Team C's Assignment

The owners have been conducting strategic planning discussions on the future of Loddy Doddy and are considering two major acquisitions.

Option 1

Should Loddy Doddy purchase Amber's Grill N More? Lenny and Denny were approached by management of Amber's Grill N More about whether they would be interested in buying their four underperforming restaurants and operate them under the "AG&M Entertainment" name. The restaurant is known for its signature steak burgers; but, has struggled to expand its menu to compete with other like restaurants options available to consumers in the Mid-West region (primarily heavy markets within Illinois and and Ohio). Management believes adding Loddy Doddy's dessert offerings to the menu would make the restaurants an appealing destination for both dinner and dessert. For this reason, Lenny and Denny needs your team to review the 2015 performance report for the chain (see next page). It is estimated that average price per meal would increase 15% with the new desserts and require an investment of $11 million.

Option 2

Should Loddy Doddy purchase and operate a new factory? There have been talks between the owners to purchase and operate a production facility in Tupelo, Mississippi, which would increase current production volume. There is an existing food production facility well positioned in Tupelo as it is located on distribution routes and surrounded by a new market of restaurants and grocery chains. The asking price for the factory is $8.5 million and includes existing equipment. About half of the machinery could be used by Loddy Doddy; but, would also require an investment of $3 million in additional equipment with a 10-year average life to provide the same capacity as the current factory. It would take about 8 months to get the new plan up and running. Estimated sales for the first three years after it opens are $5 million, $7.5 million, and $12 million, respectively. Variable expenses are expected to have about the same behavior and relationship to sales as the current facility.Fixed expenses would also be about the same amount per month as the current factory.

Your Team's Assignment

Use the following as a guide when making your recommendations:

1. Assess performance of Amber's Grill N More in terms of expected return on investment (ROI) and residual income.Be certain to include in your assessment what you believe to be the major differences between profits from 2014 to 2015? What does this analysis suggest for Loddy Doddy?
2. Assess the viability and profitability for the Tupelo production facility including its expected ROI and residual income.What does this analysis suggest for Loddy Doddy?
3. Are there any strategic, technical and risk factors that may be relevant to this decision? What does this analysis suggest for Loddy Doddy?
4. What action do you recommend for Loddy Doddy at this time?

Please see highlighted attachment