A chain coffee shop company is considering adding a new line of business of offering small foods and snacks. The CEO of the company hired you as a financial analyst to help the company decide if it is economical to add foods and snacks to its business or not. You have spent some time gathering information and talking to people in the company and you collected following information 1) The coffee shop chain already offers 3 types of drinks, each comes in 2 sizes. The coffee shop wants to add a breakfast sandwich and chicken nuggets. Current sales information of the existing drinks and estimated sales information for new foods according to the marketing consultant are: Unit Price $2.50 S3.50 $2.00 S2.70 $3.00 sales 500,000 350,000 20,000 100,000 00,000 80,000 Small Coffee Large Coffee Small Tea Large Tea Small Hot Chocolate Large Hot Chocolate 3.70 Breakfast Sandwich 4.50 50,000 (estimate) S5.00 60,000 (estimate) Chicken Nuggets 2) Marketing consultant thinks that the market for the existing drinks is mature and the unit sales will not grow anymore. However, he believes that the sales of the 2 new products will grow by 3) The company plans to increase the prices (for both the existing and new products) at the inflation 4) Looking at the financial statements of the company you estimate that average production cost 5) To add the food business line, the company has to hire a food manager whose salary will be 5% per year for the next 10 years. rate which is estimated to be 2% over the next 10 years. (raw material, labor and ) is 40% of the revenue $90,000 for the first year plus %28 overhead costs (insurance, retirement, benefits, ). Her 6 The company pays $100,000 rent for its branches. The rent will increase by inflation rate every 7) The company paid S45,000 to its marketing consultant for providing all the marketing related 8) The company needs to buy new equipment for its branches to lunch the food business. The salary will increase by inflation rate over the next 10 years. year information. You'll also charge the company $60,000 for your financial advice. equipment plus the installation costs would sum up to $1,000,000. The company uses MACRS depreciation and the salvage value of the equipment after 10 years is estimated to be $50,000 The company also has to invest 10% of its estimated first year production cost in working capital which will be recovered at the end of the 10-year period. 9) 10) Looking at the financial information of the company you realize that he company's capital structure consists of 40% debt, 20% preferred stock and 40% common stock. All figures were calculated using market value. annual coupon payment and $1000 face value. The bond currently trades at $920. Assume there is no floatation costs. your estimate for the risk-free rate and the expected return on the market are 3% and 12% 11) The company has only one bond outstanding that matures in 10 years. It has 8% coupon rate with 12) The company's preferred stock pays S4 dividend per year and currently trades at S40 per share respectively. 14) The company has a 30% marginal tax rate. Should the company add food business? Give your advice!! Instructions: .Do everything in one word or pdf file. You OBVIOUSLY need to do the case in excel. Copy and paste excel tables into your report, if needed. .The case should be done individually. . Use the cash flow estimation" excel file as a guide. It is on Blackboard. Be careful, this project will last 10 years
