Caribbean Internet Cafe Case

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CARIBBEAN INTERNET CAFÉ Murray J. Bryant BACKGROUND AND SIZE-UP  Issues to consider: • Can the business succeed?  Probability?  Business reputation? • What is the business environment like in Jamaica in 1996?        The Jamaican economy in June 1996: Population 2.5m Kingston and environs 631,000 Demographics 29% of population between 15-29 years old G.D.P. per head 1995 J$65,380 1994 J$52,881  fell in real terms by 1%  Inflation approximately 20% in 1995.  Interest rates (mortgages 25%)  E.I.U. (1996 outlook)  “The economic outlook for 1996 is bleak as the high interest rates used to bolster the Jamaican dollar and dampen inflationary pressures stifle productive activity.” TELECOMMUNICATIONS  Telephone lines doubled between 1985 and 1995  Digital switching  1995 16,941 new cellular connections COST STRUCTURE COST STRUCTURE (cont’d.) Adding the given fixed costs to the depreciation, we have total annual fixed costs of $2,734,631. COST STRUCTURE (cont’d.)  In addition to the fixed costs outlined above, there were some additional one-time fixed costs or start-up costs for the first year: COST STRUCTURE II  Variable Costs (per customer/per visit)  (Costs that vary based upon the number of customers) *Internet $60 per computer hour x 40% of customers = $24.00 REVENUE  For each customer: Average revenue per customer: 120 x .40 + 140 + 60 = $248 CONTRIBUTION ANALYSIS Contribution = Average Revenue per customer - Variable costs per customer = $248 - 104 = $144 per customer/visit CONTRIBUTION ANALYSIS (cont’d.)  Contribution margin per customer x total segment size x percentage of segment x number of visits per year • $144 x 20,000 x 40% x 3 = $3,456,000 CONTRIBUTION ANALYSIS (cont’d.) Therefore: Projected Breakeven Year 1 What does this represent per week, per

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