FIN 480

Multinational
Capital Budgeting
Submitted To,
G.M. Wali Ullah
Lecturer
Department of Finance
School of Business
Independent University, Bangladesh (IUB)
Submitted By,
Md. Ishaq Shahriar 1430281
Md. Omar Hassain Talukder 1430792
Md. IftekharRahman 1420939
Benayok Sikder 1420152
Iffat Jahan Pinky 1430961
 Multinational Capital Budgeting

Letter of Transmittal

19th November, 2017

G.M. Wali Ullah.
Department of Finance,
Lecturer, School of Business,
Independent University, Bangladesh

Subject: Submission of report on ‘Multinational Capital Budgeting’

Dear Sir,
We are very pleased to submit this report on Multinational Capital Budgeting, which has been
prepared for the requirement of the course of FIN-480. We have tried our level best to complete
this report properly and to write an efficient assignment within all the constraints and the report
contains a comprehensive study on financial aspects.
We appreciate that the approach really contributes in giving our course learning a lasting shape
on us. We have a great hope that the report will meet your expectation and aid you in getting a
clearer idea about how an international service provider enters in Bangladeshi. We have tried our
level best to follow the guidelines of yours. We are very much glad that you have given us the
opportunity to prepare this report for you and hope that this report will meet the standards of
your judgment.

Sincerest gratitude for your illuminating guidance.

Sincerely yours,
Ishaq Shariar (on behalf of group members)
Students, sec-2
FIN-480
Independent University, Bangladesh.
 Multinational Capital Budgeting

Table of Contents:
Executive Summary....................................................................................................................................... 1
Acknowledgement ........................................................................................................................................ 2
Outback Steakhouse ..................................................................................................................................... 3
Key Dates of Outback Steakhouse ................................................................................................................ 3
Market and competitor analysis ................................................................................................................... 4
Product ...................................................................................................................................................... 4
AUSSIE-TIZERS® (Appetizer)
.................................................................................................................................. 5
SIGNATURE STEAKS
.......................................................................................................................................... 6
STRAIGHT FROM THE SEA (Entrees)
.......................................................................................................................... 7
IRRESISTIBLE DESSERTS
....................................................................................................................................... 8
Drinks
........................................................................................................................................................ 9
Price .......................................................................................................................................................... 9
Place ........................................................................................................................................................ 12
Promotion ............................................................................................................................................... 13
SWOT Analysis............................................................................................................................................. 13
Mode of entry in Bangladesh ...................................................................................................................... 15
Restaurant Ownership Structure ............................................................................................................ 15
Process of Franchisee contract in Outback ............................................................................................. 16
Probable Risk Factor ................................................................................................................................... 17
Challenging and Economic Conditions .................................................................................................... 17
Foreign Exchange Rate Risk .................................................................................................................... 18
Changes in Tax Laws................................................................................................................................ 19
Political Risk ............................................................................................................................................ 19
Change in Commodity, Energy, and Other Costs .................................................................................... 19
Derivatives to Hedge Risks .......................................................................................................................... 20
Hedging Exchange Rate Risks .................................................................................................................. 21
1. Forward contracts ....................................................................................................................... 21
2. FX Options ................................................................................................................................... 21
Capital Budgeting ........................................................................................................................................ 22
 Executive Summary

The first two Outback Steakhouse restaurants were opened in 1988 in Tampa, Florida. The
founders based their business on a best-cost provider strategy, serving quality steaks at
affordable prices. They positioned the business to fill the space between high-priced and budget
steakhouses and catered primarily to the dinner crowd.
Since Outback is very popular international chain and they offer only two types of business
structure one is fully owned and another one is franchisee so we want to go for franchise contract
with Bloomin Brand. For this business we have prepare a marketing mix for Outback
Bangladesh and analysis the SWOT from Franchisor and franchisee perspective, then we search
for risk factors for performing Business in Bangladesh and we have analysis how to hedge those
factor. And finally we have made a budget with the expected revenue for upcoming 3 years.
Though it is very tough to survive with high initial cost in Bangladeshi Market on the other side
franchisee has some royalty’s fee which Outback Bangladesh has to pay every month. But still it
is a potential market so with proper strategy it is possible to make profit.

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 Acknowledgement

The success of this report depends on the contribution of a number of people, especially those
who take the time to share their thoughtful guidance and suggestion to improve this report. First
of all we would like to pay our gratitude to almighty Allah, who has given us patience to
complete this report. Because working on this issue for a month and then preparing a report
regarding our experience is quite tedious job.
We would like to thank Independent University, Bangladesh (IUB) for planning such a course
that gave us the chance to gather practical knowledge about what we learnt in few weeks. The
knowledge we gathered throughout the course would help us to develop our future career.
Then we would like to express our gratefulness to our honorable faculty of Business School G M
Wali Ullah in Independent University (IUB) who supported us sharing his knowledge according
on this project.
Lastly, we must be thankful to our friends for their endless inspiration not to be hopeless and
keep working harder.

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 Made with an Australian flair, born under the Tampa sun.
Outback Steakhouse, Inc. runs one of the largest casual steakhouse chains in the
United States; the chain consists of more than 1200 Australian-themed restaurants in 47 states in
USA and more than 21 countries around the world. OBS is an Australian-inspired steakhouse
restaurant beloved worldwide. OBS prides itself on serving up variety; its unbeatable steak cuts
are complemented by delicious choices of chicken, ribs, seafood, and pasta at a price for
everyone. Our strategy? We're the leader of the pack by emphasizing consistently high quality
delicious food delivering a warm, welcoming environment. Our generous portions are
moderately priced. Our casual atmosphere couldn't be more transporting - it's like you're right
there in the Australian Outback. Bloomin' Brands, Inc. is based in Tampa, FL, founded in 1988
by those who love hospitality, sharing, quality, being courageous and having fun. We're a
company of restaurants that owns and operates Outback Steakhouse, Carrabba's Italian Grill,
Bonefish Grill and Fleming's Prime Steakhouse & Wine B Outback Steakhouse, Inc. is also
involved in two emerging restaurant chains: an upscale steakhouse called Fleming's Prime
Steakhouse and Wine Bar, and another upscale chain called Roy's Restaurants, which features
'east-west' cuisine and was founded by celebrated chef Roy Yamaguchi.

Key Dates of Outback Steakhouse:

 1987: Multi-Venture Partners, Inc. is founded in Florida by Tim Gannon, Bob Basham,
and Chris Sullivan.
 1988: The first Outback Steakhouse opens in Tampa, Florida.
 1991: Company goes public as a 49-restaurant chain and changes its name to Outback
Steakhouse, Inc.
 1993: Carrabba's Italian Grill is launched.
 1996: International expansion begins with the first Outback steakhouse in Canada.
 1997: Revenues exceed $1 billion for the first time.
 1999: Outback enters into joint ventures to develop the Roy's Restaurant and the
Fleming's Prime Steakhouse and
 Wine Bar chains

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Founders of OBS:
Four friends in the 1980s came together
with the dream of opening their own
restaurant - a place casual in atmosphere,
with quality food and service at the top of
the list. Chris Sullivan, Robert Basham,
Tim Gannon, and Trudy Cooper, all
sterling veterans of the hospitality
industry.
To ensure their haven would stand out
from the pack, they chose an Australian
theme to fit the relaxed but lively mood of their ideal restaurant. The very first Outback
Steakhouse opened in March '88 in Tampa. They've stood by their "No Rules, Just Right"
mentality: Outback Steakhouse's team takes food seriously, without forgetting any of the fun,
knowing that nothing stands in the way of making you happy.

Market and competitor analysis

Product

Outback steakhouse is
an Australia or American
style restaurant.
Outback emphasizes
“fresh” spirit inspires
everything. One of the
corporation’s slogan is “It’s
always fresh in the
outback”. All menu items
are made fresh daily,
and sourced from around
the world to keep high
quality ingredients.
The specialist appetizer is
bloomin’ onion while steak is
the most important product. Beef required exceed all USDA standards, and all approved beef
suppliers use scientific methods to verify that their food safety programs. Outback also serves
seafood, chicken, soup, salads, and desserts. However menu items may vary by location.
Occasionally launch new products. To bear in mind & concentrate about Bangladeshi food
culture Outback come up with some special & signature food menu in Bangladesh which goes

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with south Asian food taste Basically they are going to serve some 1) Appetizer 2) Signature
Steak 3) Entrees & Sides 4) Drinks & Desserts.

AUSSIE-TIZERS® (Appetizer)

STEAKHOUSE QUESADILLA BLOOMIN' ONION®

Stuffed with tender slow-roasted prime rib, Monterey An Outback original! Our special onion is hand-carved,
Jack cheese, chipotle spread, cilantro and green onions. cooked until golden and ready to dip into our spicy
Served with sour cream. signature bloom sauce.

KOOKABURRA WINGS® AUSSIE CHEESE FRIES

Chicken wings tossed in our secret spices served with our Topped with melted Monterey Jack, Cheddar and
Blue Cheese dressing and celery. Choose mild, medium or chopped bacon with house-made ranch dressing.
hot.

ALICE SPRINGS CHICKEN

QUESADILLAS
Stuffed with fresh grilled chicken breast, sautéed
mushrooms, bacon, melted cheeses and honey mustard
sauce.

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 SIGNATURE STEAKS

VICTORIA'S FILET® MIGNON THE MELBOURNE

The most tender and juicy thick cut seasoned and Porterhouse features a flavorful strip and filet
seared. tenderloin together. Seasoned with our special blend of
herbs and spices then seared.

AYERS ROCK STRIP SLOW-ROASTED PRIME RIB

NY Strip full of rich flavor. Seasoned and seared to Seasoned with an herb crust, served with au jus and
perfection. hand-carved to order. Choose either original roasted or
wood-fire grilled. Based on availability.

CLASSIC TENDERLOIN OUTBACK CENTER-CUT

CHOPPED STEAK SIRLOIN
Our blend of tenderloin and chuck steak topped with Center-cut for tenderness. Lean, hearty and full of
sautéed mushrooms, grilled onions and Cabernet sauce. flavor. Seasoned and seared on our hot grill.
Served with NEW

RIBEYE
Well-marbled, juicy and savory. Wood-fire grilled with
the natural flavor of oak.

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 STRAIGHT FROM THE SEA (Entrees)

PERFECTLY GRILLED SALMON LOBSTER TAILS

Seasoned and wood-fire grilled and served with fresh seasonal Two cold water tails perfectly steamed for maximum
mixed veggies. .
tenderness. Choice of two sides

TILAPIA* WITH PURE LUMP HAND-BREADED SHRIMP

Twelve crispy, hand-breaded shrimp served with your choice
CRAB MEAT
of cocktail or spicy Volcano sauce. Aussie Fries.
Tilapia crowned with pure lump crab meat, crab stuffing,
sliced mushrooms with a light lemon butter and white wine
sauce. Fresh seasonal mixed veggies

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 IRRESISTIBLE DESSERTS

CHOCOLATE THUNDER NEW YORK-STYLE

FROM DOWN UNDER® CHEESECAKE
An extra generous pecan brownie topped with rich Aussie-sized slice of premium New York-style
vanilla ice cream, our warm chocolate sauce, cheesecake served with a choice of raspberry or
chocolate shavings and whipped cream. chocolate sauce.

TRIPLE-LAYER CARROT
CAKE
Moist layers of carrot cake with coconut and pecans
topped with a sweet vanilla cream cheese icing.

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 Drinks

SPECIALTY FRESH STRAWBERRY

CLASSIC ARNOLD PALMER LEMONADE
Freshly brewed Gold Peak® Tea mixed with Country Real strawberries shaken with Country Style Lemonade
Style Lemonade. and served iced cold.

NEW! KIWI STRAWBERRY

THE STRAWBERRY BULL
LEMONADE A fruit-filled pick-me-up combination of strawberries,
Tropical kiwi and real strawberries shaken up with ginger ale and your choice of Red Bull® Energy or Red
Country Style Lemonade. Bull® Sugar-Free.

Price

Menu prices may vary by location & Country to country. But as a franchise outback should an
average price of their product which is define by Parent. Steaks offer different standard sizes
and different price. They also sell gift cards. Outback will occasionally provide seasonal pricing
or discounts as well. For example, holiday special meal or period price is low than regular price.

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As Bangladesh is developing country we have considered PPT of Bangladeshi people that is why
we negotiate with the parent to determine the price of the food nit lower than any other countries
& we have also considered about the competition of F&B industry of Bangladesh. The prices of
menu quoted below.

AUSSIE-TIZERS®(Appetizer):

STEAKHOUSE QUESADILLA ($6/ 480) BLOOMIN' ONION® ($4 /320)

KOOKABURRA WINGS® ($6/480) AUSSIE CHEESE FRIES ($4/320)

ALICE SPRINGS CHICKEN QUESADILLAS ($6/480)

SIGNATURE STEAKS:

VICTORIA'S FILET® MIGNON* ($10/800) THE MELBOURNE* ($15/1200)

AYERS ROCK STRIP* ($12/980) SLOW-ROASTED PRIME RIB*($ 13/1040)

CLASSIC TENDERLOIN CHOPPED STEAK* ($ 13.5/1080) OUTBACK CENTER-CUT SIRLOIN* ($9.5/760)

RIBEYE* ($10.5/840)

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STRAIGHT FROM THE SEA
(Entrees):

PERFECTLY GRILLED SALMON* ($ 8.75/700) LOBSTER TAILS ($9.50/760)

TILAPIA* WITH PURE LUMP CRAB MEAT ($5.5/440) HAND-BREADED SHRIMP ($10/800)

IRRESISTIBLE DESSERTS:

CHOCOLATE THUNDER FROM DOWN UNDER® ($7/560) NEW YORK-STYLE CHEESECAKE ($5.5/440)

TRIPLE-LAYER CARROT CAKE ($4/320)

Drinks:

SPECIALTY FRESH STRAWBERRY LEMONADE ($3/240)

CLASSIC ARNOLD PALMER ($3.75/300)

NEW! KIWI STRAWBERRY LEMONADE ($3.25/260) THE STRAWBERRY BULL ($4.5/360)

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Place

In addition to our restaurants in the United States, Outback Steakhouse also operates over 1000
restaurants in 21 countries worldwide. The dining environment accommodates couples, families,
or groups. For convenience ordering, outback offers “take away online order” systems on their
website. As it is going to operate new outlet in Bangladesh on the other side as it is first ever
steak house which is franchise initially we will open only 2 outlets in Dhaka one is at Gulshan
and another one is at Uttara.

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Promotion

Outback Steakhouse is using many promotion strategies. For advertising, Outback has traditional
TV commercials and print media. In recent years the organization has built social media like
Facebook, YouTube, and twitter to give the organization and customers several communication
flats. For promotions aspect, Outback provides discounts or gifts occasionally during special
events. For instance under price for new launch menu, chance to win free Outback for a year, and
free give for Dad.

Since it is coming to Bangladesh for the very first time you have taken some decision and few
strategies for promotional activities because we let people know what’s in the town with this aim
in view we will go for Newspaper Advertisement & Advertisement in Lifestyle base Magazine.
We have also decided to put some billboards at some central point in Dhaka city. As we have
targeted very niche market initially so we will not go for any TV commercial though it is very
expensive too.

For public relations, Outback has been supporting operation feeding freedom, an overseas
company volunteers take part in the eighth annual trip to feed troops beginning in 2002. O, the
organization offers a free Bloomin’ onion and beverage to troops in many cities around the
world. Hopefully Outback Steakhouse will involve in many social activities in near future in
Bangladesh. They also support athletics on all levels from national football to local little league
games, the Outback Bowl and the Outback Steakhouse Pro-Am Golf Tournament. Outback finds
that giving donations advertises Outback in a positive manner.

SWOT Analysis

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Strengths
 One of the best global brands in F&B industry in terms of food and taste.
 Brand name & reputation.
 Secret Ingredient, species & verities of recipe which is able to target different segment.
 Outback's drinks selections are highly regionalized depending on local taste & preference
 Outback serves Foster's Lager; an Australian brand of beverage exported around the
world.
 In Malaysia, Outback Steakhouse offers a pork-free menu to cater for Muslim customers
It will be same for Bangladesh as well.
 More than 1200 restaurants in 20+ countries
 Outback also offers a gluten free menu for its normal menu items with slight variations.
Outback has recently added gluten free beverage choices like Angry Orchard cider &
"light style" option to the menu
 Outback also sponsors the NCAA football Outback Bowl & Heineken USA, high
community involvement through donations & sponsorship.
 Online ordering facility is there.

Weaknesses
 Some journals have allegedly claimed the food to be unhealthy
 Intense competition means limited market share and lack of clear differentiation in
offerings
 Lack of efficient worker in F&B industry with less knowledge about service & manner.

Opportunities
Can include more range of menu items
Can open new outlet in another cities if it seems profitable
Can expand in more areas as it is a popular steakhouse
Have more price range points to cater to all types of segments

Threats
 Growing competition from other international & local brands which means threats of
declining market share
 Increasing operating cost (logistics, real estate ) which can decrease the profits
 High Administrative cost with Franchisee fee.
 Currency fluctuations

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 Mode of entry in Bangladesh

Outback Steakhouse is an Australian-themed American casual dining restaurant chain, serving

American cuisine, based in Tampa, Florida, with almost 1200 locations in 21 countries
throughout North and South America, Asia, and Australia. It was founded in February 1988 in
Tampa by Bob Basham, Chris T. Sullivan, Trudy Cooper, and Tim Gannon, and it was owned
and operated in the United States by OSI Restaurant Partners until it was acquired by Bloomin'
Brands and by other franchise and venture agreements internationally.

Restaurant Ownership Structure

OBS restaurants are Company-owned or operated under franchise arrangements. It generates its
revenues primarily from our Company owned restaurants and secondarily through ongoing
royalties from our franchised restaurants and sales of franchise rights.
Company-Owned Restaurants
Company-owned restaurants include restaurants wholly-owned by us and restaurants in which
we have majority ownership. Our cash flows from entities in which we have a majority
ownership are limited to the portion of our ownership. The results of operations of Company-
owned restaurants are included in our consolidated operating results and the portion of income or
loss attributable to the non-controlling interests is eliminated in our Consolidated Statements of
Operations and Comprehensive Income.
Unaffiliated Franchise Program
Our unaffiliated franchise agreements grant third parties rights to establish and operate a
restaurant using one of our concepts. Franchised restaurants are required to be operated in
accordance with the franchise agreement and in compliance with their respective concept’s
standards and specifications. In recent years, we updated our standard U.S. and international
franchise agreements for all new and renewing franchisees. The majority of our existing
franchisees continue to operate under previous franchise agreements. As each franchise location
renews, we expect that the location will convert to our then-current franchise agreement.
Under our franchise agreements, each of our franchisees is required to pay an initial franchise fee
and pay monthly royalties based on a percentage of gross restaurant sales. Initial franchise fees
are $40,000 for U.S. franchisees and range between $40,000 and $75,000 for international
franchisees, depending on its market. Some franchisees may also pay administration fees based
on a percentage of gross restaurant sales. Following is a summary of franchise fees based on our
current existing unaffiliated franchise agreements

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(1) Under U.S. franchise agreements executed prior to 2013, each U.S. franchisee is generally required to expend or contribute, on a monthly
basis, a minimum of 1.5% to 3.5% of each restaurant’s monthly gross sales for local and national advertising. Under U.S. franchise agreements
executed in 2013 or after, a U.S. franchisee must contribute a percentage of gross sales for national marketing programs and must also spend a
certain amount of gross sales on local advertising, up to a maximum of 8.0% of gross restaurant sales for combined national marketing and local
advertising.

(2) Outback Steakhouse and Carrabba’s Italian Grill franchisees with restaurants located in airports pay royalties on gross restaurant sales of
5.00% and 5.75%, respectively, in exchange for increased operational support at those locations. All non-airport Outback Steakhouse franchisees
pay royalties on gross restaurant sales of 3.00% to 3.50%. As of December 27, 2015, two franchised Outback Steakhouse restaurants and all
franchised Carrabba’s Italian Grill restaurants were located in airports.

(3) Royalties under international franchise agreements vary by market

As we want to open an outlet in Bangladesh as an international chain. So we want to go for

franchise contract because it has so many positive aspects though has some draw back too. By
using brand name and franchise we hopefully able to make profit better than other and can
increased market share.
In today’s marketplace, the window of opportunity for a new or unique business concept closes
very quickly. They permit multiple units to be opened simultaneously, gaining a foothold over
would-be competitors. As we are buying franchise our target is to open multiple outlets in
different location in near future subject to market adaptability. We have taken some strategies for
how quickly we can penetrate in our market. Multiple locations increase their competitive
advantage over similar type businesses. As we know franchising ensures that qualified
“managers” are operating additional locations rather than employees. A new business demands a
great deal of time, effort and sacrifice. So they are motivated by their ownership of the business
and the capital they have invested. Once again, this is due to the fact that a highly motivated
owner is running the business rather than an employee. With their capital at risk, they are much
more motivated than employees to perform at their highest levels.
Ours is a Muslim oriented country comprising 90% Muslims of total population. So western
themed halal restaurant popularity will be very early. Besides Dhaka is a city of 14 million
people, with 5% or 700,000 comprising of the well-traveled city rich, who clearly enjoy the
unique food experience here in Outback

Process of Franchisee contract in Outback

Here is whole procedure how a franchisee can get the franchise contract from the franchisor
(Bloomin Brands)

The chain is owned by parent company ‘Bloomin Brands’ based in Tampa, Florida. For
entrepreneurs seeking a little sizzle in their small business ambitions, Outback Steakhouse offers
international franchise opportunities. Interested owners must meet rigid company requirements
and follow Outback’s process for acquiring a location.

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1. Contact Outback Steakhouse at outbacksteakhousefranchise.com to request information about
buying a franchise. Fill out the online form to submit to the company.

2. Meet with Outback’s franchising staff to determine a location where you will open a store.

3. Provide your business plan, including profiles of those who will run your restaurant. Include
details about your team's experiences and capabilities in the restaurant industry. Give specifics
about the roles you expect each person to hold. Also, give Outback’s franchise staff complete
financial details, including bank accounts, credit lines and other sources of funding you will be
using to pay for operations of the restaurant. Outback will use this information to decide whether
to accept your bid to own a location.

4. Review the Outback franchise agreement and terms. Work with a franchise lawyer who can
provide expertise to ensure you fully understand your obligations as a new franchise owner.

5. Complete the purchase and begin the company training program.

Probable Risk Factor

Challenging and Economic Conditions

Challenging economic conditions may negatively impact consumer spending and thus cause a
decline in financial results. For example, if Bangladesh reduced or stagnant disposable consumer
income, financial market volatility, social unrest or increase in inflation rate and governmental
spending and budget matters and the slow pace of economic growth generally have had a
negative effect on consumer confidence and discretionary spending. This can affect consumer
traffic in our restaurant and slow down revenue for longer period of time. This factor could also
cause us to reduce the number and frequency of new restaurant openings in new area, close
restaurants or delay remodeling of existing restaurant locations. Further, poor economic
conditions may force nearby businesses to shut down, which could cause our restaurant locations
to be less attractive.

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Consumer Price Index CPI in Bangladesh increased to 244.36 Index Points in September from
239.92 Index Points in August of 2017. Consumer Price Index CPI in Bangladesh averaged
120.18 Index Points from 1993 until 2017, reaching an all-time high of 244.36 Index Points in
September of 2017.

Foreign Exchange Rate Risk

Foreign exchange risk is related to fluctuations in the value of currency. Small businesses with
international employees, international sales or international suppliers are vulnerable to changes
in foreign exchange rates. Sometimes, the effect of foreign currency fluctuations will result in a
gain. Other times it will result in a loss. Either way, these fluctuations present a risk to profits.

In global exchange rate between USD and BDT is very much and unstable and fluctuating. By
analyzing last 2 years of exchange rate data between BDT to USD shows that there is a high risk
of exchange rate in future for remitting the funds.

In this graph we can see that in past 2 years the highest exchange rate is $0.012886 and the
lowest exchange rate is $0.01202 per BDT. That means highest rate was ট83.21 and lowest rate
was ট77.63 (The exchange rate of following data is given end of the report).

So, there is a high risk of exchange rate risk for remitting the funds to mother company and as
well as purchasing goods from outside of the subsidiary country.

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Changes in Tax Laws

Outback steakhouse is subject to income and other taxes. If Govt. of Bangladesh changes the tax
laws that will also impact on our restaurant income directly. Though the sales tax rate is 15%
from 2006 till today, it might change in the future. By changing tax laws like increasing income
tax and high withholding tax or tax on remitting funds can reduce the net income, even we might
suffer losses. If we increase the food price to make up those tax rates this could also reduce our
customer.

Political Risk

Political risk can affect foreign exchange risk, but there are other considerations as well. Policy
changes due to changes in political leadership can affect trade barriers. Our business may have to
pay additional funds in tariffs in order to do business in the country or may be forced to take a
back seat to domestic manufacturers. In effect, any change in law can influence the profits and
viability of the firm.

Change in Commodity, Energy, and Other Costs

The performance of our restaurants depends on our ability to anticipate and react to changes in
the price and availability of food commodities. Our business also incurs significant costs for
energy, insurance, labor, marketing and real estate. Prices may be affected due to supply, market
changes, increased competition, the general risk of inflation, changes in laws, shortages or
interruptions in supply due to weather. Increased prices or shortages could affect the cost and
quality of the items we buy or require us to raise prices, limit our menu options or implement
alternative processes or products.

Consumer prices in Bangladesh increased 6.12 percent year-on-year in September of 2017,

increased from 5.89 percent in the following month. The annual inflation rate accelerated for the
second straight month to hit the highest since October 2015, mainly due to rising prices of food
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(7.87 percent vs. 7.32 percent in August), On a monthly basis, consumer prices went up 1.85
percent compared to a 1.40 percent increase in August. Inflation Rate in Bangladesh averaged
6.59 percent from 1994 until 2017, reaching an all-time high of 16 percent in September of 2011
and a record low of -0.03 percent in December of 1996.

Import Prices in Bangladesh increased to 211.90 Index Points in 2015 from 200.37 Index Points
in 2014. Import Prices in Bangladesh averaged 138.89 Index Points from 1986 until 2015,
reaching an all-time high of 211.90 Index Points in 2015.

Other Risks

 Insurance may not provide adequate coverage

 Subject to potential labor unrest/other labor disturbances as a result of failure of
negotiations
 May not be able to hire enough skilled employees to support operations
 Ability to acquire properties may be affected by competition from other restaurant
companies.
 Competition in product markets
 May face restricted access to markets in futures (trade barriers or policies on
tariffs)
 Risks associated with issuance and renewal of environmental permits
 Changes in environmental, health and safety laws may have adverse effect on
operations

Derivatives to Hedge Risks

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Hedging Exchange Rate Risks

1. Forward contracts

We can use forward contracts to sell or purchase foreign currency amounts at a future time and a
given exchange rate. The settlement takes place at the time and the exchange rate mentioned in
the contract, regardless of any fluctuations of the exchange rate on the foreign exchange market.

Benefits

• The risk of exchange rate fluctuations is mitigated

• It increases our management’s control over the company’s cash-flows and profitability

• The exchange rate will be used in budgeting is fixed exchange payment

• We’ll have a time gap between incomings and the corresponding payments

• We’ll use a certain level of the exchange rate when remitting our profit.

2. FX Options
FX Options give their buyer the right but not the obligation to sell/buy a specific amount at a pre-
agreed exchange rate. In order to have this right, the client pays a premium.

An option contract has the same functionality as an insurance contract. The client pays a
premium in order to be able to take advantage of its right in case a certain event occurs.

Benefits

• Complete foreign exchange risk hedging

• Establishing a level for the exchange rate that will be used for constituting the budget of
the company

• The possibility to benefit of a favorable exchange rate movement

The CALL option gives its buyer the right and not the obligation to buy a specific amount of
currency at a pre-established rate in exchange of a premium paid (the cost of the option).

The PUT option gives its buyer the right and not the obligation to sell a specific amount of
currency at a pre-established rate in exchange of a premium paid (the cost of the option).

A large series of complex products can be obtained on the basis of these two types of vanilla
options in order to build-up a product that is most suitable for your company’s foreign exchange
risk hedging need.

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 Capital Budgeting

YEAR – 01 YEAR – 02 YEAR – 03

Revenue (BDT) 5,000,000 7,500,000 10,000,000
TVC 1,000,000 1,200,000 1,500,000
FC 500,000 500,000 500,000
Int. On loan 2,100,000 2,100,000 2,100,000
Depreciation 400,000 400,000 400,000
Total Expenses 1,900,000 2100000 2400000
Before tax Earnings to parent 3,100,000 5400000 7600000
Host. Govt. Tax (15%) 465000 810000 1140000
After tax Earnings of 2,635,000 4590000 6460000
franchisee
Net cash Flow to franchisee 3,035,000 4,990,000 6,860,000

Franchisees Fee 2,200,000 - -

Remitted by subsidiary *3% 91050 149700 205800
With-holding Tax (15%) 343657.5 22455 30870
Remitted after with-holding tax 400,293 4,817,845 6,623,330
Exchange Rate 80 80 80
Cash flow to franchisor in US $ 5003.65625 60223.0625 82791.625

Initial Investment
50,000,000 Rate of return -- 10%
Loan 35%
17,500,000
Bank Interest 12%
2100000.00

NPV= $ (508,477.00)

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