Two computer students are considering a business for technical professionals who enjoy "LAN based gaming".  The target audience is technical professionals between the ages of 18 and 35 who enjoy playing Xbox games competitively.  At this point, the partners have many friends and acquaintances who get together informally to stay up all night on weekend evenings to play these games informally.  Initial promotion would simply be through word-of-mouth among the local gaming community.  Although they believe that there is a local market to run such an operation commercially, this is a small enough yet growing niche such that it is not easy to find any statistics which can be used to suggest a current or forecasted market size.  It is believed that this target audience would pay $30-50 to participate in an all-nighter weekend session.

Using the information that follows, estimate the point at which start-up costs could be covered.  Total length of the report, exclusive of appendices, must be no more than five pages of text.  Appendices are to be used for charts, figures, tables, or calculations that would spoil the flow of the written report, but which are necessary to support or substantiate statements that are made in the report.  Do not include an appendix unless it is specifically referenced in the report; appendices that are not referenced will not be read. 

This report must use the following basic outline:

  I. Problem Statement

 II. Situation Analysis

III. Analysis of Alternatives
     A) breakeven issues after one month
     B) breakeven issues after six months
     C) breakeven issues after a year

 IV. Recommendation

You may relevant reference information that you find in addition to information is below.  If you make any assumptions, be sure that they are clearly stated as such. 

To start, the students would be purchasing 20 Microsoft Xbox units.  They believe that these would have a salvage value of about $40 each after six months of use.  They would also need about $5,000 for TV monitors, computers, routers, hubs, and other such equipment, and estimate that the salvage value of this equipment would be about thirty percent throughout the first year.  Expenditures for cables, connectors, and such, are estimated to be about $500 with no salvage value.  Tables, chairs, desks, shelves, etc. are estimated to require about $2,500 with a twenty percent salvage value throughout the first year.  They have found a suitable space that can be leased for $300 per month plus fifteen percent of gross sales, with a preparation cost (paint, signage, etc.) of about $3,000.  The lease is for a minimum of one year and includes the cost of liability insurance. 

These two entrepreneurs have the expertise to set-up and maintain all equipment and to do any sort of programming that might be required.  They also have or can obtain all games to start initially, and additional game purchases would be made on their own (not included as business costs) during the initial period of the business.  Although interest in the business is primarily driven by personal hobby interests, the idea is to eventually run it as a for-profit business if this is possible, and a necessary objective is to keep from losing any invested money.  Together, the two can raise about $10,000 in personal cash; the rest would need to be borrowed from friends, family, or a bank.

This is a real world assignment.  The written report will be scored in large part on the professor's perception of the usefulness and acceptability of the report to a real client.  A common problem is that students tend to include irrelevant and inappropriate material in a report to show evidence that some particular concept has been learned in the course.  Note that a minimal requirement is that reports be relatively free of problems of grammar, spelling, typing, and such.  Do not fabricate material for the sake of creating a report.  Again, remember that this is not a creative writing assignment but is a technical writing assignment.

You may collaborate with others in the class and are encouraged to do so.  The final report, however, is an individual submission and is to be your own analysis and writing.