EXAMINATION PERIOD 1
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KING’S BUSINESS SCHOOL
EXAMINATION PERIOD 1 (JANUARY 202X)
TIME ALLOWED: 2 HOURS recommended (24-hour take-home exam)
SECTION A - Answer 2 questions
Short essay: LESS THAN 1 PAGE response suggested for each question.
This section is worth 40 points.
Question 1
Describe two typical sources of start-up finance for early stage ventures and explain, using module sources:
a) whether they are internal or external sources
b) whether and why they are appropriate for modest growth or high growth potential ventures
c) the advantages and disadvantages of each source
d) a brief business example of each type of source [20 points]
Question 2
a) What is revenue forecasting and why is it important to entrepreneurial ventures?
b) Describe two mistakes start-ups may make in revenue forecasting and how to prevent them.
c) Provide a brief example of revenue forecasting (successful or unsuccessful). [20 points]
Section B - Answer 2 questions
Long essay/calculation: 1-2 PAGE response suggested for each question
This section is worth 60 points.
Question 1: Mini-case analysis
The following excerpt about Spanx, a billion-dollar firm founded in 2000, comes from Forbes and Stanford Business Insights (2014/2018). Read the excerpt and answer the question:
"In the early days of Spanx, inventor Sara Blakely didn't have the money to hire a patent lawyer, let alone a team to support her new business. Her office was her Atlanta apartment. Her fulfilment centre was her bathroom, filled with envelopes of her product, the now-ubiquitous shapewear that has since made her a billionaire.
So when Oprah Winfrey’s show came calling, back in 2000, Blakely had a problem. The production team wanted to film Blakely at astaff meeting in her workplace. She gathered some friends and faked a workforce for the camera.
That anecdote is typical of Blakely's early years, when she spent nights in the library researching patent law. She spent weekends knocking on the doors of textile mills, begging them to manufacture her product. The effort paid off when Neiman Marcus agreed to stock Spanx in 7 stores. Blakely sent friends in each of those cities to buy her product.
Today, Blakely remains 100% owner of Spanx. ‘A lot of people want to start big and oftentimes get ahead of themselves,’ she says. ‘ You dilute yourself down and you have people you’re answering to.’ She has never formally advertised or taken outside investment. The popularity of the product has been almost entirely the result of word of mouth and buzz. ”
Based on the above excerpt, write a brief case analysis to:
Explain what bootstrapping is and how Spanx used bootstrapping as a strategy describing at least three specific actions. Using module materials and the details above, discuss the advantages and disadvantages of bootstrapping. [30 points]
Question 2: Statements and calculations
Based on market trends and your love of animals, you have identified a significant opportunity to distribute plant-based pet foods in the UK.
You are making plans to launch your venture, Sustain-A-Pet, beginning with two main products this year: Sustain-A-Pup and Sustain-A-Cat.
Based on UK data and industry experience, sales in the first year are estimated at 50,000 units of Sustain-A-Pup at £10 per unit and 30,000 units of Sustain-A-Cat at £5 per unit. Your cost of goods sold is expected to be 40%.
You decide to rent a shared office space with all utilities included, with your share costing £1500 per month for the first year. You invest £4000 in office furnishings and £2400 in computer equipment, both of which will be depreciated using the straight-line method over 4 years with no residual value.
You also work with your lawyer to register your “Sustain-A-Pet” business trademark, obtain a business license and complete incorporation papers, all of which cost £5000.
The business includes yourself at a salary of £30,000 in the first year, and one employee to support sales and distribution at £20,000. The estimated expenses for launch events, advertising and website development will be £6000, office supplies £300, insurance £600, travel £2000, and £1100 for promotional items such as pet dishes, leads and collars with your logo. Assume taxes are 20%.
a) Based on the information above, develop a projected income statement for your first year of operations. Show your work and remember correct labelling. [20 points]
b) Looking at the above, and taking your earnings before interest, tax and depreciation and amortisation (EBITDA), what would your valuation be for this firm, assuming a moderate level of growth over the next three years? Show your work and explain your answer. [10 points]
2023-08-07