Full Finance Report For New Business Idea

7105 words - 28 pages

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Business 2257 Section 003 - SH2355 Ian Dunn & Richard Bloomfield June 16, 2014 Word Count: 2,380

Executive Summary As Mary Smith, considering the re-opening of Carswell Cinema, it is determined to be an
infeasible enterprise and is recommended that the municipality of Edgeville should not proceed with supporting renovations to the building. After analyzing industry trends, the overall market is found to be highly competitive with low profitability and rates of return. Assuming renovations are undertaken and completed during fiscal 2007, the first year of operations begins in January 2008. When renovations are completed by January 2008 and Carswell is reopened, Carswell hopes to achieve the following goals:
• Pay back the $200,000 interest-free loan received from the municipality of Edgeville within fifteen years
• Maintain an annual cash float of $5,000 • Earn yearly profits in order to maintain a sustainable business model • Provide Edgeville with a leisure centre • Attract volunteers to perform concession and ticket labour
In order for Carswell Cinema to succeed against its competitors, it needs to strategically position itself within the local market. This involves pursuing an affordable pricing strategy ($7 adult admission fees) that would give Carswell a competitive edge over new alternative methods of distribution and other cinemas. Focusing Carswell's promotional efforts towards young children and teenagers yields the most lucrative return. The primary concern of Carswell Cinema is the repayment of its loan. Following highly optimistic admission projections of 10,000 moviegoers in 2008 accompanied with a 20% increase in 2009, Carswell could generate $21,521 and $25,572 in profits. Maintaining the same salary levels as 2004 drops excess revenues over total expenditures to $1,766 and $5,817, leaving Carswell unable to meet its loan repayment schedule and retain $5,000 as annual cash float. As a business, Carswell is severely limited in its ability to obtain financing and human capital. The success of the cinema is conditional on Carswell's ability to hire committed volunteers year after year. Several logistical risks are associated with running the cinema with volunteers. In the long run, it is determined to be infeasible to retain volunteers long enough to meet the necessary loan repayment schedule. Edgeville is strongly advised against supporting the re-opening of Carswell Cinema because it is a high-risk investment, with little upside and a low chance of long-term sustainability.

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