It is January 1, 2019. You are a Senior Analyst at Ontario Coffee Home (OCH), one of the leading coffee chains and wholesaler of coffee/bakery products in Ontario. The CEO of Ontario Coffee Home, Jerry Donovan, has reached out to you to draft a report to evaluate two investment proposals.

Requirements

1.Identify which revenues and costs are relevant to your analysis, and which costs are irrelevant. Summarize all the information that will be required for each investment proposal, including describing the proposal and identifying the time horizon for each proposal evaluation.

2.Calculate the after-tax cash flows during the life of each of the projects.

3.Utilizing the after-tax cash flows from question 2, evaluate each investment proposal utilizing the following criteria (unless directed otherwise):

a.Payback

b.NPV

4.Clearly indicate whether any of the above criteria support each of the project proposals, and what the company should ultimately decide to do.

Investment Proposals

Jerry Donovan, CEO of OCH, wants you to evaluate two investment proposals that the company is considering:

1.The purchase of a coffee roaster plant in Cuba.

2.The re-development of coffee shops to accommodate the selling of frozen yogurt.

Mr. Donovan reminds you that only relevant costs and revenues should be considered. "Relevant costs have to be occurring in the future," explained Mr. Donovan. "And have to differ from the status quo. For example, if we choose to buy the roaster plant, it is only the incremental revenue and costs related to the purchase that should be considered. We also need to take into account the opportunity cost associated with the alternatives."

More details on each investment proposal are included below. Mr. Donovan wants you to recommend if OCH should invest in one, both, or none of the investment proposals.