Solve the problems (Strategies 2-7) on your own and have them in class (I will be asking questions). Notice that Strategy 1 contains the solution to help you understand and let you have a better idea about how to solve the other strategies.
End of Year 0 1 2 ... CURRENT STRATEGY $Price $Cost $Margin Annual Vol GrossProfit FIXED Regular Coffee 1.50 1.00 0.50 10,000 5,000.00 Premium Coffee 2.50 1.50 1.00 5,000 5,000.00 Pastry 2.00 0.75 1.25 4,000 5,000.00 GP GP GP -F GP 15,000.00 5,000.00 5,000.00 ... 5,000.00 5,000.00 ... 5,000.00 5,000.00 ... -6,000.00 -6,000.00 ... 0.00 9,000.00 9,000.00 0.00 0.00 ... 0.00 0.00 ... 0.00 9,000.00 9,000.00 ... -6000 10 PROFIT +Other Cash ("IntExp) -LT Asset Investment Cash Flow NPV(20%) 45,000.00 EOY 0 STRATEGY 1- Lower price of Regular Coffee 10% $Price $Cost $Margin Annual Vol GrossProfit FIXED Regular Coffee 1.35 1.00 0.35 12,000 4,200.00 Premium Coffee 2.50 1.50 1.00 4,800 4,800.00 Pastry 2.00 0.75 1.25 4,500 5,625.00 GP GP 10 1 2... 4,200.00 4,200.00 4,800.00 4,800.00 5,625.00 5,625.00 ... -6,000.00 -6,000.00 8,625.00 8,625.00 GP -F GP 14,625.00 -6000 0.00 0.00 10 PROFIT +Other Cash ("IntExp) -LT Asset Investment Cash Flow -Old Strategy Marginal CF (New-old) NPV(20%) -1,875.00 Payback Years Never 0.00 0.00 ... 0.00 8,625.00 8,625.00 0.00 -9,000.00 -9,000.00 0.00 -375.00 ... 10 -375.00 STRATEGY 2- Raise price of Premium Coffee 10% $Price $Cost $Margin Annual Vol GrossProfit FIXED Regular Coffee 1.50 1.00 0.50 10,500 5,250.00 Premium Coffee 2.75 1.50 1.25 4,500 5,625.00 Pastry 2.00 0.75 1.251 4,100 5,125.00 GP 16,000.00 -6,000.00 End of Year 0 1 2 ... CURRENT STRATEGY $Price $Cost $Margin Annual Vol GrossProfit FIXED Regular Coffee 1.50 1.00 0.50 10,000 5,000.00 Premium Coffee 2.50 1.50 1.00 5,000 5,000.00 Pastry 2.00 0.75 1.25 4,000 5,000.00 GP GP GP -F GP 15,000.00 5,000.00 5,000.00 ... 5,000.00 5,000.00 ... 5,000.00 5,000.00 ... -6,000.00 -6,000.00 ... 0.00 9,000.00 9,000.00 0.00 0.00 ... 0.00 0.00 ... 0.00 9,000.00 9,000.00 ... -6000 10 PROFIT +Other Cash ("IntExp) -LT Asset Investment Cash Flow NPV(20%) 45,000.00 EOY 0 STRATEGY 1- Lower price of Regular Coffee 10% $Price $Cost $Margin Annual Vol GrossProfit FIXED Regular Coffee 1.35 1.00 0.35 12,000 4,200.00 Premium Coffee 2.50 1.50 1.00 4,800 4,800.00 Pastry 2.00 0.75 1.25 4,500 5,625.00 GP GP 10 1 2... 4,200.00 4,200.00 4,800.00 4,800.00 5,625.00 5,625.00 ... -6,000.00 -6,000.00 8,625.00 8,625.00 GP -F GP 14,625.00 -6000 0.00 0.00 10 PROFIT +Other Cash ("IntExp) -LT Asset Investment Cash Flow -Old Strategy Marginal CF (New-old) NPV(20%) -1,875.00 Payback Years Never 0.00 0.00 ... 0.00 8,625.00 8,625.00 0.00 -9,000.00 -9,000.00 0.00 -375.00 ... 10 -375.00 STRATEGY 2- Raise price of Premium Coffee 10% $Price $Cost $Margin Annual Vol GrossProfit FIXED Regular Coffee 1.50 1.00 0.50 10,500 5,250.00 Premium Coffee 2.75 1.50 1.25 4,500 5,625.00 Pastry 2.00 0.75 1.251 4,100 5,125.00 GP 16,000.00 -6,000.00
