CORK INSTITUTE OF TECHNOLOGY
INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ
Summer Examinations 2013/14
Module Title:
Integrated Case Study
Module Code:
MGMT7042
School:
Business
Programme Title:
Bachelor of Business in Management (ACCS) - Award
Programme Code:
BMNGT_7_Y3
External Examiner(s):
Internal Examiner(s):
Mr. Conor Foley
Mr B Vallely
Instructions:
Answer ANY FOUR questions.
Duration:
2 Hours
Sitting:
Summer 2014
Requirements for this examination:
Note to Candidates: Please check the Programme Title and the Module Title to ensure that you have
received the correct examination paper.
If in doubt please contact an Invigilator.
CASE STUDY
FRESH HOUSE LIMITED
It is now 14Th May 2014, Mary Frost is a 40 year old successful businesswoman. She
currently owns and manages her own restaurant called Fresh House, located in Rosslare
Co Wexford.
Mary, a graduate from TCD trained as a vet in Dublin, qualifying in 1996. Once qualified
Mary travelled and worked as a vet in Austria. However, she realised from early in her
studies that her heart was not in the veterinary profession and that her real passion was in
the food business.
In 2004 Mary returned to her home town in Co. Wexford. It did not take her long to spot
the potential to make money in Ireland given the speed of development of the Irish
economy and the sense of optimism that pervaded the country. It was no time before she
decided to open up a restaurant in Rosslare specialising in home cooked food. She pooled
her savings of €40,000 with a bank loan for €40,000 and purchased a country cottage for
premises. She opened her restaurant on 1st May 2004. She formed a company, Fresh
House Limited on that date.
Mary worked in the kitchen full-time, sourcing local fresh produce each morning at local
farmer’s markets. The restaurant through word of mouth quickly became a favourite of
the local community and visitors to the increasingly popular town. The restaurant now
employs eight full time staff, three cooks/chefs, four waitresses and one
cleaner/handyman. Each member of staff reports directly to Mary.
The business has been profitable to date. A summary of historic profits to date is as
follows:
Fresh House Limited
Historic Profits/Losses
Year ended 30th April 2005
Year ended 30th April 2006
Year ended 30th April 2007
Year ended 30th April 2008
Year ended 30th April 2009
Cumulative Profit To Date
€000s
-42
265
321
339
378
1261
Two weeks ago Mary has been approached by an old friend who is in ill health who has
asked her to take over the lease of a restaurant on Dublin’s O Connell Street. She requires
the proposal to deliver a positive Net Present Value (NPV) after three years at a discount
rate of 4%. The research into the restaurant has revealed:

the initial revamp will cost €200,000 half of which will be borne by the landlord








the capacity is be 80 seats
the restaurant opens for lunch 350 days per year
in the first year of the proposal the average number of diners will be 50,
increasing by 10 per year thereafter
the average price of lunch will be €15 in the first year , increasing by €2 per year
thereafter.
Gross profit margin of 80% can be expected each year
the annual lease will be €120,000
utility and other costs will represent 10% of gross revenues
four staff are employed on an average annual salary of €400 per week (52 weeks
per year). Staff numbers will increase by one each year thereafter and the after the
first year wages will increase by €40 per week and remain constant at that level
for two further years
Mary is being put under increasing pressure by the proposed landlord to sign the lease.
She wishes to make a decision immediately.
In addition to the O Connell Street proposal Mary has been privately exploring ways of
growing the Fresh House brand. She has consulted with a number of industry contacts
and the consensus seems to be that the two best avenues for growth are:
OPTION 1
To open four restaurants in Dublin, at each of the following high profile retail centres:




Blanchardstown Shopping Centre
Dundrum Town Centre
Stephens Green Shopping Centre
The Square, Tallaght
Mary has carried out a significant amount of work on this proposal and has ascertained
that she will have to raise €4,400,000 to fund the initial investment in the four restaurants.
This is broken down into:



€3,800,000 for structural (one-off) restaurant refurbishment
€500,000 for kitchen equipment (replaced every five years)
€100,000 for stock.
Mary knows she will have to sign a long lease for each premises with a five year break
clause. Mary plans to acquire the €4.4 Million funding required from a retail bank
repayable over 20 years at a variable/floating interest rate of base + 4% margin.
OPTION 2
To develop the Fresh House brand and then franchise the brand for the remainder of
Ireland (outside Dublin). Marketing experts have indicated that there is potential to
develop the following number of franchises:




Munster – Six
Connacht - Five
Ulster – Ten
Leinster (outside Dublin) - Fourteen
It is anticipated that the initial creation of the brand will cost in the region of €200,000.
Mary is quite content to use the company’s cash reserves for this purpose.
Mary has been travelling constantly meeting potential franchisees and has suddenly
realised that she cannot run the enterprise alone. She is considering employing a Project
Manager to ensure the franchise roll-out is successful.
A summary of the Fresh House Limited’s most recent audited accounts is as follows:
Fresh House Limited
Statement of Financial position as at
30th April 2014
2014
€000s
Non Current Assets at NBV
Property and Plant
Other Assets
Total Non Current Assets
Current Assets
Inventories
Trade Receivables
Cash and Cash Equivalents
Total Current Assets
Total Assets
690
425
1115
96
25
200
321
1436
Equity and Liabilities
Equity Attributable to Equity Holders
10,000 Ordinary shares @ €1 each
Other Reserves (Retained Revenue
Reserves)
Current Liabilities
Short Term Borrowings
Trade Payables
Total Current Liabilities
Total Liabilities
10
1261
1271
0
165
165
1436
Mary has also realised that she will have to think more strategically and ‘come out’ of the
kitchen to run the restaurant effectively. She is currently considering how to structure the
proposed organisation with cost and control concerns firmly in mind.
To date Mary has not felt the need to embrace technology. In fact, the only technology
used in the restaurant is an old word processor used to print off daily menus. She realises
that there is significant potential to use IT to reduce costs and improve efficiency across
the proposed organisation.
Mary recognises the urgent need to make major changes to his organisation. She has
asked for your advice on a number of matters.
Required:
Prepare a report for Mary Frost which advises on four of the following six issues:
Note: All questions carry equal marks.
1) discuss five ways in which Fresh House Limited could use Information
Technology as a means of reducing costs and improving efficiency
2) prepare a Job Description for the proposed Project Manager for the franchise
project roll-out
3) draft and justify a proposed organisational structure for the Fresh House Limited
(assuming that the growth plans are successfully implemented)
4) advise on whether to continue with the O Connell Street restaurant proposal
5) discuss the advantages and risks of acquiring the €4,400,000 using the debt
finance proposed
6) prepare a SWOT analysis for Fresh House Limited
Presentation
Discount Table Extracts are :
4% - Year 1 .962
4% - Year 2 .925
4% - Year 3 .889
(8 Marks)