1- Analyze the addition of soft-serve ice cream from a qualitative standpoint.

2- Which of the cash flows associated with the opportunity are relevant (future, cash and different)? Of these, which are recurring costs versus one-time costs?

3- Perform a differential analysis to determine the return on investment and payback period for the purchase of both the single-head and triple-head machines.

4- As Greig Perantinos, would you purchase a soft-serve ice cream machine? If so, which one? Support your

@Ivey ' Publishing 93103013 COOL MOOSE CREAME RY Jim pm \"mm Mm nub 1mm m twmmrm n} 5mm. MA. m" wfch m Wm.- wlrnm'fnr mm mumunm. in mm: dnJIMH'MMM Frlrmrwc cubn'r'n'cormgn'nvr kmulg qr. mama's: mam m Mllmu ma] m.- dlr'gufnrd mm mm m a. Jdcmrflmgmwwumm mama; Lundmllmfm rim furhlarwlm mm' "um m'mw. plmmnqn' dv'glfrm'urlhrnlbr rrprudmnn'a'w w, fmw r h, om'nlmnx "mm in: rid-"Harm or m- mnwighl mm chmdm'lr'uw a; mu "Interval h m :wverad Mm- nullity-Fromm er/wduru'un rrlr rugawmum I nru'orrnwvcaar muuript'mlrmn M 71'me mlrnon' Lumbrflvn Mhmm m, mummmm mm wmmm momma\" (Mm um um. 015mm mm. {firurutnn t... J ' mm 3 m ( up. right o mm Mam: Iver J1 mm u] JRWAELY Felmninlmn ymm 2an in IA In March ZDIO. Greig Petantinoe, owner of Cool Moose Dummy (Cool Moose], was considenng expandmg his pmducl line by pmcllaeing a suit-sews ice cream machine for one of his stores. The buslnea in Alliston' Onlano, hadbeenm operation for a year and sold scooped ice cream, frozen yogurt, milkshakes and oale. Percnlmos believed the addition cfso-serve ice cream would increase SBIBS and impmw the company's mallwl share In Allletun. Perantlnos wanted in Commue growing the business, and he wondered whether this was lhe best way to do so ALLISTUN, ONTARIO Allieton was a small community ofappmximately 11M people,withm thetown ofNew Tecumseth, Dntario,}|ome no 28300 peoplE.| Aspart of gimme Coumy, Allistcn was approximately 60 kilometres north ofthe Grater Toronto Area See Exhibit I for a map ofCool Mouse locations Alliston was home to the largest employer in Simme County, Honda ol'Canada,an automotive mannfsmiring upemlion that had two planls located in the area. One Dflhe county's touristamamans was the South Simone Railway-'5 historic steam tram. The restored many roaches Born the 19201|u1ed people from across Canadato see Canada's oldeelopertating steam ham, Allislon was also well known as the birthplace of Sir Fredrick Banting, Lhe codismverer ofinsulin The community's Annual Potato Festival, begun in 1974 and held. in June each year' attracted lhousands of people annually in the area Although a small csmnnmity, Allistnn had a vibrant downtown area and local madame and tourists regularly equented the restaurants and shops Vinona Street was the centre ohm: downtown district. and Cool Moore was located attire Victoria and Chutch Street intersection ' nmnrrws Hamil (mm A Phuk Page 1 irBiItBulJ COMPEIIIIUN Prior to the opening of Cool Mouse in the summer of2009. the only other business in Allistoii that offered ice cream was Dairy Queen, also loaned ar an intersection on Victoria Street Dairy Queen's ice cream offering was limited to its famous vanilla soft-serve flavour. This location also sold several treats. such as tire niirrerda as well as cakes. lror dogs and hamburgers Throughoul tire summer morrtirs, long lrrreups were commonpiaee at the ratllirton Derry Queen. This store generated over 5500.000 rn annual sales a Dairy Queen, a wholly owned subsidiary of Berkshire Hathaway inc. was a large multinationsi eorporatron with or-er 5.9m reslaui'anis in 22 dittererrteountries r The rst Dairy Queen location opened in JolieL Illinois. U S in l94l],ihe result ofa father and son expenmenilng W'Ill'l a soft frozen daily prodncl Their reci and process developed into what is now referred to as sort-serve ire cream, immensely popular since its inception In 20\"], the Dairy Queen brand was well known tlrroumoutNonlr America forils signature sofl-sen'e ice cream and for its focus on customer satisfaction The company's current slogan was \"We Treat You Right." Derry Duesn'spncmg model rm considered sirgirtiy high for the industry leg. $3.35 fora large vanilla ice cream cone). In spite ofihis pricing Dairy Queen became ihe destination for little league teams celebrating aviator-y. business professionals taking their lunch break and families taking time out to enjoy fast food and a vanety of soft-sews ice cream products. COM PANY BACKGROUND Perantinos was smltittg for summer employment after his rst year al The University of Western Ontario, London. Ontario He decided air entrepreneurial venrure would be a rewarding experience and would help prepare hint for his education at the Richard Ivey School of Busuiess. as well as his future career Since there was no scooped ice cream parlour in Tonenhamss Pemntinos founded the first Cool Moose Creamey m Totteutram in tire suntmer of2008 The ice cream parlour opened in May or esclr year for a four-month pen'ocL operating throughout rlre summer until Labour Day Cool Moose currently offered I6 varielies of hard. scooped ice cream. as well as frozen yogurt [which could be mixed with fresh fruit). milkshakes, oats and other from: IreaLs Perantinss experienced moderate success m his rst year and \\lmsable to develop strong brand recognition aiid a loyal customer base in the community ofToitenltam. Cool Moose was known for its excellent service to customers iPerantinos and his staffwere friendly. outgoing. fun and enthusiasticand they attempted to provide service heyond customers' expectations. Petantiiios established three core values for tire busiitess' lreiping tire community. making customers smile and inspiring employees He heirevei these business prac ces allowed hint to any his success into the summer of2009. In the second yearof operanonL Pera nos opened anew location fortrooi Moose in nearby Alliston, Dntario Summer 2009 sales increased at the Tottenham share and the successful launch of the parlour irl Alliston helped Peraniiiios achieve sales growth of233 per cent over scal 2008. The Allislon Cool Moose store currently had four full-time employees who suit-ed to know eaclr customer personaiiy 3D gram . a Land was or umuu'rm rl'lmm' i'q-swrr' I'i'ri'mttm tufted lw'lir tie rurrrnrrer'y rihrifl'c'ule'umll armaments. ralrrrarep jnnrrr par-merrier.\"rrrrnnrrnysnryrierrrrlr-errrrnpnnr43mm may gm ANFWMM tia', (hmhe'ri Irma a no rturrrurremrrer/ruaa-i'rurun, archers It'lr'li ' nrrrenirum. Ontario Hm winnnl'lvmrr i'Jml'nirwx rrrrrrtrryr-xtr'lyma. i'age .\\ irBillBliis In early IDIO. Perantinos received the Student Eilirepreneur Champion award for Ontatro from a not-for- prot orpenieatson called Advancing Canadian Eiilteprelieurslup. See Exhibil 2 for a newspaper anicle highlighting Cool Mocse's success and this award. The summer onOID was critical to Peraniinos funire, since he would be entering his nal year of studies at the Richard lvey School ofBusiness and had to decide whether lie would operaie Coo! Moose as a full-nme occupation upon graduanng He had found aiiothet Down without asccloped ice cream parlour and was making arrangements to open a third Cool Moose in Cookslown. Although the business kept lnm extremely busy. he was unsure whelher rtcould provide him with a full-time Income. Aet M0 successful years. Petantinos began to research how to furihier grow Cool Moose. [H E sot-rs En\\-' la OPPDR'I' Ll N ['t v Peraritinos thought that expanding ins product line would increase same-store sales and grow the business One way to do this ms nu invest III a soil-serve ICE cream machine at oiie ufdie Cool Muose locations. Su-serve ice cream wasvery connnon in rust-rood reslauralits such as McDonald's and Dairy Queen, The machines produced a frozen dairy product that was smoother than scoopedice cream and dispensed the product in a swirl paneni. Most machines had a single head that produced only one avour. vanilla. However. Perano'nos had considered a triple-head maclune that would produce vanilla. chocolate and a vanilla-chocolate swirl flavour. See Fthibit 3 fora picture ofeach soft-serve machine Perantinos had fouiid a used snigle-head machine available for purchase at a cost of $2.000. If he wanted a mills-head machine, he would need to buy it newal a cusl ofS]2.CI)D.n Peranlinos' research had found that some store onriets had success \\viih used machines, while others had heen greatly dLsappoinied and lcsl money due to repairs costing thousands cfdollars. He estimated the useful life ofa used machine to be three years while a new machine should last seven years. Cool Moose used the straight-line method of depreciation for all its fixed assets. Given the large investment. Perantinos wanted to assessthe feasibility ofadding soft- serve ice cream to the Allision store and to calculate the anticipated return on investment Purchasing one orrhese machines would attract newcustolriers. who preferred son-serve over scooped ice cream. Specically. several orthese new customers could be current Dairy Queen customers who would switch to Cool Moose hecause ofiis lower pnces. vanety ofice cream or its pleasant experience. lfso- serve ice cream wasoirered, Petantincls would charge 32 so per serving. Each serving was approximately 90 grams of ice cream andthe customer could choose to have the ice cream on a cone or ina cup for the same price. Sales were estimated to be 2.300 servings ofthe vanrlla avour pet operating period lfCocl Moose purchased ilie inple-head maclune, LEGO more servings would be sold aruiually. The sotiserre mix used in the machines wassold by the bag. and Peranlilios esumatod one serving orice cream would cost so 25, Each cone cost 3001 and. if the customer chose a cup. the cup and spoon comhirred were also mar One napkin was prosa'ded with each serving The napkins were purchased in packages or 500 for 55. Cool Moose Itepl in days of momtoryr In the store at all limes. Since some exrsiing customers would choose soft-serve instead of scooped ice cream, Peraniincs was unsure ufihe impact cannibalieatiun would have on his prots ty. Although he did nui \\vant current scooped ice cream sales to decline. soft-serve ice cream did offer much better gross profit margins. Perarilinos thoughl that approximately 920 servings of scooped ice cream would he cannibalized irhe sold soil-serve ice cream using the single-head machine. and L400 servings ofsccoped ice cream would be ' Drum ruined wlsvz'em'd'mr would, will an- udhlrraruisrsu inshdirrrnm in u t'elldeed1411'lrle'iudl MW murmlal rm customer wa organ: 'Imtelrmq iml'idllevlur'ivmm midi/err. at new or fire terrier. Ellyn. spam endowm- Page I irBiltBulJ cannibaliz d iflie sold soft-serve ice cream using the triple-head machine Scooped ice cream had an average selling price of $2.50 per serving. and the ice cream cost averaged 3| per cent ofsales Soil-serve ice cream machines created numerous heaith and safety issues The cleaning oftl'iese machines visas critical to their ability tn function prupey end the longevity ottheir usetui life; more importantly. it not cleaned properly. the machines were susceptible to bacteria and food-home illnesses. If Cooi Moose added a sonien'e machine, all employees would need to be trained in how to use and clean the machine. Persrninos mouid provide one-time training for two hours on a single-head machine or three hours on a triple-tread machme to each or the slore's employees Historically, employee turnover was low. A thorough cleaning ofthe maclune would be needed every night and would require an employee to work later. A single-head machine would take an additional hour ho clean and a tnple-head machine would take LS hours to clean All Cool Moose employees were paid sit] on an hour including employment insurance (El: and Canada Pension Planthl'P) contributions The so-sen'e ice cream mix came as a hinged liquid pruducttirat required refiigeralion. in anticipation of his decision, Perantinos purchased a small refugeralorlast monlh er a cost of $ ISO. Operating the suit. serve machine would also increase Cool Moose's utilities cosls by $150 for a single-head machine and $350 for a triple-head machine over the four-moiitli-opeiatiiig period. Petantiiios knew thatthe investment in a new soil-serve machine was a large one. Aet meeting with his bank's account manager. Perantinus was told that the bank would extend Cool Moose a loan ofup to $2.000 to purchase the desired maclune at an annual interest rate ofseveii pet cent.x The loan would require repayment tit equal mottiltly installments over the next five years. All principal and interest payments would be due ontlte first day ofeaeh motttit. CUNC L USIOR Petantiiios was quite pleased wttli Cool Moose's performance to date and With the awards and recognition. His ice cream store was a "trumpet" iu downlovm Alliston and use runre Ihaii capable of holding its ground with the local Dairy Queen competition Wastlie demand for Dairy Queen's soil-serve ice cream proof that Petsntiiids could improve his protability by offering this product" Were the benets of adding so- serve ice cream great enough to ovemometlie investment, time and effort needed It: adoltliese machines? Perarttiitus sat down mitt his notes to contemplate tlte opportunity and evaluate its t with the company's strategy. 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