Case Study Background

You are a senior staff member in the finance department of BCom Investments Ltd (BCom). In your role, you are charged with reviewing, performing analysis and making recommendations to the President of BCom, Mr. Keith Sands, with respect to investment proposals. The analysis and recommendations that you prepare are typically included as part of the package of documents that Mr. Sands presents to the Board of Directors for final approval before any investments can be made. The Board is comprise of a diverse group of professionals who range in personality from being conservative (risk adverse) to liberal (risk taker).

Mr. Sands has a new "brilliant" investment opportunity that he wishes to present to the Board and needs you to prepare a brief evaluating the project to inform his presentation. Your brief should be no more than five (5) pages in length (single spaced), inclusive of tables and charts, clearly demonstrating the calculations/estimates to support your recommendations. As an engineer by profession, be minded that Mr. Sands (as well as several members of the Board) do not have economic backgrounds and may be unfamiliar with complex economic terms.

Investment Details

Mr. Sands is convinced the company can earn large profits if it invests in building second homes in Exuma. If x represents the number of luxury boxes that are constructed, total revenue (TR) = 200,000x and total cost (TC) = 2,500,000 + 150,000x.

-The Board would need to understand what is the breakeven point?

-The Board would also wants to know your investment recommendations under varying scenarios of the number of units to construct.

Market Demand Levels (units sold) Strong Medium Low Probability High 90 70 50 0.4 Medium 70 50 30 0.3 Level (units Investment Low 50 30 10 0.3 sold) Probability 0.4 0.4 0.2 1.0