Scenario: New Life Training Plc
New Life Training is a growing company with an authorised and issued share capital of £50m
paid up £1 ordinary shares and retained earnings of £10m. There are 20 shareholders each
have identical share holdings.
Sobia Schburt, the managing director, has a vision of the company floating on the London
Stock Exchange within 5 years and is embarking on a strategy of growth to achieve this five
year target.
Currently the company offers after school tuition throughout the UK in all core academic
subjects and across all age groups from 5 year to 18 years of age.. This market is buoyant and
is expected to grow significantly year on year.
The existing business model places New Life as the Quality Control and curriculum designer
of courses with delivery in the hands of franchise holders who pay a fee to New Life.
However the operational aspects of this arrangement have been given insufficient attention
by the Board of Directors and as a consequence the Grimsby franchise appointed
inappropriate tutors leading to complaints, closure of the franchise and subsequent litigation.
Litigation was settled out of court through their professional indemnity insurers.
The Board are reviewing its policies and procedures and the final phase will be to build a
small, bespoke training centre in East London where the following activities may take place:
Compulsory Franchisee Training
Evening sessions for East London school children
Private letting of facilities to community groups
It is possible for each type of activity to run concurrently (i.e. all client groups may be in the
building).
Page 3 of 5
This small building is on land owned by the company and has planning permission. It has an
estimated build and set up cost of £1,100,000 plus a reserve for over runs and snagging of
£100,000. The building will be debt financed but the source and cost has yet to be
determined.
The building with be staffed by 4 Full Time Equivalent (FTE) tutors costing £30,000 each pa
and 2 FTE administrators costing £18,000 each pa. Overheads, including cleaning and power
are estimated to be £30 per day irrespective of whether the building is open or not.
Tutor costs may be allocated to client groups based upon planned sessions.
For planning purposes the working year is split into a maximum of 600 staffed sessions.
The company has a Ke of 10% and Kd 6% with 50% gearing prior to raising additional
capital for the building
Activity estimates agreed by the Board as :
2017/18 2018/19 2019/20 2020/21
Expected Activity (Sessions)
Franchise Training 48 96 144 144
Student session 190 220 220 440
Chargeable
sessions 238 316 364 584
Private Hire 100 100 100 16
Total (max 600) 338 416 464 600
Planned Fees
Per person per session
Franchise Training £60 £60 £60 £60
Student session £8 £9 £10 £15
Per session
Private Hire £180 £180 £180 £400
Customers per session
Franchise Training 30 30 40 40
Student session 20 20 20 20
Private Hire sessions do not require tutors and the 2020/21 figures are assumed to remain
stable for another 6 years
As the recently appointed Development Manager you have been asked to prepare detailed report for the board covering:
Page 4 of 5
a) An evaluation of operational and regulatory factors to be considered by the board 25%
This requires research into the relevant environment and application of operations
management theory.
b) Estimate the Income and Expenditure projections for the first 4 years incorporating any
operational and regulatory costs you feel the proposal may be missing.
15%
This requires identification and evaluation of alternative sources of finance.
c) A critical evaluation of the financial worth of the current proposal AND an alternative
evaluation including all costs and revenues you deem to be appropriate. 40%
Contribution analysis, breakeven, payback, ARR and NPV should be applied to the case
materials alongside your critical challenge to the proposal with associated re-modeling of
financial plans. Critical evaluation is as important as the technical analysis.
d) A detailed and fully evaluated conclusion with clear recommendations for the board to
consider 10%
For assessment purposes marks will be awarded for style, layout and structure 10%
In developing your revised proposal you are encouraged to review all aspects such as pricing,
operational costs, financing, cost of capital
New Life Training is a growing company with an authorised and issued share capital of £50m
paid up £1 ordinary shares and retained earnings of £10m. There are 20 shareholders each
have identical share holdings.
Sobia Schburt, the managing director, has a vision of the company floating on the London
Stock Exchange within 5 years and is embarking on a strategy of growth to achieve this five
year target.
Currently the company offers after school tuition throughout the UK in all core academic
subjects and across all age groups from 5 year to 18 years of age.. This market is buoyant and
is expected to grow significantly year on year.
The existing business model places New Life as the Quality Control and curriculum designer
of courses with delivery in the hands of franchise holders who pay a fee to New Life.
However the operational aspects of this arrangement have been given insufficient attention
by the Board of Directors and as a consequence the Grimsby franchise appointed
inappropriate tutors leading to complaints, closure of the franchise and subsequent litigation.
Litigation was settled out of court through their professional indemnity insurers.
The Board are reviewing its policies and procedures and the final phase will be to build a
small, bespoke training centre in East London where the following activities may take place:
Compulsory Franchisee Training
Evening sessions for East London school children
Private letting of facilities to community groups
It is possible for each type of activity to run concurrently (i.e. all client groups may be in the
building).
Page 3 of 5
This small building is on land owned by the company and has planning permission. It has an
estimated build and set up cost of £1,100,000 plus a reserve for over runs and snagging of
£100,000. The building will be debt financed but the source and cost has yet to be
determined.
The building with be staffed by 4 Full Time Equivalent (FTE) tutors costing £30,000 each pa
and 2 FTE administrators costing £18,000 each pa. Overheads, including cleaning and power
are estimated to be £30 per day irrespective of whether the building is open or not.
Tutor costs may be allocated to client groups based upon planned sessions.
For planning purposes the working year is split into a maximum of 600 staffed sessions.
The company has a Ke of 10% and Kd 6% with 50% gearing prior to raising additional
capital for the building
Activity estimates agreed by the Board as :
2017/18 2018/19 2019/20 2020/21
Expected Activity (Sessions)
Franchise Training 48 96 144 144
Student session 190 220 220 440
Chargeable
sessions 238 316 364 584
Private Hire 100 100 100 16
Total (max 600) 338 416 464 600
Planned Fees
Per person per session
Franchise Training £60 £60 £60 £60
Student session £8 £9 £10 £15
Per session
Private Hire £180 £180 £180 £400
Customers per session
Franchise Training 30 30 40 40
Student session 20 20 20 20
Private Hire sessions do not require tutors and the 2020/21 figures are assumed to remain
stable for another 6 years
As the recently appointed Development Manager you have been asked to prepare detailed report for the board covering:
Page 4 of 5
a) An evaluation of operational and regulatory factors to be considered by the board 25%
This requires research into the relevant environment and application of operations
management theory.
b) Estimate the Income and Expenditure projections for the first 4 years incorporating any
operational and regulatory costs you feel the proposal may be missing.
15%
This requires identification and evaluation of alternative sources of finance.
c) A critical evaluation of the financial worth of the current proposal AND an alternative
evaluation including all costs and revenues you deem to be appropriate. 40%
Contribution analysis, breakeven, payback, ARR and NPV should be applied to the case
materials alongside your critical challenge to the proposal with associated re-modeling of
financial plans. Critical evaluation is as important as the technical analysis.
d) A detailed and fully evaluated conclusion with clear recommendations for the board to
consider 10%
For assessment purposes marks will be awarded for style, layout and structure 10%
In developing your revised proposal you are encouraged to review all aspects such as pricing,
operational costs, financing, cost of capital
Summary Task
Using the information in the scenario
Create a Management report of 4,000 words (excluding appendices).
The report must demonstrate critical analysis and application of appropriate, concepts,
models & techniques from the module materials.
Create a business case for the Board clearing stating and justifying your recommendations
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