Caribbean Internet Cafe Case Study

1.0 INTRODUCTION

David Grant, an MBA student from Richard Ivey Business School, London wanted to establish a first of its kind Internet café. His plan was to call it ‘Caribbean Internet Café’ (CIC) and it was going to be in his hometown of Kingston, Jamaica. This café would offer brewed coffee and other beverage, baked goods sourced from local bakeries, and a unique feature that no other café in the city offers because it would also offer Internet services.

Despite his interest to have an Internet Cafe at Kingston, there’s a few challenges that David would face such as low accessibility and usage of the Internet in Jamaica. Only corporations and universities populations used the Internet.

David also have a problem on his capital investment, which he only had $500,000 in capital but his projection on startups needed more than that. Even for the equipment itself costs about $1,426,000. So, he proposed to his former boss at JTL about his project to get more funding. JTL found out that this is an interesting opportunity to expand their Internet services and awareness of the Internet to Jamaican. JTL agreed to invest $500,000 (50% shares) and fund CIC with long term loan of $1,250,000 with 10% interest rate.

However, based on the market research conducted by a company assigned by JTL, the findings of potential usage on the first year with 20,000 segments size, were as follows:

• Optimistic Estimation

50% of the segment would visit CIC on average 5 times a year

• Realistic Estimation

40% of the segment would visit CIC on average 3 times a year

• Pessimistic Estimation

30% of the segment would visit CIC on average twice a year

Based on those projection on the first year and all the costs and revenue calculated, David need to do analysis on profitability of CIC to finalize his decision either to proceed with this venture or not and whether it is profitable for him and JTL.

Jamaica Telecommunication Limited (JTL) saw CIC business potential and interested to invest $500,000 and offering loan to CIC. David was in dilemma whether to proceed the CIC venture with JTL and wondering whether this business would be profitable. Many aspects need to be taken into consideration including the current market situation of Jamaica, political, social, economic and technological which could be greatly affect the CIC performance. Thus, should David Grant and Jamaica Telecommunication Limited (JTL) pursue the business?

2.0 ANALYSIS

The analysis is conducted using Cost Value Profit Analysis, Breakeven and Safety Margin