KATHMANDU UNIVERSITY SCHOOL OF MANGEMENT

MBA ONLINE ADMISSON TEST FALL 2020

August 30, Sunday, 2020

Time : 9:30am to 11:00am

You are required to understand and analyze the situation given below and answer the
questions that follow. You have one and half hour for this. It is expected that you will spend
about half an hour in reading and analyzing the situation and one hour in answering the
questions. Be logical and critical. You have to submit your answer as per the guidelines
provided to you earlier.

SITUATION:

A DREAM TO REALIZE

Mr. Pramod completed his MBA five years ago from a reputed college in Kathmandu. He
always wanted to be an entrepreneur and start his own business. He despised the idea of
working under someone routinely from 9:00 am to 5:00 pm. By nature he considers himself
creative and innovative. He did his specialization in the area of entrepreneurship and used to
actively participate in the start-up programs organized in the college during his study period.

Mr. Promod belongs to a middle income family. His father was an officer in one of the
government banks and had retired two year ago. Major sources of income of the family are the
pension of his father and monthly house rent of Rs.40,000/-.

After completing his study, Me Pramod wanted to start a small bakery in his premises adjoining
the road. He feels that the bakery industry has undergone major changes during last five years
and there exists high scope in the industry if one can recognize and exploit these changes.
Considering the increasing trend of cutting cakes to celebrate birthdays and other happy events
his idea was to specialize in birthday cakes, pastries, tarts etc., besides producing other regular
bakery items such as white bread, brown bread, whole wheat and multigrain bread, donuts,
croissants etc. His plan was to open an outlet of the bakery in the ground floor his house facing
the road in the initial period and then go for mass production and distribution through other
local groceries and marts in Kathmandu. He had a belief that food business has ample
opportunities if one is innovative and can offer new products that meet the taste and need of
the customer at reasonable price. Based on his analysis he had made during his study period he
expects the industry to grow by 10 percent annually.
When he discussed his idea with his father he suggested Mr. Pramod to work in some
organization first so that he can get experience of the business realities and then only start his
business. He saw some points in his father’s logic. He joined a bank and worked there for last
four years. At that time he was drawing Rs.50,000/- per month.

To make his dream come true and with the consent of his father he resigned from the bank last
year and started his own bakery shop in the ground floor of his home. Mr. Pramod invested Rs.
40,00,000 in his business. He borrowed fifty percent of the amount from a bank at the annual
interest rate of 10 percent and invested the remaining by using his own fund which he had
deposited in a fixed account in a bank that paid him 8 percent interest per year.

The financial statements showed that the revenue from sales last year was Rs.6,000,000 and
cost of goods sold accounted for 75 per cent of the sales revenue and Administrative and selling
expenses for 10 percent of the gross profit (Sales revenue minus cost of goods sold). He paid
tax at the rate of 20% on the earning before tax (Gross profit minus administrative and selling
cost minus interest paid on loan).

Mr Pramod was happy to find that the financial statements showed positive result but on the
second thought he felt that these statements did not reveal the true financial position and
there are something missing in these statements.

Questions:

a. Considering the current financial results, was Pramod’s decision to start his business
right? Why?
b. Should he be continuing his business? Why?
c. In the present context of COVID 19 which is expected to continue at least for one
more year, what suggestions would you give to Mr. Pramod?