ACCT702 Case analysis and submission

Wonder Kidz Case Guidance (10% weight)

You are a team of financial consultants hired to assist the client, Mr. Bansal.

Instructions

1. Read the case individually and jot down your notes.
2. Discuss the case with your group.
3. Evaluate the proposed project for Mr. Bansal using the capital budgeting techniques (including IRR) you have learnt in the course so far (Chapter 8 NPV and other investment criteria). Assume the opportunity cost of capital is 12% (that is, 15% net of 20% tax).
4. Also, include a sensitivity analysis if Mr. Bansal decides to provide a fee reduction in the expected revenue for 5 years as follows:

Note: Use the following revised expected revenue structure with the fee reduction (all other assumptions remain the same as given in Exhibit 3). Fees are in Indian Rupees

	Year 1	Year 2	Years 3-5 (per year)
Total strength	35	50	80
New enrolments	35	25	40
Returning	0	25	40
Fees New students (one time and annual)	17,500	18,000	18,500
Fees Returning students (annual)		15,500	16,000

5. In 700-800, words discuss whether your group feels the project is financially viable, supported by your groups calculation(s) and discussion. Make a recommendation to the client based on your groups analysis in Steps 1-4. Please submit one Word document submission per group (and any supporting calculations using Excel) and upload it in the Assignment dropbox (25 marks)

In place of an in-class group presentation (given that we are not on campus), create a short video in Zoom. You have the option to nominate one group member to be your spokesperson or have more than one group member participate in this video. In 4-5 minutes create a make your pitch video; highlight for the client the importance of capital budgeting techniques in decision-making including the use of NPV and IRR. Briefly explain to the client how the various techniques are used to base your teams recommendation and determine whether the project is financially viable. Include the recording (MP4 file) when you upload your groups submission (5 marks).

Mayank Bansal sat tensely in his office in Bhopal, the state capital of Madhya Pradesh in India. It was July 13, 2015, and he had just had a long discussion with Rajesh Thakur, director of Delhi-based Wonder Kidz Education Pvt. Ltd. (Wonder Kidz), about the school's franchise model. Bansal was thinking about pursuing an entrepreneurial venture in which he could earn additional income and fulfill his dreams with his wife, Sharda. He pondered whether to accept the franchise proposal Wonder Kidz had offered. He did not have much time before he needed to make his decision. Not being an expert in finance, Bansal wanted the opinion of a consultant who could evaluate whether the project was financially sustainable. He would have to borrow money to find the venture, so he needed to exercise caution before taking the risk. BANSAL'S BACKGROUND Bansal was a prominent marketing professor with a rich teaching experience of 14 years at a leading management institute in Indore, in Madhya Pradesh. Passionate about academics, he had always wanted to pursue academic entrepreneurship where he could use his expertise and work alongside his wife. Sharda was a highly qualified person in her own right, and she wanted to become involved in an activity where she could use her expertise and knowledge in education. One day Bansal came across a newspaper advertisement for a franchise opportunity with Delhi-based Wonder Kidz, which operated a concept-based playschool, or preschool. He immediately felt compelled to explore the possibilities this franchise offered. His initial research of the school's website motivated him to look more deeply into the franchise proposal. He was excited by the idea of the playschool and attracted to the prospect of taking on a franchise in Indore. Bansal believed that with his academic background and his wife's qualifications, they could successfully operate such a school. However, because the playschool market was highly competitive, with many big players already operating concept-based schools, Bansal knew the path forward would not be easy. Bansal's two sons were already grown and living in the United States. Bansal lived in an affluent neighbourhood in Indore, in a large house of approximately 8,000 square feet. Although the house had ample room in which to start the school, Bansal thought that renting premises in the nearby area would be preferable. PRESCHOOL MARKET IN INDIA An increase in family income, as well as the demand for quality education, had kindled the growth of preschools in India. A report from Kaizen Private Equity estimated the 2014 size of the preschool market in India at approximately US$800 million. Future growth of 30 per cent was expected as a result of three key drivers: a higher level of parental awareness of the importance of early education, hectic working schedules of both parents, and a willingness to pay for children's education. Additional potential for growth lay in the fact that the market had limited application of technology in terms of computers and other modem equipment in children's education. Also, the market was being driven by major investments from private equity funds and venture capitalists, with a very low, or no, regulatory framework. The market was hugely attractive because of its minimal infrastructure requirementscosts that were considerable in Tier 1 cities and even more significant in Tier 2 and 3 cities. Reports suggested that the preschool market was concentrated only in metropolitan areas and Tier 1 cities. However, experts anticipated that the market would soon begin to emerge within Tier 2 and Tier 3 cities. Mayank Bansal sat tensely in his office in Bhopal, the state capital of Madhya Pradesh in India. It was July 13, 2015, and he had just had a long discussion with Rajesh Thakur, director of Delhi-based Wonder Kidz Education Pvt. Ltd. (Wonder Kidz), about the school's franchise model. Bansal was thinking about pursuing an entrepreneurial venture in which he could earn additional income and fulfill his dreams with his wife, Sharda. He pondered whether to accept the franchise proposal Wonder Kidz had offered. He did not have much time before he needed to make his decision. Not being an expert in finance, Bansal wanted the opinion of a consultant who could evaluate whether the project was financially sustainable. He would have to borrow money to find the venture, so he needed to exercise caution before taking the risk. BANSAL'S BACKGROUND Bansal was a prominent marketing professor with a rich teaching experience of 14 years at a leading management institute in Indore, in Madhya Pradesh. Passionate about academics, he had always wanted to pursue academic entrepreneurship where he could use his expertise and work alongside his wife. Sharda was a highly qualified person in her own right, and she wanted to become involved in an activity where she could use her expertise and knowledge in education. One day Bansal came across a newspaper advertisement for a franchise opportunity with Delhi-based Wonder Kidz, which operated a concept-based playschool, or preschool. He immediately felt compelled to explore the possibilities this franchise offered. His initial research of the school's website motivated him to look more deeply into the franchise proposal. He was excited by the idea of the playschool and attracted to the prospect of taking on a franchise in Indore. Bansal believed that with his academic background and his wife's qualifications, they could successfully operate such a school. However, because the playschool market was highly competitive, with many big players already operating concept-based schools, Bansal knew the path forward would not be easy. Bansal's two sons were already grown and living in the United States. Bansal lived in an affluent neighbourhood in Indore, in a large house of approximately 8,000 square feet. Although the house had ample room in which to start the school, Bansal thought that renting premises in the nearby area would be preferable. PRESCHOOL MARKET IN INDIA An increase in family income, as well as the demand for quality education, had kindled the growth of preschools in India. A report from Kaizen Private Equity estimated the 2014 size of the preschool market in India at approximately US$800 million. Future growth of 30 per cent was expected as a result of three key drivers: a higher level of parental awareness of the importance of early education, hectic working schedules of both parents, and a willingness to pay for children's education. Additional potential for growth lay in the fact that the market had limited application of technology in terms of computers and other modem equipment in children's education. Also, the market was being driven by major investments from private equity funds and venture capitalists, with a very low, or no, regulatory framework. The market was hugely attractive because of its minimal infrastructure requirementscosts that were considerable in Tier 1 cities and even more significant in Tier 2 and 3 cities. Reports suggested that the preschool market was concentrated only in metropolitan areas and Tier 1 cities. However, experts anticipated that the market would soon begin to emerge within Tier 2 and Tier 3 cities