Maynard

STEVIN DVD RENTAL SHOP

In December 2012, Stevin was determined to open a DVD rental store that would have a wider

selection of DVDs and could operate more efficiently than the few small DVD rental stores located

in and around he home town Manipal. Stevin knew that more than one-half of the homes in

Manipal were equipped DVD players, but based on informal discussions with his friends and

neighbors, he learned that these DVD players were infrequently used. He felt that with this

installed base of DVD players, a new, upscale, well-stocked DVD rental store would surely

succeed.

After preparing a business plan, Stevin approached a long-time friend who he felt would invest

in this venture. There is a need for Rs. 350,000 as initial investment. After considerable thought,

this friend was willing to invest Rs. 150,000 with Stevin putting the remaining Rs. 200,000 to

purchase shares in the new company, which was to be called Stevin DVD Rental Shop.

Stevin left his job as a real estate broker and began to establish his new enterprise. He first

consulted with a lawyer to have the business incorporated. Because this was a fairly simple

organization, the legal fees incurred were only Rs. 4,500. The new store incorporated on January

1, 2013.

His next task was to find some land and a building in which to operate. His connections in real

estate allowed him to negotiate a favorable price of Rs. 190,000 for a building near the center of

town. The purchase documents allocated Rs. 140,000 for land and only Rs. 50,000 to the building,

due to its age and run-down appearance. He took a loan of Rs. 150,000 from Syndicate Bank for

funding this purchase. Stevin felt that the current building was structurally good and with

renovation work, the life of the building could be extended to 25 years. He ordered the

renovation work, costing Rs. 20,000 which began immediately. Stevin paid in full renovation

expenses after completion of the work.

Stevin began negotiations with...