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- Case summary:
- Current owner of Sunar Factory, Karim, is deciding how to finance the purchase of a machine
- The present operations of the business cover his personal expenses, so to buy the machine,
he would need external financing
- The options to finance the purchase of the machine are as follows:
1. Bank Loan
2. Angel Investors from LinkedIn (AKA Devil Investors)
3. Ghazala Aunty
Company background
- Family business to Karim
- Started in 1970 by his grandfather, Sultan Ul Umar, who came from Delhi to Karachi in 1947
- Started as a freelance jewelry maker with a small shop and grew to two shops in Saddar
- His son, Karim’s father, worked as a machinery designer
- Used machinery knowledge to make the business a manufacturer of jewelry
- Reduced costs of operations and became the most competitive manufacturer and supplier to
major jewelers in Pakistan
- Despite becoming pioneers in the industry with the new machines, the issue was small
margins working with the jewelers in B2B model
- So Karim changed things a step further - sold directly to customers and advertised using
social media and internet marketing
- B2C model had greater margins
Sunar Factory - SWOT
Strengths: pioneering manufacturer for B2B, good web presence, working with a
digital marketing agency
Weaknesses: Small profit margins in B2B and new players in B2C
Opportunities: Obtaining the XRF machine to distinguish themselves with more
services like gold percentage checking
Threats: The information symmetry the XRF machine would bring
Introduction contd: the investment qualitative
- Considering buying an X-Ray Fluorescence Machine
- Purpose of machine: customers can check gold content in what they’re selling to Sunar
- Advantages:
- Greater market share in gold buying segment
- Attracting more customers
- Additional revenue stream with the service
- Pioneer in the industry - first in Pakistan to offer the service
- Disadvantages:
- Change in industry practice - can no longer take advantage of customers
- Information symmetry
- Knowledge symmetry reduces profit margins overall
- As the years go, competitors will buy similar machines
- Reducing profit margins as time goes
- Would require external financing which have each of their own disadvantages
Intro contd: the problem
CASE QUESTION: to decide between
1. Bank loan
2. Angel Investors
3. Ghazala Aunty
For financing the purchase of the XRF machine to check gold percentage.
Straight Line Depreciation Calculation
Operational costs
Miscellenous 20000 240000
Y1 Y2 Y3 Y4 Y5