Based on the attached case:

1. What are the options/alternatives presented in the case?
2. Quantitatively evaluate the financial viability of the alternatives explicitly stated in the case. Suggestion: Employ capital budgeting tools as part of your quantitative analysis.

IVEy Publishing 9B20B017 STONE ROCK GOLF & COUNTRY CLUB: WEDDING BELLS? Brittney Mackinnon wrote this case under the supervision of Mary Gillett and Yagi Shi to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, NOG ON1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to publishcases@ivey.ca. Copyright @ 2020, Ivey Business School Foundation Version: 2020-11-11 In 2016, Ivey Business School graduate Jordan Roberts, general manager of Stone Rock Golf & Country Club (SRGCC), recognized a potential opportunity for further growth in the club's weddings and special events business. He was considering the possibility of subsidizing the SRGCC, which was facing struggles like others in the golf industry, by setting a goal to become the destination of choice for unique special events in Southwestern Ontario. Roberts looked around his facility and decided that he had an ideal, rustic, yet elegant wedding venue opportunity right in the maintenance area of the clubhouse. His quick calculations indicated a likely capital investment of close to CASI million for the required renovations. Use outside these parameters is a copyright violation. For use only in the course CSAC2700 Applied Capstone - Online Winter 2023 at York University from 6/9/2024 to 8/31/2024. Roberts knew that he would have to approach his banker for financing as well as convince his board of directors to take this leap! He began mapping out a plan to build his business case for the new space. CANADIAN GOLF INDUSTRY In 1999, the international golf industry saw significant growth due to the popularity of Tiger Woods. However, the 2008 recession ended the "Tiger-Boom" that the golf industry had been experiencing as golf-typically driven by membership revenues and green fees-was seen as too expensive, too difficult. and too time-consuming for the average Canadian. Many courses across Ontario and the rest of North America were forced into bankruptcy and foreclosed on loans due to the rapid decline in the number of golfers. Over a decade, Canada saw 158 courses closed. According to Statistics Canada, Canada had an estimated 2,400 golf courses and 1.5 million golfers-among the highest per capita numbers globally. Many courses in Southwestern Ontario could not survive the recession, and many courses had to close their doors. However, many survived the recession through a solution that swept the industry: consolidation of All currency in Canadian dollars unless specified otherwise. Brian Milner, "Canadian Golf Industry Fights Its Way Out of the Rough," Globe and Mail, October 26, 2015 (updated May 15, 2018), accessed May 27, 2020, www.theglobeandmail. com/report-on-business/canadian-golf-industry-fighting-its-way-out-of- the-deep-rough/article26995762/. 3 Ibid . 4 Chris Sorensen, "Why Canadian Golf is Dying," July 4, 2014, accessed May 27, 2020 www.macleans.ca/economy/business/the-end-of- golf. Page 83 of 108Page 2 9B20B017 courses. GolfNorth, for example, purchased numerous mid-tier golf courses that would have otherwise been forced to close throughout Southern Ontario.\" The golf industry responded to the decline in the number of golfers by reducing green fees, adding more nine-hole courses, changing the landscape design of holes to reduce play time, and marketing other games such as footgolf (a combination of soccer and golf). Courses also slashed operating expenses by reducing maintenance and turning off their sprinklers.\" In 2015, the Canadian golf industry was estimated to be worth more than $14.3 billion and had started to rebound, with Canadians playing more golf than in the years before (see Exhibit 1). STONE ROCK GOLF & COUNTRY CLUB (SRGCC) SRGCC, located in the small town of Ainslie, Ontario, began operations in 1931 with a nine-hole golf course. The course had been privately owned since 1993, and the owners reinvested in meticulous maintenance. While maintaiming the difficulty that had existed in the original course, SRGCC had expanded to a full 18 holes, taking advantage of the natural landscape, including ponds and creeks. The course was also upgraded to include cart paths, additional trees, a waterfall, and revitalized sand traps. The course quickly became one of the most revered semi-private facilities in Southwestern Ontario; it was highly rated in various articles and hosted many Ontario Golf Association events. The four local families who owned and operated SRGCC ran the business according to their family values and their sense of loyalty and pride in their community. As a result, SRGCC was known for its high focus on customer service and love of golf. The four families were represented on the board of directors, and many family members had roles within the daily operations of the golf club. Roberts was a board member and the son of the chair of the board; after completing his honours and master of business administration degrees at the Ivey Business School and gaining experience in the retail industry, Roberts joined SRGCC full time as the president and general manager in 2016. Weddings at SRGCC Roberts knew that hosting weddings was not a new idea for SRGCC. The club had been hosting weddings for years; however, these wedding customers were usually children of the golf club's members, and they had chosen the venue based on convenience rather than elegance. He suspected that the existing banquet hall in the clubhouse, with its dated dcor and minimal natural light, was more appealing to golfers than to brides and grooms. However, in 2012, Roberts was surprised to discover that a hotel in Ainslie had been hosting, on average, 22 weddings annuallysignificantly more than the six SRGCC typically hosted. Roberts also knew that the record-breaking numbers in 2012, when SRGCC hosted 12 weddings, had likely been because superstitious couples wanted to avoid getting married in 2013, Roberts knew that the board had been reluctant to make the wedding business a priority but had definitely been swayed by the positive financial results from the 2012 wedding season. In the 20 years prior, the owners had never drawn a dividend from the company. The venture had clearly become a project of passion rather than business. Each of the board members, as well as the general manager and superintendent, had worked in the golf % Jeff Lancaster, \"GolfNorth CEQ: 'It Will Be Hard to Compete with Us as the Years Go By. There Are New Golfers, and Ve Want Them Coming to Us,\" CanadianGolfer, August 16, 2011, accessed May 27, 2020, https #canadiangolfer.com/2011/08/16/golfnorth-ceo-it-will- be-hard-to-compete-with-us-as-the-years-go-by-there-are-new-golfers-and-we-want-them-coming-to-us/. & Milner, op. cit. ' Sorensen, op. cit. & Milner, op. cit. Page 84 of 108 2024, niversity from 6/9/2024 to 8/31/2 York U - Onling Winter 2023 apstone o ? o o o = = > = o > For hese parameters is a copyrig Page 3 9B20B017 industry for over 30 years; they were worried that shifting the focus away from golf would jeopardize the golf business. Eventually, the board recognized the financial potential in weddings and special events and drafted a business plan to request financing for a 2014 renovation project despite knowing that banks had been reluctant to lend money to the golf industry. SRGCC received the financing and, in spring 2014, completed renovations to the banquet hall, kitchen, and washrooms and added a bridal suite and an on-site ceremony location. When the downturn in the golf industry continued into 2014, SRGCC suffered a loss of $60,000 that vear, debt financing became tight, and the bank was questioning SRGCC's future. Reluctantly, the board realized that pursuing the weddings and special events business was critical to becoming profitable again. SRGCC shifted its focus away from selling the golf-course to selling \"golf- course weddings and built a team dedicated to weddings, including a full-time wedding planner and manager. Roberts's wife, Anne Kelly, took on the role and quickly focused on building a wedding websiteseparate from the golf siteand a marketing plan focused on weddings. After facing considerable resistance from the board members, Roberts and Kelly, with the rest of the wedding team, led SRGCC to become a leader in the weddings and special events industry in Southwestern Ontario, particularly in Ainslie and surrounding area. As word spread about the facilities and customer service provided at SRGCC, weddings and special events customers came from as far as 100 kilometres away. The wedding numbers quickly grew to 27 in 2015 and to 29 in 2016. Due to the growth, Kelly was promoted to director of special events and used her passion for special events, attention to detail, and compassionate personality, to deliver high-quality events to her clients. As well, she recruited a dedicated weddings and special events manager, to focus on delivering everything the clients dreamed of, and a highly experienced executive chef and sous chef, who offered 40 years of combined experience. Despite the positive financial results that the wedding business brought, golf course revenues continued to remain stagnant and management was still unsure about the long-term potential of the wedding business for SRGCC. After joining the company full time in 2016, Roberts had remained focused on his goal to provide the best golf, wedding, and special event experience. That year, SRGCC increased its revenues to over 1.4 millionan increase of roughly 30 per cent or $330,000 over fiscal year (FY) 2014. As well, 2016 earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped approximately 500 per cent over FY 2014 (see Exhibits 2 and 3). To expand SRGCC's reach, Kelly also continued pursuing her goal of attracting customers from outside the Ainslic area. She focused her efforts on impactful visual branding, estimating that 60 per cent of the SRGCC's wedding customers found SRGCC through social media marketing. SRGCC also offered competitive pricing on its wedding packages to attract couples from larger markets who were looking to find the best value. The venue itself offered views of the lush golf-course property and included separate ceremony and reception spaces, with large windows in the indoor spaces designed to bring the outside in. The results were positive! The wedding business continued to grow, and SRGCC anticipated hosting over 30 weddings in 2017. However, with the increased popularity of the SRGCC brand, Roberts and Kelly observed that they were selling out the prime wedding dates of June to September 40 per cent earlier than they had for the summer before. By March 2016, Kelly noted that the prime wedding dates for the summer of 2017 had already sold out; she had no choice but to turn away potential clients. The special events business grew along with the number of weddings for a combined 70 events overall in 2016, increasing from 35 in 2014, Impact on Golf at SRGCC The substantial growth in the weddings and special events side of the business offered an increase in cash flow for SRGCC, which ameliorated the effects of the decline in the golf industry and allowed Roberts to continue to invest in maintaining the golf facilities. While the majority of the golf industry cut costs in order to survive the decline in sales, Roberts focused on revenue growth and concentrated on his core customer. Page 85 of 108 2024, niversity from 6/9/2024 to 8/31/2 W 3 at York | S I~ use only in the course For Page 4 9B20B017 He reinvested in the property, responded to changes in the industry and in technology, and continued to provide the leading golf experience. Focusing on the core values of SRGCC, he turned the club into a community asset by providing an enjoyable and fun experience for everyone. Roberts's revamped focus on the golf business, which targeted the non-avid golfer, increased sales at a time when the rest of the industry saw a decline. Though golf memberships remained flat between 2015 and 2016, game packs (a pre-purchased set number of rounds for the season), private tournaments with golf and meal packages, green fees (single-round purchasing), junior golf, and golf lessons saw substantial increases. THE CANADIAN WEDDING INDUSTRY According to a 2015 survey, Canadian weddings were anticipated to cost just over $30,000, with an average of 129 attendees, and three-quarters of brides anticipated spending more than they budgeted.' Just over 160,000 Canadian weddings were estimated to occur in 2015." More than three-quarters of Canadian weddings occurred in the summer months or peak seasonbetween June and Septemberwith the majority of weddings occurring in August.'* Of the weddings that occurred outside of peak season, a quarter of them were destination weddings;'? a total of 14 per cent of all Canadian weddings occurred out of the country." The vast majority of brides claimed that social media platforms such as Facebook, Instagram, and Pinterest were influential in their wedding planning decisions. The 2015 and 2016 wedding scasons saw an increase in demand for unique, mndustrial, and rustic wedding venues.\" While traditional spaces such as hotel ballrooms and barns remained popular, many brides and grooms sought out unique venues that could be decorated either as chic wedding spaces that included chandeliers or in a minimalistic style that let the exposed brick and rustic wood features shine, THE EXPANSION PLAN In the summer of 2016, Roberts and Kelly were considering an indoor ceremony option for days with unfavourable weather. While the couple led their architect on a tour through the club's facilities, he pointed out the unique beauty of the exposed wood-beam ceiling in the golf maintenance shop. Recognizing the opportunity this venue presented, Roberts and Kelly realized that the current maintenance shop in the clubhouse could be the perfect new space for weddings and special events. The golf maintenance space, part of the original clubhouse, was built in 1963 and had a rustic, industrial atmosphere, with the original, exposed wood ceilings; rustic wood beams and trusses; various wood features; exposed brick; and industrial-style cement floors. The space aligned perfectly with the current trends in event and restaurant spaces, which favoured rustic-elegant design. The couple's vision was to add large glass garage doors to increase natural light and airflow in the space while giving guests views of the golf course. Through the addition of elegant decorations and lighting, such as large chandeliers and stylish furniture, Roberts and Kelly felt they could create the perfect new space. They knew that SRGCC had to ' Small Business Accelerator Program, \"Industry Overview: Wedding Planning,\" University of British Columbia, March 8, 2018, accessed May 27, 2020, https://sba.ubc.ca/blog/industry-overview-wedding-planning. 0 Jen OBrien, \"Wedding Trends in Canada 2015" Wedding Bells, June 8, 2015, accessed May 27, 2020, https:/fweddingbells.ca/planning/wedding-trends-in-canada-2015/. ' Small Business Accelerator Program, op. cit. 2 |bid. 3 O'Brien, op. cit. 4 Small Business Accelerator Program, op. cit. % Mackenzie Patterson, \"Industrial-Chic Wedding Venues across Canada,\" Wedding Bells, September 7, 2016, accessed May 27, 2020, https:/iweddingbells.ca/planning/10-industrial-chic-wedding-venues-across-canadal. '8 Ibid. Page 86 of 108 " 2024, 24 to 8/31/2( 920 niversity from 6/ W at York | 17 er 2023 Online Wint 3 o ? o o o = = > = o > b p*} L Page 5 9B20B017 invest in a second, complementary wedding facility to sustain the business in the long-term and that a second venue would provide financial benefits for the club. The Hideaway Roberts and Kelly named the converted maintenance facilitythe potential new venue spacethe Hideaway to differentiate it from the existing Ballroom. In order to operate both spaces at the same time, Roberts knew they needed to expand the existing kitchen and create access from the kitchen to both spaces and purchase an additional $100,000 in kitchen equipment. Further, a grand entrance to the space was needed as well as outdoor space for cocktail receptions overlooking the golf course. Other renovations to the current space included washroom additions, a bridal suite, and a generator to provide back-up power for both the Ballroom and the Hideaway (sec Exhibit 4). Roberts estimated that the renovations to transform the maintenance tacility into the Hideaway would be $445,000. To keep the renovation and operating costs of the space lower and to add to the industrial feel, the Hideaway renovations would not include insulating or heating the space for winter use. Therefore, Roberts and Kelly planned to host weddings in the space during the peak wedding season and the warmer monthsfrom May through to October. Estimated sales per wedding would be slightly higher than the current averages for the Ballroom at $13,500 for Saturday weddings and $10,500 for Sunday to Friday weddings, as the Hideaway would have a capacity of 210 guests for a seated meal or 250 guests for a standing cocktail reception; the Ballroom had a capacity of 180 guests scated and 200 standing. Kelly estimated that 65 per cent of the weddings and special events would be seated meals and the remaining 35 per cent standing cocktail receptions. Kelly predicted that, in 2017, the Hideaway would host 15 Saturday weddings, at $13,500 each, and another three weddings on other days of the week, at $10,500 each. Since the Ballroom was already nearly sold out for prime dates in the 2017 wedding season, Kelly was confident the club could achieve this projection based on the waiting list and number of potential clients who had already been turned away. By the second year of operating both spaces, Kelly projected the Hideaway would host 18 Saturday and five non-Saturday weddings. Finally, in 2019, the Hideaway would host the full capacity of 21 Saturday weddings and another seven non-Saturday weddings. Each year, Kelly planned to increase the price per wedding by 2 per cent. In addition to weddings, Kelly estimated other opportunities to rent cut the space would generate an additional $15,000 in revenue in 2017, $25,000 m 2018, and $35,000 in 2019. Again, she estimated a steady increase thereafier of 2 per cent. Kelly also recognized that, to deliver two weddings at the same time, the number of kitchen and wait staff would have to increase significantly, and both wedding timelines would have to be perfectly aligned to keep the kitchens running smoothly. Staffing the now-double wedding operation would be a challenge in such a small town. She expected to be able to hire temporary foreign workers to help with the kitchen and service requirements of the peak season. However, Kelly and Roberts would have to research how this process worked and consult with the board about this plan. New Maintenance Facility Roberts knew that if the current maintenance space were to be converted into a wedding venue, the club would be short on room for its maintenance work. SRGCC had two separate spaces for maintenance facilities and storage. The east side of the clubhouse was primarily used for summer operations such as golf carts and off-season storage of equipment. The second space was an aging barn that was used for off-season storage and seasonal material storage such as fertilizer, mulch, lawn tractors, and bunker rakes. The barn was well beyond its useful life and needed to be replaced; Roberts felt this might be the optimal time to review how to make the best use of a capital outlay to not only house maintenance activities and equipment Page 87 of 108 2024, niversity from 6/9/2024 to 8/31/2 W 3 at York | S I~ use only in the course For Page 6 9B20B017 but also make the maintenance operations more efficient. He planned to consolidate the equipment and operations from the barn and the east side of the clubhouse to free the space for the Hideaway and to construct a purpose-built space for maintenance away from the public spaces. The new maintenance facility would be 8,100 square feet (752 square metres), to support the increased demand on maintenance, and would include storage for all of the equipment from the two previous spaces and a dedicated space for staff facilities, including an office, lunchroom, and washrooms. The total cost to build the new maintenance facility was $269,050. He estimated that, considering utilities and personnel, the new facility would result in a net annual savings of $55,000 a year, increasing at a rate of 2 per cent per year. Parking Lot Expansion In order to support the growth on both sides of the business, Roberts anticipated that SRGCC would need another 100 parking spots. The existing lot was already fully occupied for large events, weddings, and busy golf days; he estimated the cost for the additional 100 spots was $157,300, which included all of the site work, electrical, concrete, and other expenses to complete the work. Finally, as Roberts pondered the long list of investments required (see Exhibit 5) and the memo Kelly sent him regarding the costs of running the expanded weddings and special events business (see Exhibit 6), he wondered if SRGCC should just go ahead and invest in insulation and heating for the Hideaway in order to have it functional year-round. This option would significantly increase the insurance and heating cost, by $18,000 per year, but Roberts knew the industry statistics indicated that the majority of weddings occurred between June and September. He was not sure how many weddings he should estimate hosting in the off- season at SRGCC, but he assumed that he would have to offer a discounted rate for weddings in the off- season. How deeply he could discount the rate without affecting his profit was uncertain. He estimated that a 25 per cent discount would be required but was eager to see what the numbers would look like. He did not think he would secure any non-Saturday weddings at all in the off-season nor did he think that the special events business would increase significantly in the off-season. The Ballroom was available for those events. Roberts was concerned about how he could staff special events in the off-season, given the transient nature of much of the labour in Ainslie in the fall and winter months. DECISION Roberts had to convince both the bank and the four families who made up the board of directors that this expansion was the future for SRGCC. He knew the families would be reluctant to put more capital into the business and that SRGCC's overall cost of capital was currently close to 8 per cent. He wondered if he should play it safe and focus only on the immediate capital needs of the barn and maintenance facility and hold off on the Hideaway and increased parking. Alternatively, he could just go all out and propose the entire project. If he mentioned winterizing, he knew he would be asked how much busier the club would need to be in the off-season to justify that option. Roberts knew that he would also have to convince the bank that the club was financially stable both before and after any expansion. He knew that he needed to determine the impact of both the increased debt and the returns on the project on SRGCC. Roberts also questioned whether Ainslie, a town of 7,500 people, could support another wedding venue for the summer season or for the full year. With the golf industry slowing and the barn deteriorating, he knew SRGCC had to act quickly and prudently in order to maintain its reputation. Page 88 of 108 2024, niversity from 6/9/2024 to 8/31/2 York U Online Winter 2023 apstone - o ? o o o = = > = o > For hese parameters is a copyrig Page 7 9B20B017 EXHIBIT 1: GOLF COURSE INDUSTRY BENCHMARK DATA- REVENUE$ BY SIZE OF COURSE 2017) Bottom quartile Lower middle Upper middle Top quartile (25%) (25%) (25%) (25%) Revenue range Value ($000) 30 $ 266 $ 586 $ 1,240 High Value ($000) 266 $ 586 $ 1,240 $ 6,000 Revenues and expenses % of revenues Total revenue 100.00 100.00 100.0 100.00 Sales of goods and services 84.10 86.40 90.30 81.50 All other revenues 15.90 13.60 9.70 18.50 Cost of sal 17.60 22.20 25. 10 6.20 Operating expenses (indirect expenses) 90.80 80.90 77.20 73.90 Total expenses 108.30 103.10 102.40 100. 10 Net profit/loss 8.30 -3. 10 2.40 0. 10 Financial ratios Current ratio (x) 0.60 0.60 0.70 0.40 Debt to equity ratio (x) 4.10 3.40 2.70 2.20 Interest coverage ratio (X) -1.30 0.30 0. 10 0.90 Gross margin (%) 79.10 74.30 72.20 37.80 Return on total assets (%) -1.90 0.60 0.20 1.10 Source: Created by the case authors using data from Statistics Canada, Small Business Profiles, 2017, accessed June 5, 2020, www.ic.gc.ca/app/sme-pme/bnchmrkngtl/rprt-flw.pub?execution=e1s4. EXHIBIT 2: STONE ROCK GOLF & COUNTRY CLUB INCOME STATEMENTS Use outside these parameters is a copyright violation. For use only in the course CSAC2700 Applied Capstone - Online Winter 2023 at York University from 6/9/2024 to 8/31/2024. (YEAR ENDED OCTOBER 31) 2014 2015 2016 Actual % of Sales Actual % of Sales Fore cast % of Sales REVENUE Memberships 152,957 14 .2% 186,752 14.2% 200,000 14.2% Pro Shop 63, 093 5.9% 86,915 6.6% 85,000 6.0% Green F 298, 565 27.8% 83,744 21.6% 10,000 22.0% Club Storage 1,700 0.2% 1 522 0. 1% 0. 1% Driving Rang 7,956 0. 7% 9.611 0. 7% 10,000 0.7% Cart Rental 97,590 9. 1% 90, 16 6.9% 95,000 6.7% Bar/Kitchen/Banquet Sales 418,585 38.9% Bar Sales 322,521 24.6% 55,000 25.2% Kitchen Sales 66,892 5. 1% 70,000 5.0% Wedding & Event Sales 191,628 14.6% 230,000 16.3% Miscellaneous Sales 24.394 1.9% Hall Rental 30,694 2.9% 42,798 3.3% 50,000 3.5% Sign Sponsorship 4 500 0.4% 4,750 0.4% 4,750 0.3% . 075,640 00. 00% 311,695 20.00% 411,350 00.00% Cost of Sales 44 962 22.77% 26.2590 $52.838 5.0070 Gross Profit 830,678 77.23% 980,459 74. 75% 1,058,513 75.00% EXPENSES Advertising/Promotion 8,86 .47% 18.960 45,000 3. 19% Amortization 19.03 19.027 110,000 7.79% Bad Debts 2 503 0.2370 684 0.05% 500 0.04% Equipment Leases 9,071 0.84% 7,016 0.53% 0.00% Insurance 12.512 1.16% 13,643 1.04% 14,000 0.99% Bank Charges/Interest 33,352 3.10% 44, 134 18 368 3.36% 42,000 1.60% Management Fees 18 184 1 69% 140% 33 , 993 2.41% and Conventions 2 ,049 249 0.02% 5,000 0. 25% Memberships/Licenses 5,955 0.55% 7.579 0.5870 8,500 0.60% Office 10,913 7,093 1.01% 12.90 0.9290 12, 500 0.89% Professional Fees 0.66% 10,754 0.82% 10, 500 0. 74% Property Taxes 30,430 83% 28,779 2. 19% 29 , 642 .10% Repairs & Maintenance 15,515 0.74% 105.520 10,000 7.79% Salaries & Wages 421.390 8.04% 39. 18% 473, 157 36.07% 500,000 32.50% Supplies 29,027 2.70% 20,027 1.53% 25,000 1.77% Utilities 44,011 4.09% 47,851 3.65% 49, 000 3.47% Vehicle Expense 2,068 0. 19% 3,538 0.27% 5,000 0.35% 901 971 83.85% 94 1,376 71.77% 1,000, 635 70.90% EBT (71,293) -6.65% 39,083 57,877 Taxes NET INCOME 1300 (59 993 ) -5.58% 33 038 0.4670 2.52% 50,627 3.59% Note: EBT = earnings before tax. Source: Company files. Page 89 of 108Page 8 9B20B017 EXHIBIT 3: STONE ROCK GOLF & COUNTRY CLUB BALANCE SHEET {AS AT OCTOBER 31) 2014 2015 2016 Actual Actual Forecast Assets Current Accounlts receivable g 24,077 32,116 $ 26,362 Inventory 40,934 40,147 41,727 Prepaid expenses 11,717 14,892 16,102 76,728 87,155 4,191 Property, plant and equipment 802,407 728,446 786,386 Future income taxes 3,100 7,900 4,900 $ 887,235 823,501 $ 875,477 Liabilities and Shareholders' Equity Current Bank indebtedness 3 160,413 139,940 $ 118,735 Accounts payable 43,234 60,319 84,037 Employee deductions payable 7,805 7,995 7,695 Income taxes payable 5,845 8,051 Sales tax payable 13,550 2,355 1,422 Defemred income 6,710 4,116 3,002 Current portion of long term debt 85,612 58,505 70,357 317,324 279,075 298,299 Long term debt 177,586 119,063 101,188 494,910 398,138 399,487 Shareholders' Equity Share capital 15,041 15,041 15,041 Retained earnings 377,254 410,322 460,949 392,325 425,363 475,990 5 357,235 523,501 $ 875,477 Source: Company files. EXHIBIT 4: LAYOUT OF THE HIDEAWAY Proposed Building Layout: bar patio . a : Clubroom The Ballroom The Hideaway o patio a Source: Created by the case authors using company files. Page 90 of 108 For use only in the course CSAC2700 Applied Capstone - Online Winter 2023 at York University from 6/9/2024 to 8/31/2024. Use outside these parameters is a copyright violation. Page 9 B20B017 EXHIBIT 5: ESTIMATED PROJECT COSTS New Wedding & Event Space Cost $ Parking Lot Cost $ Demolition $ 10,000 Site Work 120, 000 Alterations to Existing Structure 75, 000 Electrical 15,000 Interior Renovations 75, 000 Concrete 12, 600 Mechanical 75, 000 General 9,700 Electrical 95, 000 57, 300 General Conditions 40,000 Exterior Renovations 75, 000 Professional Fees 145, 000 Contracto $ 65, 000 Architect 24, 000 Engineering Design & Site Plar 25, 00 Maintenance/Cart Storage Facility Mechanical & Electrical Engineering 10,000 Labour 20, 000 124,000 Material 32, 500 Equipment 1.000 Total 995, 350 Subtrades 165, 000 Other 550 Kitchen Equipment 100, 000 269,050 Note: Professional fees were tax deductible when paid. Kitchen equipment had a capital cost allowance (CCA) rate of 50 per cent and a useful life of 10 years. Remaining investments had a CCA rate of 30 per cent and a useful life of 25 years. Also, though it was unlikely that the kitchen equipment would have any value at the end of its useful life, Roberts estimated that the other investments would increase the overall value of the club by a factor of three times the after-tax net cash flows at the end of year 10. However, he doubted that the "maintenance only" project would have any residual value at the end of 10 years. The corporate tax rate averaged 15 per cent. Source: Company files For use only in the course CSAC2700 Applied Capstone - Online Winter 2023 at York University from 6/9/2024 to 8/31/2024. Use outside these parameters is a copyright violation Page 91 of 108Page 10 9B20B017 EXHIBIT 6: MEMO FROM ANNE KELLY RE COSTING To: Jordan Roberts, General Manager From: Anne Kelly, Director of Special Events Re: The Hideaway Projected Costs Hi Jordan. I've spoken with my team and here's what we're thinking. Based on our current weddings held in the Ballroom, we're comfortable with my original estimate that 65 per cent of all functions will be sit-down meals and the remaining cocktail functions. | know we've estimated our capacity as 210 and 250, respectively, for these two types of events, and | certainly see our events almost always at capacity in the Ballroom currently. | think we're okay estimating full capacity. By the way, we've included some preojected revenues for other events. Just a reminder that these events typically are rental income onlythat is, we don't provide any food or alcohol at those events. As you know, it's much more expensive to serve a full meal. I've checked with the chef and, based on our current offerings, | think we can estimate using our current full meal cost of $25 per person. Cocktails and appetizers are, of course, less expensive, and | think we're safe to say $8.00 there per person. | would assume a rate of increase of 2 per cent onthese costssimilar to our expected pricing increases. And just a reminder that we shouldn''t have to factor in alcohol as we permit our clients to bring in their own wine, beer, and spirits. Based on how we currently staff the Ballroom events, | estimate that we'll need 14 serving staff members per event. | typically have the staff here for set-up through to tear-down, which usually means a 12-hour shift. Current hourly rates are, on average, $16.50, but we should count on a 2 per cent increase on this rate. Plus, | know the Ontaric government has been talking about increasing minimum hourly rates. I'm not sure how that will impact all of the business here at SRGCC. I'm assuming we'll see increases in our insurance and utilities bills with this expansion. Without heat, we'll just be paying for power, and so I'm guessing that the utility bill increase will be fairly minor, say $15,000. InsuranceI asked our broker. She's suggested we think about $25,000 (total) as a likely increase for both property and liability coverage. Both of these will likely increase at a 2 per cent rate as well. I'm also thinking that we'll need to increase our supplies of linens, ceremony chairs, etc. in order to have enough inventory on hand for the extra functions. | think we should count on spending $10,000 on these sorts of supplies. Finally, between myself and our manager of weddings and events, we think we can manage the extra workload, though | believe the Hideaway will take up 40 per cent of our manager's time. Her current total compensation is $65,000, as you know. This is exciting! Let me know if I've missed anything. Anne Source: Created by case writers. Page 92 of 108 24. niversity from 6/9/2024 to 8/31/20: 23 at York U 2 - Onling Winter 20 o = o O CSAl use only in the course For ght violation. le these parameters is a cop