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QUESTION 2 [70 Marks] KG Entertainment plans to build and apen twa new thestres to be used for theatrical productions (400 seats in each) during the 2023 financial year. KG Entertainment plans to build and own fits theatrical theatres in the future and diversify into the movie theatre market. This change in strategy is motivated by the high cost of leasing theatical premises and establshing some form of diversification. The company has historically leased premises and lease agreements are generally for 10 -year periods with five-year renewal aptions. Commencial banks have adopted the wew that theatre buildings provide limited security For lovens due to their specialised nature and use. Shareholders and the exocutive boand are urwiling to provide personal suretyship to secure loans. In addition, they coonsider the inlerest rate to be very high in comperiscon to nommal property finance rates. The cinema and theatre industry has been facing stiff competition from digital streaming platforms such as Netfix, which affers a wide variety of eentent at an affordable price. E Noles: 1. KG sels: the majority of its ticket sales through an independent ticketing agent [Compu-seeh which has a national call centre and inlernet-based infrastrueture. 2.2 Prepare a memorandum to the Chief Operating Officer where you address the following: (40 Marks) - Financial analysis of the ticketing performance and breakeven (21 Marks) Breakdown of Marks: Calculations - 8 Marks Analysis of ticketing performance and breakeven - 13 Marks - Critically evaluate the change in strategy of KG Entertainment to build and own its theatres as opposed to leasing by discussing the risk factors inherent to this decision and indicate whether you agree with the decision by providing reasons for your conclusion. (14 Marks) Breakdown of marks: Inherent risk factors -9 Marks Conclusion regarding the buying option - 5 Marks - Discuss any concerns that you have with the source of financing and its terms and conditions. (5 Marks) Note to student: The following should be included in the memorandum structure: To; From; Date; Subject; Background/purpose of the memo

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