaving “you will find this easy with computers and the internet to help”.Your report should demonstrate skills of critical reflection, effective communication and balanced judgement; note that this is not a market report. Scripts that are excessively long (i.e. exceeding the page limit) will not be read beyond the point of the word limit; there is no minimum word limit. Do not put your name on the paper.

The overall structure should be as follows: 1. Cover Page 2. Table of Contents/List of Exhibits  3. Executive Summary4. Main Report 5. Critical Reflection5.The data in your answer should be clearly laid out in tabular format so that your approach and answer are both plainly evident.

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