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Case

Study #2: Caribbean Internet Cafe


Kevin Wong 0397642


Trent University
Peterborough
CANADA.

1) The problem David Grant faces with regards to Caribbean Internet Caf (CIC) is to determine
whether or not to start the venture.
Internet in Jamaica is not very accessible; the usage is rather limited mostly to
corporations and universities. Internet is not readily accessible due to the high cost of computers
relative to the average salary, the lack of phone lines in some areas, and the high costs charged by
service providers. Currently, Internet service providers sell a fixed number of hours per month and
then charge hourly rates for going over that amount. For Internet the average hourly rate charged
by service providers was $90.
David is looking to open up an Internet cafe with a European vibe near the citys
businesss district, Kingston, Jamaica. The venue will be a way for users to get access to the
Internet in a relaxing environment in addition to being a place where customers could socialize.
CIC will provide Internet usage for an hourly rate of $120/hr, targeted towards at 18-35 year old
university students and professionals. The hourly rate will be of special interest for those who do
not need the Internet for long periods of time. If David were to pursue his venture he would have
$1,000,000 dollars in start up capital and an available loan of $1,250,000 with 10 percent per
annum. The decision of whether to not start the venture has multiple dimensions to it. In opening
an Internet caf there are many factors to consider technology, profitability, government, and
demand.
2) The factors contributing to the problem of deciding whether or not to pursue the venture are
technology, government, demand, and profitability.

Profitability: Based on Davids estimates there is a $1,57300 start up cost involved and a fixed
monthly cost of $203,083.33 assuming the long-term loan is for five years. The variable cost per
customer is $104 and the revenue per customer is $248. Therefore, $144 is gained for every

customer that comes to CIC. There are three projections made from a market research firm an
optimistic projection obtaining $7,200,000 income from operations, realistic projection $3,456,000,
and pessimistic $2,592,000. All of these will cover the yearly fixed costs of 2,436,999.96.
However, depending on performance of CIC the times verify with regards to paying back the start
up costs. A major concern is how long would the equipment last before needs to be replaced.
Technology: A major cause to the problem is technology changing and with that there is a lot of
uncertainty. With technology changing there are many factors to take in account. Part of the large
start up costs is the hardware ($392,000) and software ($15,750) and to determine the profitability
it would be ideal to know the life of these products or to create an estimate. Technology can also
have an even larger effect on this venture for if Internet prices decrease or computers become
more affordable CIC may have to reposition their position, in the market.
Political: The lack of infrastructure of telephone lines makes CIC in a unique position to the target
market. The implementation of infrastructure could affect the demand for Davids venture. In
addition to the political environment if there is a government push for people to get personal
computers that could also affect business.
Demand: Most of the information is based on estimates. David does not know how the market will
react to CIC, which leaves a lot of uncertainty. There is the unknown reaction to the European caf
concept and how well he can market the Internet caf. There could be a reaction from nearby
universities or corporations realizing the need for increased computers, so much so that many
people are paying a third party for Internet use. There needs be a certain amount of demand for
CIC to be a worthwhile venture. Depending on the demand it will mean the difference of pursuing
Davids venture or not.

Appendi ces


Calculations
Part time students 2*15*30=900 hours of work at 40 dollars/hr = $36,000
Optimistic yearly operating income 144*10,000*5=$7,200,000,
Realistic yearly operating income 144*.4*20000*3=$3,456,000
Pessimistic yearly operating income 144*.3*20000*2=$2,592,000






Start up costs

Fixed monthly
costs

Variable
costs/customer

General
equipment

Part time
573250 employee salary

36000 Drinks

50

Hardware

Manager monthly
392000 salary

40000 Food

30

30000 Internet (40% surf)

24

Software

15750 Site lease cost

Furniture

Telephone bills
330000 and utilities

15000

Other

115000 Line lease

10000

Initial deposit for


utilities

7000 Insurance

10000

Initial advertising
before opening

20000 advertising

10000

Upfront legal fees

120000 Misc expenses


Monthly interest
payment for loan

Total

1573000 Total

50000
2083.33
203083.33 Total

104