A company seeing the prevalence of HIV transmission due to unprotected sexual intercourse in a country and the societal norms preventing the open use 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 expects to install 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 expects 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 expected 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 expects to have one employee(with a salary of Rs5,000 per month) who will refill the condoms and attend to any repairs.
Question 1:
(a) Calculate the payback period, the Return on investment and the Net Present Value of the project.
(b) Using the above results, appraise the project economically discussing the returns, the level of risk and the overall economic feasibility.
(c) Challenge any TWO assumptions which are given in the case and discuss their impact on the economic feasibility of the project.
Question 2:
(a) Describe TWO risks involved for a company to get involved in the business of condom dispensing machines?
(b) Quantify the risk exposure of the above TWO risks.
(c) How could the above TWO risks be mitigated by the company?
(d) Comment on the operational feasibility of this project in the Mauritian context.