10987 Accounting 100

Assignment Cover Sheet

Semester 2 2013

Group Campus: Curtin Bentley

Group Number: Set 3 Group 43

Group Members:

Student Number Family Name Other Name(s) 17096410 Buchanan Toby 17100340 Boen Astri 16524156 Huynh Jonny

17092227 Price Amelia Note: Please use names as enrolled and as appears in Blackboard

This assignment is submitted in partial fulfilment of the requirements of the unit “10987 Accounting

100” at Curtin University for Semester 2, 2013.

The group members have all read and acknowledged the “Checklist to help you prevent plagiarism in

your work”, which is filled in and attached. All the group members claim full responsibility for all of

the contents of the attached case study.

If there are less than 4 members of this group we have also obtained clearance to submit this

assignment with less than 4 members from the Unit Coordinator or a lecturer. The explanation is

also below for reference purposes.

Notes for markers:

Curtin and Curtin

13

Accounting 100 Business Management Project

Jonny Huynh 16524156, Toby James Buchanan 17096410,

Astri Boen 17100340, Amelia Price 17092227

Table of Contents Strategic Plan………………………………………………………………………………………………………………………………….1

Expanding the Nightclub………………………………………………………………………………………………………………...3

Membership Scheme……………………………………………………………………………………………………………………...4

“The Big Deal” Night………………………………………………………………………………………………………………………..6

Appendix…………………………………………………………………………………………………………………………………………8

Reference List…………………………………………………………………………………………………………………………………10

Strategic Plan

Strength

The night club is in established area with a good customer base. The night club is situated in Beaufort St, Mt Lawley, this is only 5 minutes away from Northbridge where it is home to the most existing nightclubs in Perth.

Good reputation In recent years, Beaufort St in Mt Lawley has built its reputation to be the “place to go” in Perth for the young and trendy professionals. A good reputation has already been established for the target audience they want to market to, so it will be cheaper for the marketing team to try and attract more customers.

New opening of restaurants, cafes and bars With these new shops opening in this area, it will attract new customers to the location. The nightclub could use this opportunity to try and bring in a new customer base.

Weakness

Perth already has an area to where all the night clubs are located, Northbridge – Northbridge has long been the cultural heart of Perth for many years. It is the go-to place for many young youths on Friday and Saturday nights. This area is home to a wide array of restaurant and bars, it is where Perth’s main nightlife is where nightclubs are all scattered along James Street, Northbridge.

Limited Parking: The area of Beaufort doesn’t have big and dedicated public parking areas compared to the Perth ones such as the CPP. With the increase in visitors to the area, the parking problem will become an issue for the nightclub. Often the wealthier people that drive around in flashy and luxury cars would want their car parked in a secured location.

Noise Complaint – The increasing number of visitors will result in a more compacted population, therefore resulting in a much noisier environment which will cause a rise in complaints of residents living in the area.

Opportunities

Make profit: If everything goes well with the nightclub, they are able to make a large sum of profit then sell it after 5 years.

Expand the nightclub: If the business is successful there will be opportunities to expand into the adjoining building. The night club may put out a section for V.I.P only or make it a function room for people to be able to rent for birthday parties etc.

Night club opening date: The nightclub is taking advantage of the date 30th June, which marks the end of the financial year, young professionals and wealthy youth go out during these times to celebrate their earnings.

Page 1

Threats

Threat of new entrance – With Beaufort street becoming the “place to go” for young youths, other nightclub goners will wants to adventure into this type of business and open their own nightclub in the area.

Competition: There is already competition amongst existing nightclubs in Northbridge, these nightclubs have already established loyal customers that attend each week.

Objectives: SMART

Short Term

Attract a loyal customer base of 200 people a night within the first 5 months of business.

Have a successful grand opening of the nightclub attracting more than 500 people.

Medium term

Providing the customers with good quality beverages and entertainment atmosphere by the first year of operation.

Create a safe working environment for the staffs, and provide the upper most safety to the customers to avoid any dangers such as violence and injuries in the nightclub.

Long term

Making a profit of more than $1 million by the 3rd year of operations.

Becoming the number one nightclub in the Mt Lawley, Beaufort and gaining a completive advantage over other clubs by July 2017.

Page 2

Extending the Nightclub

Question A.

The proposed extension would cost $21500, for the beginning cost lasting 5 years. In

accordance with the time value of money at a cost of capital at 11% the extension would

earn year 1 $49549.55, year 2 $32464.90, year 3 $26322.89, year 4 $14.492.08, year 5

$9495.22. In addition the extension could be sold for a lump sum worth $127592.63 and the

end of the 5th year. If Luca invested in the extension the Nightclub would earn$ 259916.67

and the nightclub would earn $44916.67 in profits at the conclusion of the investment in

present value. Given that the Net present value of the investment is positive this suggests

Luca should accept the investment.

The payback period for this investment is 5 years, the investment does not become

profitable until after the lump sum is received for $21500, at the conclusion of the

investment when the extension is sold. Before the lump sum the investment had only

earned $169000. Given that the payback policy is unknown it is at Luca’s and the partners

discretion to accept the investment given that the payback period is years (the life of the

investment) It is a risky decision, however the data does suggest acceptance of the

expansion.

B.

Income tax will have large impact on the profitability of the expansion meaning after tax the

net present value of the expansion is $197652.22 compared to its cost of $215000 meaning

the expansion would cause the income tax would tax would cost them 30 % of the profits

per financial year and assuming the fiscal year correlates to the project year this would

result in the project earning the is $197652.22 in net present value.

Income tax would affect the profitability in total of the project but not the payback method

itself as a large majority of the amount comes from selling the expansion at the end will still

be at the end of the 5th year after the lump sum has been received.

Page 3

Membership Scheme

Formula: Profit = SP(X) – VC(X) – FC

Issue 1

0 = SP(200) – 7000 – 1000 – 1500 – 3000 – 640 – 4000 + 1000

0 = SP(200) – 17140 + 1000

SP(200) = 16140

SP = $80.70

The minimum price that the memberships should be sold for would be $80.70 so that the

promotion does not cost us anything.

Issue 2

a) 0 = SP(350) – 7000 – 1000 – 1500 – 3000 – 640 – 4000 – 2000

0 = SP(350) – 19140

SP(350) = 19140

SP = $54.69 (2dp)

The minimum selling price be for the memberships in order to break even is $54.69.

b) 5000 = SP(350) – 19140

SP(350) = 24140

SP = $68.97 (2dp)

If option a) from issue 2 is chosen, the price that we should sell memberships for to make a

profit of at least $5,000 should be sold at $68.97.

Page 4

Issue 3

0 = SP(200) – 15(200) – 7000 – 640 – 4000 + 1000

0 = SP(200) – 3000 – 7000 – 640 – 4000 + 1000

0 = SP(200) – 13640

13640 = SP(200)

SP = $68.20

The minimum selling price for the memberships to break even if the 'membership nights'

were eliminated from the package and a brass key ring is offered instead, would be $68.20.

Page 5

“The Big Deal” Night

Professional bodies have proposed that our night club hold a “professional night” for young

doctors, engineers, accountants and lawyers, known as “The Big Deal”. Before we allow this

professional body to hold their event at our night club it needs to be established whether or

not our business will be losing or gaining money, or breaking even from this special deal.

During this event our usual contribution margin on drinks will be halved. This factor along

with the income produced from this event, the variable cost, the opportunity costs and any

additional fixed costs need to be analysed before we can allow this event to be held at our

venue.

First our business needs to calculate what the variable cost of holding this event will be. the

variable cost is the finger food provided, this will cost our business $10 per person. “The Big

Deal” is estimated to attract 1,000 people. Thus the total variable cost will be $10,000

Next, our night club needs to calculate the income that will be received if we decide to hold

this event. One thousand people as expected to attend, on average each of these people

will purchase four drinks. The contribution margin during the night on all drinks is now

$1.50. From the purchase of drinks our night club is expected to receive an income of

$6,000. Additionally the professional bodies have offered $15,000 for exclusive use of the

venue. Thus if we approve this special deal we will receive an extra $15,000 on top of the

$6,000 expected to be made from the purchase of drinks. This means that the total

expected income for the night will be $21,000.

The opportunity cost of accepting this order needs to be considered. On a normal night, the

night club has 600 customers that attended prior to midnight. On average each one of these

600 people buys two drinks with a contribution margin of $3. This means that our overall

contribution margin, including both drinks, is $6. If we choose to hold “The Big Deal” we will

miss out on the contribution margin made from these sales. Therefore the total opportunity

cost will be $3,600.

In order to host this event our business will incur some additional fixed costs. A PA system

needs to be hired for the dance exhibition by the local Latin and flamenco dancers. It is an

additional fixed cost as if our business was to choose not to hold this event then there

would be no need to hire this equipment. The equipment hire will cost our business $400.

The cost of hiring a DJ and security are not taken into consideration for this deal because

our business still needs to hire them whether we hold the event or not.

It then needs to be calculated the gain or loss that will be made on the offer.

Page 6

Income (1000 x 1.5) + (15,000) 21,000

Variable costs (1,000 x 10) (10,000)

Opportunity costs (600 x 3 x 2) (3,600)

Additional fixed costs (400)

Gain/ loss on offer 7,000

Therefore the nightclub would make a profit of $7,000 if we accept the professional bodies

offer to hold “The Big Deal” at our venue. Thus, our business is accepting the offer and is will

hold “The Big Deal”.

Page 7

Appendix

Task two working out

Item Year 1 Year 2 Year 3 Year 4 Year 5

revenue 90,000 75,000 65,000 48,000 35,000

+215000

costs 35,000 35,000 29,000 26,000 19,000

Net annual cash flow 55000 40000 36000 22000 16000

+215000

Tax effect 38500 28000 25200 15400 11200

+150500

Note* at the end of year 5 the expansion will be sold for $215000

NPV 55000/1.11 + 40000/1.11^2+ 36000/1.11^3 +22000/1.11^4 +16000/1.11^5

+215000/1.11^5 =$259916.68

Tax npv 38500/1.11+ 28000/1.11^2+ 25200/1.11^3+ 15400/1.11^4+ 11200/1.11^5+

150500/1.11^5= $197652.2182

Pay back method

Considering there is no annuity all the net annual cash flows must be added individually.

At the end of five years without tax cash total net annual cash flow equals $46000 short of

the 215000 cost of the project. the lump sum of $215000 meets the need $46000 means

that at the end of the life of the project the payback period is complete and takes a total of

5 years.

Page 8

55000+40000+36000+22000+16000=169000

169000+215000=384000> 215000 therefore payback period 5 years

At the end of 5 years with income tax factored into the payback period, the project still

hasn’t been paid off before the lump sum of $150500 after tax. After that lump sum has

been added the payback period is complete at the conclusion of the project taking 5 years.

38500+28000+25200+15400+11200+150500=253400> 215000 there payback period 5 years

Page 9

Reference List

Renee, Michelle. n.d. Goals of a Night Club Business. http://smallbusiness.chron.com/goals-night-

c club-business-21162.html

Page 10

Checklist to help you prevent plagiarism in your work

To learn more about plagiarism and access further resources visit Curtin’s Academic Integrity website http://academicintegrity.curtin.edu.au/home/

To learn more about referencing visit the Curtin Library website http://library.curtin.edu.au/study-and-research-tools/referencing.cfm

Make sure you have: 1 paraphrased correctly and included a reference to clearly indicate the parts of your

work that are drawn from another person’s work. You must clearly indicate which part of your work is drawn from somewhere else. Paraphrasing is when you use what someone else has said or written, but you write it in your own words. If you paraphrase you must include an in-text citation so the reader can locate the source.

2 used direct quotations sparingly. Carefully selected quotations add to the points you are making, but they don’t, in themselves, add to the quality of your work. Put another way, if you submitted an essay made up entirely of quotations from other sources you would probably gain a low or zero mark. It is fine to occasionally quote other people, and it is expected that you do – but make sure you provide your own contribution or viewpoint. It is your work that earns you marks. Direct quotes are generally put in italics and should always be put inside quotation marks. Longer quotes can be indented so they stand apart from the main body of the text. Each quote must be followed by an in-text citation.

3 provided a reference for every image, diagram or figure (unless you created it). Creation is when you produce something new. If you edit an existing item it would still need to be referenced.

4 included a reference list of all work cited. Make sure you understand what type of referencing protocol you are required to follow for your unit. • For text based assessments you will usually need to include in-text citations and a reference list that

gives the full details of the source material. • For visual based artifacts or portfolios you will usually need to include a reference list that gives the full

details of the sources that you referred to when creating your work, anything that you have used and modified must be listed.

5 kept a copy of the original sources that you have referenced. Always keep your work and the original reference together. Losing the original source of the information is poor academic practice, and it means you might end up submitting work without a reference; or, you might end up submitting it with the wrong reference. You could, at any time, be required to produce the original source for comparison.

6 NOT used copy and paste to take text from another source (unless it is a direct quote and you reference it). This is VERY important. If you copy and paste from a source and fail to reference it properly then you have plagiarised. It doesn’t matter whether you did this intentionally or not. Depending on the circumstances of the case, plagiarism may be treated as academic misconduct where serious penalties can apply.

7 NOT used another student’s work, or submitted someone’s work as your own. Often students are encouraged to work together, to cooperate by sharing ideas and understandings. However, individual assessments (where your name is the only name on the cover sheet) are meant to be your own work. Copying from someone else’s work is plagiarism and serious penalties can apply.

Do not allow anyone else to submit your work as their own: this is collusion which is considered academic misconduct.

If you have found yourself in a situation where you have considered copying other work, it may be because you are having problems with time management or you have found the assessment difficult. In these cases it is far better to seek assistance from teaching staff or to ask for an extension to submit your work at a later date. This is a better outcome than being accused of committing a plagiarism offence.

Plagiarism can be avoided by making sure you can tick all 7 boxes on this checklist

✔

✔

✔

✔

✔

✔

✔