Mini Case 1
A company seeing the prevalence of HIV transmission due to unprotected sexual intercourse in country and the societal norms preventing the open employ of condoms sees an opportunity in automatic coin-operated condom dispensing machines. The machine when placed in a discreet place allows a person to autonomously acquire a condom at an affordable price. The company anticipates installing about 150 dispensing machines at different locations:
• Hotels: 50
• Bars/Pubs/Disco: 50
• Shopping Malls: 15
• Secondary schools and Universities: 35 (it expects no opposition from the Education authorities)
The company has managed to get a manufacturer from China who can supply a condom dispensing machine at Rs 20,000 per unit (it anticipates it will get an exemption on taxes on the product as it is a positive step for the health of people).
Each dispensing machine can contain 100 condoms. Each condom is anticipated to be purchased at a bulk price of Rs6 per unit and sold at a price of Rs10 per unit. The company estimates that each machine will sell about 400 condoms per month.
The company anticipates having one employee (with a salary of Rs5, 000 per month) who will refill the condoms and attend to any repairs.
Questions 1 and 2 are based on mini case 1
Question 1:
(a) Compute the payback period, the Return on investment and Net Present Value of the project.
(b) Using the above results, appraise the project economically discussing the returns, the level of risk and the entire economic feasibility.
(c) Challenge any TWO assumptions which are given in case and discuss their impact on economic feasibility of project.
Question 2:
(a) Describe TWO risks involved for company to get involved in business of condom dispensing machines?
(b) Quantify the risk exposure of above TWO risks.
(c) How could the above TWO risks be mitigated by company?
(d) Comment on the operational feasibility of this project in Mauritian context.