Financial Feasibility Analysis of Geodes Business

This assignment involves a thorough financial analysis of a proposed geodes business venture. The study includes a breakeven analysis to determine the optimal sales quantity for the business to break even, a profit and loss statement for the first year, monthly and annual cash flow statements, and a net present value (NPV) calculation to evaluate the business's potential returns on investment. The analysis concludes that the proposed venture is a good investment opportunity and provides recommendations for Hattie to undertake the business while avoiding a proposal to supply cabinets made of geodes due to breakeven point not being achieved.

Evaluation of financial feasibility
of proposed venture
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Contents
Executive Summary................................................................................................... 3
Main Report................................................................................................................ 4
Break even Analysis................................................................................................ 4
Profit and loss statement for the 1st year of operations...........................................8
Balance Sheet at the end of first year...................................................................12
Monthly Cash flow for the first year of operation..................................................13
Annual Cash Flow.................................................................................................. 16
Amount of Cash the business would need to get started......................................18
Sensitivity Analysis................................................................................................ 19
Calculation of maximum amount that could be offered as upfront fee.................24
Conclusions and recommendations.......................................................................26
Critical Reflection..................................................................................................... 26
References............................................................................................................... 27
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Executive Summary
This report conducts an evaluation of the proposed business opportunity of retailing
of geodes that is available to Hattie. The evaluation has been done by performing
various calculations such as breakeven analysis, computation of profit/loss for the
first year of business, preparation of balance sheet for the first year of business,
monthly cash flow for the first year of operations. The report also shows calculation
of Annual Cash flow, Maximum amount that can be offered as upfront fee,
Calculation of Net Present value of Cash Inflows and Sensitivity Analysis of the
business opportunity. The results of these calculations and analysis of those results
have led to the conclusion that Hattie should go ahead with the plan of online sale
of geodes as it is highly profitable but should not accept the proposal of supply of
cabinets to Ian as it would not prove profitable to her.
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Main Report
This report will do an evaluation of the financial feasibility of the venture that Hattie
intends to start. Various calculations have been performed so as to support in
analysis of the business opportunity. Since Hattie would get the exclusive rights for
dealing in geodes for a period of 6 years only, the business will be existence for the
aforesaid period of 6 years only.
(All amounts are in GBP)
Break even Analysis
Breakeven point is that point at which the revenue generated by the business is
equal to the total costs incurred by the business. i.e., there is a situation of no
profit, no loss. At the breakeven point, the net profit earned by the business is equal
to zero. Breakeven point shows the quantity of product that should be sold by the
business so as to be able to cover its fixed costs as well as variable costs. It is
important for the business to know its beak even point so as to ensure that the
actual quantity or the number of units sold by it are not less than the breakeven
point for the business. Breakeven point is calculated by dividing fixed costs by
contribution per unit
In the given case, the breakeven point will be calculated for 2 scenarios – (i) Online
sale of geodes (ii) Sale of Cabinets (each equivalent to 1.5 kg of Geodes) to Hattie’s
friend Ian.
i. Online sale of geodes
In order to arrive at the breakeven point for online sales geodes, contribution per
unit will required to be calculated.
Calculation of contribution for each kg of geodes
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Calculation of contribution per unit Working Amount in $U
Amount in
Pounds
Sellingprice per kg 35
Less: Variable cost
Purchase cost of each kg of geodes 350*0.55 192.5 4.23
Freight cost of each kg of geodes 200 200 4.39
Credit card charges 1.2%of Sales 0.42
Packaging and shipping 5.5
Total variable cost per unit 14.54
Contribution per unit 20.46
Fixed costs that are related to this proposed business includes monthly rent of shop,
depreciation on equipment & website and the salaries of two part time students
that would be required to run the geode operation. The total fixed costs related to
online sales of the business are given below:
Monthly Rent 300
Salary of part time students 1500
Monthly Depreciation 104.17
Total 1904.17
Fixed Costs
Breakeven point for scenario 1 (Monthly)
= Fixed costs per month/ Contribution per kg of geodes
= 1904.17/20.46
= 93 kg
Calculation of expected quantity for each month of the 6 year period of
the business
Calculation of budgeted online sales for the business
(in kg)
Month
Year
1
Year
2
Year
3
Year
4
Year
5
Year
6
1 50 750 750 750 750 750
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2 63 750 750 750 750 750
3 78 750 750 750 750 750
4 98 750 750 750 750 750
5 122 750 750 750 750 750
6 153 750 750 750 750 750
7 198 750 750 750 750 750
8 258 750 750 750 750 750
9 335 750 750 750 750 750
10 436 750 750 750 750 750
11 567 750 750 750 750 750
12 737 750 750 750 750 750
Total 3093 9000 9000 9000 9000 9000
Assumptions for sales budget
1. It is assumed that the online sales of geodes for the first year of operations
would grow at the rate of 25 percent per month during the first 6 months and
would grow at the rate of 30 percent per month during the next 6 months.
Conclusion:
The beak even point for online sale of geodes through the website of business has
been calculated to be 88 kg. As per the above chart for budgeted online sales for
business, the proposed business would achieve its breakeven point in the 4th month
of the first year of its operations when the sales are expected to be 98 kg.
Thereafter, the sales of the business will continue to grow, and it will be able to
generate sales that are much higher than its breakeven point. Therefore, the
business can easily achieve its breakeven point and the beak even analysis
suggests that it is financially feasible to carry on the business.
(ii) Sale of cabinets (equivalent to 1.5 kg of Geodes) to customers.
In order to calculate the breakeven point, contribution for each unit of cabinet will
be required to be calculated.
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Calculation of contribution per unit Working Amount in $U
Amount in
Pounds
SellingPrice per cabinet 45
Less Variable costs
Purchase cost of each kg of geodes 350*0.55*1.5 288.75 6.34
Freight cost of each kg of geodes 200*1.5 300 6.591
Credit card charges 0
Packaging and shipping 0
Costs of Cabinets and mounting
accessories per cabinet 7 7
Total Variable cost of each cabinet 19.93
Contribution per unit 25.07
Contribution per cabinet sold to Ian
Notes:
1. It is assumed that the sale of cabinets made to Ian, are cash sales since it has
been provided in the case study that amount would be paid by Ian
immediately. Hence, credit card charges of 1.2 percent would not apply to
Sale of cabinets.
2. Packaging and Shipping cost would not require to be incurred for geodes sold
to Ian in the form of cabinets. Hence no packaging costs have been included
in the above calculations.
Fixed costs
Only the salary of part time assistant of GBP 200 per month would be considered as
fixed cost for the second scenario of sale of cabinets to Ian. All other fixed costs
included for scenario 1 will not be included for scenario 2 since those costs would
anyways be incurred by the business, whether it decides to sell cabinets to Ian or
not.
Breakeven point for cabinets
=200/25.07
=8 cabinets
Conclusion
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The breakeven point for cabinets is 8, which means that Hattie must sale at least 8
cabinets every month so as to reach a situation of no profit, no loss. However, as
Ian would purchase only 6 Cabinets every month, Hattie will only be able to sell 6
cabinets every month. Also, the demand for cabinets from Ian will continue to
remain the same for all the months for the six year period of the business, i.e.
Hattie will be able to sell only 6 units for every month in which the business will be
operating. If the business achieves less sales than its breakeven point, the business
would lead to financial losses for its owner. Therefore, it is clearly evident that the
business proposal of sale of cabinets to Ian will not be able to reach the breakeven
point and hence, it would not be feasible for Hattie to go ahead will this proposal of
sale of cabinets to Ian, as she would not be able to reach the beak even point and it
would lead her to suffer financial losses.
Note: The conversion of amounts from UYU to GBP has been done based on the
exchange rate of prevailing on 09.10.2019. (XE Currency Converter, 2019).
Exchange rate
1 UYU 0.02197 GBP
(Exchange rate as on 9/10/2019)
Profit and loss statement for the 1st year of operations
Profit and loss statement for the 1st year
Sale of Geodes 108255
(3093*35)
Sale of Cabinets
(6*12*45) 3240
Total Sales 111495
Less: Cost of Goods sold
Purchase cost of geodes 13540.23
(3093*4.23)+(72*1.5*4.23)
Costs of Cabinets and mounting
accessories 504
(72*7)
Freight 14052.39
(3093*4.39)+ (72*1.5*4.39)
Total Cost of goods sold
28096.6
2
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Gross Profit
83398.
38
Operating Expenses
Credit Card Charges
1.2% of Online Sales of Geodes 1299.06
(108255*1.2%)
Packaging and shipping 17011.5
(3093*5.5)
Depreciation 1250.00
(as per Workings shown separately)
Total Operating Expenses
19560.
56
Administrative Expenses
Rent 3600
(300*12)
Salaries of part time staff 18000
(1500*12)
Salary of assistant
(200*12)
Interest on owners capital
722.36743
2
(17322.96*4.17%)
Total Administrative Expenses
22322.
37
Profit before tax
41515.
45
Tax @ 28%
11624.3
3
Net Profit for the year
29891.
13
Workings related to the Profit and loss statement for the first year of operations
have been shown below:
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1. Depreciation on plant & machinery and intangible assets
Hattie intends to purchase jigs & tools worth GBP 3500 and spend GBP 4500 on
development of the website through which online sales would be made to all the
places across entire UK. The tools & jigs are in the nature of equipment for the
business and the cost spent on development of website is intangible asset for
the business. Hence, depreciation would be charged on both these business
assets.
Plant & Machinery
Cost of jigs & tools 3500
Intangible Assets
Amount to be paid for
development of website 4000
Annual Monthly
Depreciation on Plant & Machinery 3500/6 583.33 48.61
Depreciation on Intangible Assets 4000/6 666.67 55.56
Total Depreciation 1250.00 104.17
Calculation of depreciation
Since the business will be in existence for 6 years only as per the terms of the
contract with Colada Geodes, depreciation will only be calculated for 6 years.
Therefore, it is assumed that Plant & Machinery as well as Intangible assets will
have a life of six years only and will not have any residual value at the end of 6
years.
2. Interest on owners capital
As Hattie can invest any available cash at an after tax interest rate of 3%, business
must pay interest to Hattie at an equivalent rate, on the cash invested by Hattie in
the proposed business. The before tax rate of interest for an after tax rate of 3% is
4.17%. Hence, business must pay interest on the investment by Hattie at a rate of
4.17 percent per annum. The initial cash investment that would require to be made
by Hattie for starting the business has been calculated below:
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Note: The workings for cash required to cover negative cash generated by the
business in the first 7 months have been provided in the Monthly cash flow of the
business for the first year of operations.
Balance Sheet at the end of first year
Assets
Fixed Assets
Plant & Equipment
Jigs and Tools 3500
Less: Accumulated Depreciation -583.33 2916.67
Intangible assets
Development cost of website 8000
Less: Accumulated Depreciation -666.67 7333.33
Current Assets
Inventory (750 kg) 6465
Cash at Bank 4487.56
Receivables 25531.89
Security deposit for rent 900.00
Preliminary Expenses 9000
Reasearch cost
Total Assets 56634.45
Liabilities
Capital 56634.4479
Total Liabilities 56634.45
Balance Sheet
Workings
1. Value of closing stock
Since Hattie would place order 1 month in advance so as to ensure that she has
sufficient stock of one month’s worth of sales, Hattie would have a stock in hand
of 750 kg of geodes which is equal to the quantity of geodes that is expected to
be sold by the business in the next month.
2. Receivables
The credit card company will make payments two weeks after the end of the
month to which those sale proceeds pertain. Thus, the sales made in the last
month of the year will be remitted to the business in the next month and thus
will be shown as receivables in the balance sheet.
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Monthly Cash flow for the first year of operation
0 1 2 3 4 5 6 7 8 9 10 11 12
Opening balance of cash -1458.58 -4184.41 -5397.15 -6450.69 -7305.21 -7910.96 -8279.16 -8414.38 -8035.30 -6987.62 -5070.76 -2023.97
Receipts
Cash received from sales
of geodes 1732.15 2165.19 2706.48 3383.11 4228.88 5286.10 6871.93 8933.51 11613.57 15097.64 19626.93
Cash received from sale
of Cabinets 270 270 270 270 270 270 270 270 270 270 270 270
Total receipt 270 2002.15 2435.188 2976.4844 3653.10547 4498.8818 5556.1023 7141.933 9203.513 11883.57 15367.64 19896.928
Payments
Cash paid on purchase of
geodes for online sales
(including freight) 431.00 538.75 673.44 841.80 1052.25 1315.31 1709.90 2222.87 2889.73 3756.65 4883.65 6348.74 6465.00
50.00 62.50 78.13 97.66 122.07 152.59 198.36 257.87 335.24 435.81 566.55 736.51 750.00
Cash paid on purchase of
geodes for cabinets 77.58 77.58 77.58 77.58 77.58 77.58 77.58 77.58 77.58 77.58 77.58 77.58 77.58
Cash paid for packing 275.00 343.75 429.69 537.11 671.39 839.23 1091.00 1418.30 1843.80 2396.93 3116.01 4050.82
Cash paid for purchase of
cabinet accessories 42.00 42.00 42.00 42.00 42.00 42.00 42.00 42.00 42.00 42.00 42.00 42.00
Cash paid for Rent 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00
Security deposit for Rent 900.00
Cash paid Salaries of part
time staff 1500.00 1500.00 1500.00 1500.00 1500.00 1500.00 1500.00 1500.00 1500.00 1500.00 1500.00 1500.00
Cash paid for salary of
assistant 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00
Total payments 1458.58 2995.83 3214.89 3488.72 3831.01 4258.86 4867.08 5691.33 6762.85 8155.83 9966.71 12320.85 13385.40
Closing balance of cash -1458.58 -4184.41 -5397.15 -6450.69 -7305.21 -7910.96 -8279.16 -8414.38 -8035.30 -6987.62 -5070.76 -2023.97 4487.56
Cash Inflow of each
month(Receipts-
Payments) -1458.58 -2725.83 -1212.74 -1053.53 -854.52 -605.76 -368.20 -135.22 379.08 1047.68 1916.86 3046.79 6511.53
Monthly cash flow for the 1st year of operation
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Note: Business would generate negative cash flow for the first 7 months of
operation of business.
Assumptions
1. It is assumed that the freight on transportation of geodes from Artigas to
Manchester would also be payable in advance at the time of placing the order to
Colada Geodes.
Workings
1. Quantity of Geodes to be ordered in the first year of operations of
business
Month
Quanity
to be
ordered
Sales
Stock at
the end
of each
month
0 50 50
1 63 50 63
2 78 63 78
3 98 78 98
4 122 98 122
5 153 122 153
6 198 153 198
7 258 198 258
8 335 258 335
9 436 335 436
10 567 436 567
11 737 567 737
12 750 737 750
Total 3843 3093 3843
Quantity to be ordered for the first year
Note:
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Annual Cash Flow
Year 2 3 4 5 6 7
Opening balance of
cash 4488 163309 322581 481853 641125 811065
Receipts
Cash received from
online sales of
geodes 311336.641 311787 311787 311787 311787 8660.75
Total receipt 311336.641 311787 311787 311787 311787 8660.75
Payments
Cash paid on
purchase of geodes
(including freight) 78511 78511 78511 78511 71968 0
Cash paid for packing 49500 49500 49500 49500 45375 0
(No. of geodes *5.5
per geode)
Cash paid for
purchase of Cabinets 504 504 504 504 504
Cash paid for Rent 3600 3600 3600 3600 3600 0
Cash paid Salaries of
part time staff 18000 18000 18000 18000 18000
Cash paid for salary of assistant2400 2400 2400 2400 2400
Total payments 152515 152515 152515 152515 141847 0
Closingbalance of
cash 163309 322581 481853 641125 811065 819726
Annual cash flow for each year
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Workings
1. Quantity of Geodes to be ordered in the remaining 5 years (i.e. from 2nd
year to the 6th year)
Month
Year 2 Year 3 Year 4 Year 5 Year 6
1 750 750 750 750 750
2 750 750 750 750 750
3 750 750 750 750 750
4 750 750 750 750 750
5 750 750 750 750 750
6 750 750 750 750 750
7 750 750 750 750 750
8 750 750 750 750 750
9 750 750 750 750 750
10 750 750 750 750 750
11 750 750 750 750 750
12 750 750 750 750 0
Total 9000 9000 9000 9000 8250
Quantity to be ordered for next 5 years (Year 2 to Year 6)
Note:
Hattie would be required to place orders for each month's expected sales at least
one month in advance. As a result of this pattern followed for placing of orders, no
orders would require to be placed for the last month of year 6 (which is the last year
of operations of business) as the quantity expected to be sold in last month of the
6th year would already have been ordered in year 11.
2. Cash received from online Sales of Geodes
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Year 2 3 4 5 6 7
Last months sale of
previous year 25531.891 25982.25 25982.25 25982.25 25982.25 8660.75
737*35*98.9
8%
750*35*98.9
8%
750*35*98.
98%
750*35*9
8.98%
750*35*98.9
8%
250*35*9
8.98%
Sale of first 11
months in current
year 285804.75 285804.75 285804.75 285804.8 285804.75
8250*35*98.
98%
8250*35*98.
98%
8250*35*9
8.98%
8250*35*
98.98%
8250*35*98.
98%
Total 311336.641 311787 311787 311787 311787 8660.75
Cash received fromonline sale of geodes
The credit card company remits the sale proceeds of online sales 2 weeks after the
end of the month in which the sales take place. Therefore, the sales that take place
in the last month of the last year would be remitted in the subsequent month (i.e.
after the end of 6th year).
Amount of Cash the business would need to get started
Hattie would be required to invest certain amount of cash in her business for
setting up the business. The initial investment would be required for purchasing the
tools and jigs required for opening and polishing the geodes. As Hattie wants to sell
the geodes online through the website of the business, she would be required to
bear the cost of development of the website. Further, as it is a new business, the
business would not generate positive cash flow in the first few months of its
operations. It is evident fro the monthly cash flow statement for the first year of
operations that has been included in above pars of the report that the business
would generate negative cash inflow for the first seven months of its operations,
and it is only in the last 5 months of the first year, that the business will start
generating positive cash inflows. Thus, Hattie would have to invest her own funds in
the business so as to ensure that business has adequate working capital n the first
7 months of its operations and that its operations are being carried on in a smooth
manner. Moreover, Hattie will also have to pay the security deposit for the small
industrial room that she intends to take on rent for the purpose of carrying on her
business of retailer of geodes. She would be required to pay an amount equal to
three months rent, which she would have to pay in advance. As Hattie would make
investment into her business out of the sale proceeds of the funds received on her
retirement, she would be paid an interest at a rate of 4.17 (before tax) which is
equivalent to the market rates of interest. The total amount that would require to be
invested by her at the time of starting her business has been shown in below table.
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Particulars Amount
Cash to be paid on orders
placed for Jan month 508.58
Security deposit for rent 900
Cash required for
purchase of Equipment 3500
Development of website 4000
Cash required to cover
negative cash generated
by business in first 7
months 8414.38
17322.96
Thus, a minimum cash investment of 17332.96 would be required for starting the
proposed business.
Sensitivity Analysis
Sensitivity Analysis helps to analyze that what will be effect on the business if there
is a positive or negative change in any of the factors related to the business.
Sensitivity Analysis helps to evaluate the profitability and financial performance of
the proposed business in the various situations and supports in making decisions
related to investment in business. We will evaluate the financial feasibility of the
proposed business by testing the sensitivity of the business to the below give
scenarios:
(i) There is a fall in the demand of geodes by 20% from year 2 to year 6.
(ii) There is an increase in the freight cost by 30% and increase in packing
cost by 25%.
(i) Fall in demand by 20% causing a decline in the sales
If there is a fall in demand by 20%, this will negatively affect the sales generated
by the business which would lead to a reduction in the cash that will be
generated by the business.
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At present, the quantity expected to be sold by the business is 750 kg per
month. If there is a fall in demand by 20%, the quantity expected to be sold by
the business would go down to 600 kg per month.
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Year 2 3 4 5 6 7
Opening balance of
cash 4488 131564 259091 386618 514146 641750
Receipts
Cash received from
online sales of
geodes 254175.691 254626.05 254626.05 254626.1 254626.05 8660.75
Total receipt 254175.691 254626.05 254626.05 254626.1 254626.05 8660.75
Payments
Cash paid on
purchase of geodes
(including freight) 62995 62995 62995 62995 62917 0
Cash paid for packing 39600 39600 39600 39600 39600 0
(No. of geodes *5.5
per geode)
Cash paid for
purchase of Cabinets 504 504 504 504 504
Cash paid for Rent 3600 3600 3600 3600 3600 0
Cash paid Salaries of
part time staff 18000 18000 18000 18000 18000
Cash paid for salary of assistant2400 2400 2400 2400 2400
Total payments 127099 127099 127099 127099 127021 0
Closingbalance of
cash 131564 259091 386618 514146 641750 650411
Annual cash flow for each year
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Year 2 3 4 5 6 7
Last months sale of
previous year 25531.891 25982.25 25982.25 25982.25 25982.25 8660.75
737*35*98.9
8%
600*35*98.9
8%
600*35*98.
98%
600*35*9
8.98%
600*35*98.9
8%
600*35*9
8.98%
Sale of first 11
months in current
year 228643.8 228643.8 228643.8 228643.8 228643.8
6600*35*98.
98%
6600*35*98.
98%
6600*35*9
8.98%
6600*35*
98.98%
6600*35*98.
98%
Total 254175.691 254626.05 254626.05 254626.1 254626.05 8660.75
Cash received fromonline sale of geodes
The effect of fall in demand by 20 percent has been shown in the below table
Year
Cash inflow at
actual level of
sales
Cash inflow at
20%fall in sales Difference
2 158821.681 127076.731 31744.95
3 159272.04 127527.09 31744.95
4 159272.04 127527.09 31744.95
5 159272.04 127527.09 31744.95
6 169939.62 127604.67 42334.95
Total 806577.421 637262.671 169314.75
If there is a fall in demand by 20 percent, it would reduce the cash inflow of the by
GBP 169314.75.
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(ii) There is an increase in the freight cost by 30% and increase in packing
cost by 25%.
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Year 2 3 4 5 6 7
Opening balance of
cash 4488 138939 273841 408743 543644 691245
Receipts
Cash received from
online sales of
geodes 311336.641 311787 311787 311787 311787 8660.75
Total receipt 311336.641 311787 311787 311787 311787 8660.75
Payments
Cash paid on
purchase of geodes
(including freight) 90506 90506 90506 90506 82964 0
Cash paid for packing 61875 61875 61875 61875 56718.75 0
Cash paid for
purchase of Cabinets 504 504 504 504 504
Cash paid for Rent 3600 3600 3600 3600 3600 0
Cash paid Salaries of
part time staff 18000 18000 18000 18000 18000
Cash paid for salary of assistant2400 2400 2400 2400 2400
Total payments 176885 176885 176885 176885 164187 0
Closingbalance of
cash 138939 273841 408743 543644 691245 699905
Annual cash flow for each year
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The effect of increase in freight cost by 30 percent and increase in packing cost by
25 percent is shown in the below table.
Year
Cash inflow at
actual level of
sales
Cash inflow when
there is increase in
freight cost by
30%and increase
in packingcost by
25%
Difference
2 158821.681 134451.445 24370.236
3 159272.04 134901.804 24370.236
4 159272.04 134901.804 24370.236
5 159272.04 134901.804 24370.236
6 169939.62 147600.237 22339.383
Total 806577.421 686757.094 119820.327
If there is an increase in freight cost by 30 percent and increase in packing cost by
25 percent, the business would experience a decline in its cash flow by GBP
119820.32.
Calculation of maximum amount that could be offered as
upfront fee
For arriving at the maximum amount that Hattie can offer to Colada geodes as
upfront fee for the exclusive rights granted to it by the company for a period of 6
years which would leave her indifferent as to whether she should undertake the
proposed venture or not, the Net present value of cash inflows from the proposed
will have to be calculated. The maximum amount that Hattie can offer would be
equal to the net present value of cash inflows that the business is expected to
generate throughout the period of 6 years for which the business will be in
operation.
Net Present Value= Present value of cash inflows – Present value of cash outflows
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Present value of cash inflows
Year Cash Inflow
Discount factor @
7%
Present value of
future cash inflows
1 4488 1.07 4193.98
2 158822 1.14 138721.01
3 159272 1.23 130013.43
4 159272 1.31 121507.88
5 159272 1.40 113558.76
6 169940 1.50 113237.94
6 900 1.50 599.71
7 8661 1.61 5393.48
Total cash inflow 627226.19
Present value of cash outflows
Cash outflows
payment of security
deposit 900.00
Purchase of Equipment 3500
Development cost of website 4000
Total cash outflow 8400
Net Present value = 627226.19 – 8400 = 618826.19
Therefore, the maximum amount that Hattie can offer as upfront fee for the
exclusive rights provided to it by Colada Geodes, which would leave Hattie no better
or worse off than if she had not decided to carry on this business is GBP 618826.19.
It is suggested that Hattie should offer an amount of GBP 154707 (which is equal to
25 percent of the Net Present value of cash as upfront fee.
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