Instructions:
– Use Microsoft word to prepare your report
– For the financial analysis and calculations, use Microsoft Excel – paste screenshots of your
analysis into the word document
– Projects must be completed as individual submissions – group work is not allowed
Project SnX investment opportunity
Due to the Coronavirus, the restaurant industry globally, and in Switzerland, has been severely
impacted, and almost obliterated. However, with the global roll-out of various vaccines from Pfizer
BioNTech, AstraZeneca and Moderna amongst others, it is expected that the world will be “back to
normal” from the 1st July 2021.
As a keen investor, with deep knowledge and experience of the hospitality sector, you have insider
insight that pop-up bar and restaurants are going to be the all the rage for the next three years
once the lockdowns ease. You already have all of the necessary existing stock of restaurant
equipment (kitchen and catering, chairs, tables, point of sale equipment etc.), with an original cost
of Fr5m that will provide all the equipment you need to launch this venture. However you determine
that you will need to invest in a 3 year trading license with the City of Zurich costing Fr200,000
(one-off upfront cash payment at the commencement of the project) in order to launch the pop-up
bar and restaurant venture.
You forecast the following revenue and cost figures for the opportunity, which you are calling
Project SnX:
Revenue: Fr400,000 per annum
COGS: Estimated at 40% of revenue
Fixed Costs / Overheads: Fr120,000 per annum
You estimate that at the end of the three years demand will fall completely as trends change, and
you will shut down the venture at the end of year three with no associated costs to do so (any costs
will be absorbed into forecast overheads cost above).
Depreciation: You determine that the Swiss tax authorities will allow you an annual depreciation
deduction of Fr40,000 on the original equipment that you are going to use. The average tax rate
you can assume is 25%.
You and your entrepreneur business partner, Felon Husk, expect a return of 20% on your
investments. Felon argues that it would be better to invest the money in Apple Shares, which have
been providing an average return of 20% over the last three years.
You agree to put together an investment appraisal for Project SnX.
Required:
Prepare a report for the proposed project SnX which includes the following:
on whether to include the Fr5m cost of the original equipment acquired in the
evaluation. Explain the impact of the depreciation allowance on the evaluation. (20
marks)
project. (15 marks)
3
lower than your and Felon’s expected rate of return. Calculate the IRR. (5 marks)
(increase or decrease) in demand (revenues) on the outcome of the project (NPV
and Discounted Payback) (assume all other factors remain constant). What is the
minimum annual revenue required in order to “break-even” on the project (the point
at which the net cumulative cashflows are zero at the desired rate of 20%) (9
marks)
or not to proceed with the project (the market, competition, alternatives,
sustainability etc.) (10 marks)
can be used (NPV, Payback, Discounted Payback, IRR). Advise as to the best
approach to follow. (12 marks)
project and provide a rationale (reasons) for your recommendation (including the
option of investing in Apple shares as an alternative as Felon argues for) (7 marks)
Note: Ignore working capital impacts. Assume all cashflows are at the end of each year, other than
the initial investment in the trading license.
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